Financial Services Bill

Andrew Love Excerpts

Tuesday 22nd May 2012 Commons Chamber

[Mr Hoban]

The hon. Lady makes a good point, and if my colleagues in the Foreign and Commonwealth Office are not reading this debate carefully I shall certainly raise the matter with them and ensure that they think carefully about their role. I encourage her to speak to the FRC about these issues.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The Treasury Committee interviewed members of the Financial Reporting Council this morning. They explained to us that their powers are about implementing or explaining and that they do not have powers to deal with companies that break the rules in this regard. Would it not therefore be appropriate to involve a body such as the FCA, which really could deal with implementation?

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[Mr Hoban]

I am always loth to offer meetings on behalf of colleagues, because it has happened to me, but the hon. Gentleman may wish to approach the Minister with responsibility for consumer affairs, who is also responsible for corporate governance and the role of the FRC. That might be the most productive furrow to plough.

On amendment 38, the hon. Member for Nottingham East (Chris Leslie) is absolutely right that we have heard it before. It is identical to amendment 150, which we discussed at some length in Committee before rejecting it. I do not think his arguments today were any more persuasive than they were a few months ago. I know that he will find that personally disappointing but I am sure he will get over it. In short, the objectives of each authority are broad enough to enable them to make the rules suggested in the amendment.

More generally, these issues are better considered in other forums, including those concerned with governance across the corporate sector. I also point out gently to the hon. Member for Nottingham East that the Department for Business, Innovation and Skills recently consulted quite widely on executive remuneration and that it included in that consultation both the suggestions that have been made, neither of which received significant support. [Interruption.] The hon. Member for Nottingham East says that it depends whom we consulted but it was an open consultation. Views were encouraged from across a wide range of bodies, including investor organisations, and I am sure that institutions such as the TUC and others would have taken part. I know that the Treasury Committee is also looking into this matter, so perhaps the hon. Member for Edmonton (Mr Love) can illuminate us about the conversations he has had this afternoon with Baroness Hogg.

[Mr Love]

I thank the Minister. What we were told today was that remuneration committees draw from a very select pool and are heavily influenced by the argument that their chief executive has to be at or above the average of all chief executives and that comparisons are made directly with the United States, which may be inappropriate. It was also made clear to us that we should widen that pool. One suggestion of how that could be done was to put an employee on the remuneration committee. If that is not acceptable, how is the Minister going to address this problem?

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[Mr Hoban]

There are two issues here. There is a route through the courts that any type of consumer, whether retail or a business, can use if they have been mis-sold a product. That is a normal commercial right. What the FSA has identified as a consequence of the number of complaints on the issue that it has received from businesses is that it needed to undertake more work. It started that work in mid-March. It was looking at products that were sold in the run-up to the financial crisis, and as a consequence of its investigations it believed that more work was needed to establish the scale of the problem and to determine what action should be taken.

There is nothing contradictory about the letter that the FSA sent. Thanks to the efforts of a number of hon. Members who raised with the FSA the concerns of businesses in their constituency, it recognised that they were not just isolated examples and that there was a wider issue that needed to be addressed. Its powers under FSMA enable it to address the problem in the right way. That is a welcome step forward by the FSA.

[Mr Love]

Looking at the issue from a small business perspective, small businesses are not allowed, as the amendment proposes, to take collective action on these matters through the courts, which is frustrating. They feel that the FSA is not responding to them adequately. There are great delays in the system. The Minister has commented on the legal aspect of collective actions currently going through. May we have some reassurance today that the FSA will act more promptly in dealing with these matters?

[Mr Hoban]

As a consequence of the reforms that we are introducing, we are giving the FSA, and now the FCA, tougher powers to tackle these problems. The FSA has a much-reduced appetite for risk and a more interventionist approach to tackling matters where there appears to be consumer detriment. Some people feel very uncomfortable with this, but it is right for the FSA to act vigorously in defence of consumers and to take the necessary action to ensure that consumers get a fair deal. The Bill takes that one step forward and that is why we have been keen to ensure that we give the FCA more powers, which it has demonstrated the appetite to use.

Amendments 5 and 6 require the FCA and the PRA to publish a statement explaining how they consider making the proposed rules compatible with the principles of regulation set out in new section 3B. Given the important framing role of these principles, I agreed with the suggestion made by the hon. Member for Nottingham East in Committee that the Bill should be explicit about the regulator’s duty in that regard, and I committed to tabling the appropriate amendments when the Bill returned to the House. I am sure that the hon. Gentleman will be keen to support them.

Amendments 13 and 14 are minor and technical and are designed to maintain a position currently provided for in FSMA whereby the FSA is not required to make rules for the FSCS that provide cover over all regulated activities. The amendments ensure consistency with section 214(1)(g), which provides that the scheme may in particular provide for a claim to be entertained only if it is the type of claim specified by the scheme. These are technical changes and I hope that hon. Members will support the Government amendments and reject those tabled by the Opposition.

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[Mr Cash]

The Opposition spokesman says, “Hear, hear”, but I do not want to give him too much encouragement. We need to understand, however, that the objective behind the Opposition’s amendment is important, not because of party politics but because it is about having a stable, good and fair society. That is what we should all be seeking.

[Mr Love]

It is a great pleasure to follow the hon. Member for Stone (Mr Cash), whose strictures I shall try to address. First, however, I want to appeal to the Minister, who, I know, is personally sympathetic to mutuals: this will be a modest contribution that tries to reflect his own coalition manifesto commitment to foster diversity and promote mutuals. In answer to the hon. Member for Wycombe (Steve Baker), I say that the amendment seeks to do that by trying to measure the strength and complexity of the mutual movement using the regulator.

No one has said why we would want to foster diversity and promote mutuals. I want to address that question, because it goes to the crux of what the hon. Member for Stone talked about. First, members benefit greatly from membership of mutuals. The tables of the best savings rates or lowest mortgage rates are populated by mutuals, which provide basic but risk-averse financial services—exactly what the ordinary consumer is looking for. Of course, the reason they can provide such services is that they do not have any shareholders and, therefore, no demands for dividends each year, allowing them to deliver their services efficiently.

Perhaps even more importantly, mutuals provide a consumer benefit by offering a competitive spur in the marketplace. The hon. Member for Stone says he believes in capitalism. I believe in a market system, and competition is a very good spur, and that is exactly what the mutual movement provides. The reduction in the number of building societies has meant that they have not been able to provide a stronger spur, which provides another reason for the amendment.

Mutuals provide choice in financial services. Does someone want a mutual member benefit or to contribute to shareholder value? People will make that choice in all sorts of ways, for all sorts of reasons, but it is important in a marketplace to have choice. We are confident that people will choose mutuals, because all the studies and polling of consumers of financial service show that mutuals are more popular and, perhaps more importantly, more trusted than their plc rivals. That is a very important consideration.

Why move the amendment now, other than to reflect the coalition agreement? Currently, the marketplace is dominated by the plc model, which is unhealthy. We all know what happened in the lead-up to 2007 and 2008: heightened risk, and the search for yield followed by the credit crunch. I am not suggesting that the Government are not taking steps, including in this Bill and forthcoming legislation this Session, to address some of these problems. I am saying that there developed a monoculture—group-think—in which everybody thought exactly the same. We need to avoid that. This modest amendment will help us to do so.

The amendment will also address the danger of the one-size-fits-all attitude displayed in recent years by the regulator, who did not deal effectively with life funds for friendly societies and mutual insurers. At the heart of the ongoing dispute is the failure to understand the essential difference between a mutual and a plc. The amendment would go some way to address that. The regulator now admits that the Financial Services Compensation Scheme, which was introduced some years ago, got it wrong by basing what each organisation had to pay on deposits, discriminating directly against building societies. There was no understanding or empathy in the regulator to address the issue. The Minister will say to me, “But the FSA has now updated its regulatory role. It’s opened a department to deal with these specific matters.” That is all to be welcomed; however, I hope that the Government will welcome this amendment, which represents a small step towards creating greater understanding and trust in the regulator’s dealings on these matters.

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[Mr Hoban]

The new duty in the Bill goes beyond what the FSA currently does. It imposes a requirement separately to identify the impact of regulation on mutuals. Let me continue my remarks and set out some of the other things we have done to promote mutuality. As I was saying, the regulatory principle of proportionality also bites in this regard. If the regulators are taking action that impacts on one type of firm more than another, it should be done on the basis that the action is necessary and proportionate.

Let me highlight a number of ways in which the Government are promoting mutuality outside of this Bill. In January this year, the relevant provisions of our Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 came into effect, allowing credit unions to grow faster and compete better by offering interest on deposits and admitting corporate bodies like local charities and firms as members.

My colleagues in the Department for Work and Pensions recently commissioned and published a report on enhancing the sustainability of the credit union sector. It looked at some of the initiatives undertaken by the previous Government, how they have helped the credit union sector and how best to take that work forward. Important recommendations were made to the Government that will help to enhance the sustainability of credit unions and ensure that if there is further public sector investment in them it will be used to expand their base and ensure that they are sustainable.

The capital requirements directive, CRD4, includes a capital instrument that is available for use by mutuals and building societies. That was not on the agenda when we came into office two years ago. It is a consequence of the work that this Government have done with their European partners to ensure that that instrument can enable building societies to issue capital instruments so that they can expand and deal with some of the challenges they face. A number of Members of the European Parliament, as well as the Government, have been working to ensure that within CRD4 a particular capital instrument is available for the Co-op, which, because of the nature of its ownership, falls outside the instrument that is available to building societies.

The Prime Minister announced earlier this year that we intend to bring forward a Bill to consolidate most legislation governing co-operatives and mutuals. The industry greeted the announcement of this Bill warmly, and I believe it is important to bring forward this consolidation. Ed Mayo, the secretary-general of Co-operatives UK, stressed the importance of bringing together a series of nearly 20 Bills or Acts of Parliament, which will make it easier and cheaper to establish co-operatives and remove some of the ambiguity in the sector. Co-operatives UK is looking forward to working with the Government to bring forward this consolidation Bill.

[Mr Love]

The Minister has already admitted that credit union deregulation goes back many years. I was frustrated by the lack of progress under the previous Government; it has taken us a long time to get here. As for a consolidation Bill, I asked the Secretary of State for Business, Innovation and Skills why it was not included in the Queen’s Speech, given that it is a relatively modest and non-controversial measure—yet the Government could not give enough priority to it. Is there not some concern—

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[Mr Hoban]

The FPC’s remit does not cover the consideration of competition in the system. Its role is to consider stability and the threats to it. On the question of the Prudential Regulatory Authority, one of the challenges we need to accept is that, for a host of reasons, the failure of a bank is costly and expensive. We saw that in the UK with the response to the banking problems during the crisis, when a huge amount of public money was pumped into banks to prevent some of the problems that bank failure would create. Part of the responsibility for tackling the problem lies with the previous Government, who introduced living wills through recovery and resolution plans in the Banking Act 2009, work which is now being taken forward.

Of course, the Vickers report includes in its recommendations ways in which it will be easier to allow the orderly failure of a bank. Helping a bank to have an orderly failure where there is a problem will help to tackle the problem with barriers to entry. At the moment, the cost of failure is so high that the barriers to entry are proportionately higher. The regulators want to know that a bank is safe and to have huge confidence in that bank and they will require it to have high levels of capital because the cost of failure is so high. If we can tackle the barriers to exit from the banking sector, it will be easier to tackle the barriers to entry. That will help enormously in improving competition.

We have also given the Financial Conduct Authority an explicit objective of improving competition in markets. We have strengthened that objective, taking into account the work of the Treasury Committee and the representations of others, and I believe, as I think my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) does, that competition plays an important role in improving outcomes for consumers. That is why we see competition as one of the key new roles for the FCA, which will be a specialist regulator of conduct and will have strategic objectives not just to promote competition but to focus on consumer protection and to ensure that markets function well and have integrity.

We have also listened to the widespread concerns about the regulation of consumer credit. The Bill gives us powers to transfer the responsibility for regulating consumer credit from the Office of Fair Trading to the FCA. That will bring significant benefits and will ensure that consumer credit is well regulated. The FCA has a wider range of penalties than the OFT and can take a wider range of enforcement action, which will help to reassure our constituents that we are tackling the issue of consumer credit properly and sensibly.

[Mr Love]

The Minister will recognise the continuing concerns about the powers given to the Governor of the Bank of England and, indeed, to the Bank. What changes is he likely to make to address the governance arrangements to ensure that those powers are used wisely?

[Mr Hoban]

The hon. Gentleman makes an important point. I emphasise that it is the Bank of England that is getting more powers, as I do not think we should be personalising matters in the context of who within the Bank will get more power. It is the institution that will get more power. We have taken steps in the Bill to increase the accountability and transparency of the Bank. It is very important, for example, that the FPC, in explaining its actions, uses the financial stability report to communicate the risks it identifies and what its responses should be. I expect that the FPC will be held to account by business, the banking sector and this House. That is important but, as I said on our first day on Report, the Treasury Committee has raised a number of issues—I pay tribute to the work of the Committee and its Chair in highlighting them—and we will return to them in the other place.

It is important to get the arrangements for the governance of the Bank right. I believe that accountability and transparency should be at the heart of the regulatory system, which applies not just to the regulators but to some of the tools that we have given to them, which I think will help. For example, at the moment no one knows when a financial promotion has been withdrawn at the direction of the regulator, but that information will now be made public, which will help consumers to know which financial services firms push the boundaries with promotions. That is why we want to see the publication of warning letters. I know that that is controversial, but it is right that consumers should know when enforcement action is being proceeded with and that that information should be in the public domain. The powers we are giving to the FCA to ban toxic products are also an important strengthening of that regime. In a range of areas, we are changing not only the structure of the regulatory organisation of this country but the approach. Transparency and accountability are part of that, as are the increase in competition and the new powers that we are giving to the FCA.

The process of scrutiny has been constructive, I think, and I pay tribute to the Treasury Committee for its work. We also had pre-legislative scrutiny of the Bill by a Joint Committee of both Houses chaired by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley). As we have developed the Bill, the way in which we have listened to the arguments being made inside and outside Parliament has demonstrated that we listen carefully to what is said and will amend the legislation as appropriate. We passed a number of Government amendments on Report that reflected comments that were made—even those made by the hon. Member for Nottingham East (Chris Leslie). That just shows that we are prepared to listen. The fact that there has been such widespread support for the Bill in the Commons demonstrates that our aim to ensure that there is widespread consensus behind our reforms to the structure and approach of regulation was achieved through the consultation process we adopted. That consensus is important. It demonstrates confidence in our proposed changes and shows that this Bill should receive its Third Reading.

I hope that the Opposition are not going to oppose Third Reading. If they do, it will demonstrate that they have not learned the lesson of the past—[Interruption.] The deputy Opposition Chief Whip says, “You never know,” from a sedentary position, but if the Opposition vote against this Bill on Third Reading people will wonder whether they are so wedded to the constructs of the past that they cannot move on. People will think that they are so wedded to the system put in place by the shadow Chancellor that they cannot move on and that they cannot recognise the flaws in both its structure and approach. If they choose to vote in such a way, the world will know that they have not moved on and that they have not learned those lessons.

The Government have looked at the financial crisis and the reforms that must be made. The structure we are proposing today will help to deliver better outcomes for consumers and to strengthen and improve the resilience of the financial system in the future. I commend the Bill to the House.

Business and the Economy

Andrew Love Excerpts

Monday 14th May 2012 Commons Chamber

[Vince Cable]

My right hon. Friend is quite right that the J.P. Morgan experience underlines the wisdom of separating the so-called casinos from traditional banking, but we take the view that in this country—J.P. Morgan, of course, is not a British bank—the solution we have advocated achieves that result at considerably lower cost than would the more extreme measures that I think he is advocating.

As with many other important industrial transformations, the Government’s role in the green investment bank’s infancy is key. By setting up the bank, which is the first of its kind in the world, we can provide capital and funding to nurture these nascent markets and secure a global competitive advantage for the UK.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

May I take the right hon. Gentleman back to an earlier point? As I understand it, the Volcker rule would have outlawed the activities that led to J.P. Morgan losing $1.5 billion. Is such a proposal included in the Bill he is talking about?

[Vince Cable]

No, the Volcker rule as such is not in the legislation, but there is nothing stopping the hon. Gentleman bringing his proposals forward when the Bill is debated on the Floor of the House.

As several colleagues behind me have said, regulation is an issue, particularly excessive regulation for small companies, but inconsistent regulation damages businesses just as much, so the enterprise and regulatory reform Bill, as well as repealing some unnecessary requirements on business, will extend the primary authority scheme, enabling businesses that trade across local authority boundaries to deal with one authority on particular regulatory issues. If we consider that local authorities are responsible for 80% of inspection activity, covering areas such as trading standards, health and safety, and environmental health, the benefits of this approach are clear. As of last month, more than 450 businesses were members of the scheme, covering more than 50,000 premises in the UK, including many of our major high street retailers. Our reforms will make the primary authority scheme available to many more small and medium-sized enterprises and help improve the targeting of inspections, which can be so time consuming.

The Bill also contains provision for accelerating deregulation. Much is being done at present through the one-in, one-out system to prevent small companies, in particular, from being suffocated by red tape, and we are working with like-minded Governments in Europe, as I pointed out to the hon. Member for Stone (Mr Cash) a few moments ago, to roll back excessive regulation emanating from Brussels. The red tape challenge is repealing many of the 22,000 Government regulations that impose unnecessary costs on business, mostly by secondary legislation, but also, where necessary, through the Bill. The Bill will also embed sunset clauses.

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[Vince Cable]

Nobody ever argued that the credit easing scheme would solve the problem of small business lending. We argued that it would cheapen the cost, and that will happen. All the major banks are now engaged in arranging packages to enable those lower costs to be passed through. I think the hon. Gentleman will be pleasantly surprised by the take-up within a few months.

[Mr Love]

The right hon. Gentleman is well known for his support for co-operative and mutual organisations. In January, the Prime Minister spoke warmly about a consolidating Bill for co-operatives, but it did not appear in the Queen’s Speech. Will the right hon. Gentleman assure us that the Government have not forgotten about it?

[Vince Cable]

I have worked with the hon. Gentleman for many years on the promotion of mutuality. I seem to remember that there was considerable progress under the Labour Government, but almost all achieved through private Members’ legislation. Maybe he should put in a bid.

The benefits of flexibility also apply to flexible parental leave. The current system of maternity, paternity and parental leave is not fit for purpose. It is old-fashioned, inflexible and gender-biased. Indeed, research has found that a quarter of fathers change jobs, often in the two years after a child is born, so that they can spend more time with their family. That generates costs for employers, so the answer lies in a system that reflects modern parenting without placing excessive burdens on business. A period of leave will be reserved for both the mother and the father, and a period of shared flexible leave will be available to the family for them to choose how to use. Greater flexibility in how leave is taken in the first year of a child’s life will make it easier for both parents to work, keeping their attachment to the labour market. However, I recognise that we need to work closely with the small business community to ensure that those changes are introduced in ways that supports its growth rather than undermine it.

Legislation alone will not solve the economic challenges that we face or generate the economic renewal for which we are striving. However, our measures will help to create a platform for sustainable recovery. As I said at the start of my speech, we face an immense challenge, and the Government are determined to succeed in meeting it so that we rebuild the UK economy for the long term.

Finance (No. 4) Bill

Andrew Love Excerpts

Wednesday 18th April 2012 Commons Chamber

[Owen Smith]

What I would accept is that the rate was raised to 50p in the end because we felt that there was still an overriding imperative to help through the period of recession the people in our economy who are the most vulnerable and to ask those who are the most fortunate in our economy to bear the broadest and biggest burden in order to allow that transfer to occur. That is the totemic rationale from our perspective. What is totemic for this Government, I fear, is the idea that the 50p rate is not approved of in the City or by the wealthiest people, but I do not believe that that provides a justification for making this decision—and nor does the Chancellor, which is why he eschewed the possibility of arguing from a political or ideological perspective to justify the cut to 45p. He argued that it was being done on the basis of evidence. In fact, that was the only Keynesian bit of logic in the Chancellor’s Budget speech. He effectively said, “The reason I no longer believe what I believed in 2009 and 2010 is that the facts have changed”, and he changed his view accordingly. In his view, based on the dodgy dossier, the rate was not bringing in the anticipated amount of money, which is what justified paring it back to 45p.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

There appears to be an emerging cross-party consensus that there is great uncertainty in this area. Is it not therefore appalling that the Chancellor should go ahead at such short notice without any evidence base? Does that not confirm that he had made up his mind without looking at the evidence?

[Owen Smith]

I hate to say it, but it is worse than that. What happened is that the Chancellor made up his mind, and then made the evidence fit his decision. [Interruption.] I am asked where is the evidence, but 32 times in the one exculpatory piece of evidence provided, the Treasury covered its behind by referring to uncertainty. I shall go through them in a minute, but that shows how often it was necessary to justify this damascene conversion.

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[Owen Smith]

I am thrilled to have given way to the Minister, because his intervention has revealed that, although he may have read the dodgy dossier, he has not read the academic literature. If he had done so, he would have read more recent publications such as that of Saez, Slemrod and Giertz, which is a review of all the pieces of work done on TIE. It concluded that many of the earlier studies, including the HMRC study, had relied on estimates that were excessively high owing to flaws in the data and the methodology used. Saez et al suggested that

“the best available estimates range from 0.12 to 0.40”.

That is the same Saez from whose earlier paper the Minister quoted. In his most recent paper, he changed his mind and concluded that between 0.12 and 0.4 was the generally accepted estimate. The Treasury has cooked the figures on the basis of one academic study produced as part of the Mirrlees review.

[Mr Love]

Is my hon. Friend aware that the IFS study that is cited so regularly by Government Members refers to taxes increasing in the 1970s and decreasing in the 1980s, and is way out of date in relation to today’s circumstances?

[Owen Smith]

Absolutely. The key correlation is not between top rates of tax and GDP. There is very little evidence of that. However, there is evidence that top rates of tax have a massive impact on the distribution of wealth across the deciles, and are concentrated on the richest percentage of our economy. That is the truth, and that is why the Government ought not to have made the decisions that they made.

All this stuff may seem rather arcane, but it is central to the Budget. If the Treasury got it wrong—if the amount that will be lost is not £100 million, but a great deal more—the neutrality of the Budget is bust, as is the credibility of the Government. Who will pay the price of that bust? It will not be the 14,000 millionaires who are 40 grand better off as a result of the extraordinary largesse from this millionaires’ Government. It will be the pensioners, the unemployed, the vulnerable, and squeezed middle-earning and low-earning families throughout the country, who will be £500 worse off as a result of this Government’s activities.

We fear that that is the price that will be paid. We believe that written into clause 1 are the priorities and the politics of the Government, which are ideological, value-driven and fundamentally wrong: wrong for this time, and wrong for this country. That is why we will vote against the proposed change and in favour of our amendment, and we hope that Government Members will look to their consciences and do the same.

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[Alun Cairns]

Thank you, Mr Hood, for calling me to contribute to this debate on amendment 1. It is a privilege to follow the hon. Member for East Antrim (Sammy Wilson). I accept some of his points about the importance of the economics, but I certainly do not agree with his conclusion. I will comment on the weakness of the argument presented by the hon. Member for Pontypridd (Owen Smith) a little later.

[Mr Love]

Does the hon. Gentleman accept that the message of this Budget is, “We’re all in this together except for the 1% of the richest people in this country”?

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[Alun Cairns]

My hon. Friend obviously makes an extremely strong point. It underlines the argument that the last Chancellor faced the same uncertainty as the current one. The last Chancellor made a judgment that he should increase the rate of tax, and the current one has made a judgment that he should reduce it. That is the core difference between the Labour and Conservative parties. We want to create wealth, unlike the Labour party, which is the party of envy and wants to punish people and spend their money instead of giving individuals greater choice.

[Mr Love]

The hon. Gentleman rightly says that because of the uncertainty about all these figures, the Chancellor had to make a judgment. Was that judgment a political one, casting doubt on the Government’s claim that it was made for purely economic reasons? It was not an economic decision; it was a political one.

[Alun Cairns]

It was quite obviously an economic judgment, but we cannot ignore the politics, which is what international investors interpret when they are considering placing their money and creating jobs in the hon. Gentleman’s constituency or mine. They consider how much they, their senior management, their greatest innovators and their scientists will have to pay under the top rate of tax. The politics cannot be ignored, but the economics, as demonstrated by the Chancellor and the Treasury team, is sound according to figures from the OBR, the IFS and HMRC. I absolutely accept them.

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[Mr Gauke]

My hon. Friend is absolutely right. Let us put away some of the rhetoric that we have heard this afternoon and focus on the disagreement over the previous Government’s assessment of the behavioural impact of the 50p. Their assessment was that about 66% would be lost through behavioural impact. On the basis of the additional evidence that has emerged following the HMRC study, which is consistent with the consensus of the academic studies in this area, the estimate that the OBR has signed off is that the behavioural impact is closer to 83%. No reasonable case can possibly be made that there is no behavioural impact, yet the shadow Chancellor’s consistent argument that this is a £3 billion tax cut for the rich implies a behavioural impact of zero—miles away from any realistic case.

[Mr Love]

The Minister quotes research that is primarily associated with the United States rather than the United Kingdom. British research under the Mirrlees project related to events occurring 20 or 30 years ago. The reality is that there is great uncertainty in these areas; the Government’s claim that that is not the case simply ignores the reality. We can pick out whatever number we choose, but the reality is that we are losing taxable income as a result of this change.

[Mr Gauke]

The hon. Gentleman is right that the assessment of Her Majesty’s Revenue and Customs, signed off by the Office for Budget Responsibility, is very similar to that of the Mirrlees review, which looked at evidence from the 1970s and the 1980s. Given that the big behavioural impact owes much to the mobility of international labour at that end of the scale—the highest earning individuals in the world are very mobile—and given that the mobility of labour has clearly increased, particularly in that sector, since the 1980s, it would appear that the hon. Gentleman is making a case to suggest that the elasticity we are using is too low, not too high, so he might like to have a conversation with my hon. Friend the Member for Rochester and Strood (Mark Reckless).

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[Mr Gauke]

Thank you, Mr Hood. To return to the matter in hand—

[Mr Love]

rose—

[Mr Gauke]

I do not have much time, so I would be grateful to the hon. Member for Edmonton (Mr Love) if he would allow me to press on.

The Chancellor made it clear in a pragmatic way that we wish to see the evidence. HMRC conducted a review, making use of the self-assessment returns that became available in January this year. They provide the most complete source of data on high earners’ tax affairs, which only HMRC can analyse as they contain confidential taxpayer information. In this report, we have seen that the additional rate is distorted, that it is damaging to international competitiveness and that it is an economically inefficient way of raising revenue. These conclusions are based on that analysis of self-assessment data and international studies. The report finds that the behavioural response has been substantially larger than expected. The previous Government had estimated the revenue from the 50p rate to be approximately £2.5 billion each year. The HMRC analysis states that the yield would be £1 billion at best, and at worst might raise nothing at all. That is because of the much greater than anticipated behavioural effect.

We have seen huge levels of forestalling, and HMRC estimates that between a third and a half of the behavioural effect comes from genuine reductions in income through such changes as reduced hours worked or reductions in participation in the UK labour market. This suggests that total income fell by £2.9 billion and £4.4 billion as a result of the 50p rate, and that gross domestic product is between 0.2% and 0.3% lower. So this is not just a loss of tax revenue, but a loss to the economy as a whole through lower productivity and economic activity. Those are the conclusions of HMRC’s analysis.

It is very clear that the 50p rate has failed. It has been criticised by business, it has posed the risk of lasting damage to the UK economy, and it has raised considerably less for the Exchequer than expected, possibly costing rather than raising revenue.

Finance (No. 4) Bill

Andrew Love Excerpts

Monday 16th April 2012 Commons Chamber

[Danny Alexander]

My hon. Friend is absolutely right about that. The figures in the Budget book, certified by the independent Office for Budget Responsibility, show that in each and every year, money raised from the wealthiest in the land will dwarf by five times at least the cost of reducing the 50p rate to 45p. In doing that, we are also, for example, clamping down on the avoidance of stamp duty—something that was left as an open door by the previous Government. They seemed to be in favour of a tax system that encouraged avoidance, rather than clamping down on avoidance, ensuring that everyone pays their fair share and thereby raising five times as much money overall, which we can use, for example, to fund the massive cost of the substantial reductions in income tax for people on low and middle incomes in this country.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

How does the right hon. Gentleman square the policy that he has just enunciated with the objectives of the big society, which the Prime Minister is so keen on?

[Danny Alexander]

With this measure we are trying to strike the right balance between having a proper system of tax relief for charitable donations and ensuring that the wealthiest in this country pay a fair proportion of their income in tax. I would have thought that the hon. Gentleman would support that measure rather than oppose it, particularly when he considers it in the context of the many other measures that we have taken to encourage and support charities and voluntary organisations. For example, we have introduced for the first time gift aid on small donations received by small charities—from shaking tins on the street corner, holding coffee mornings and that sort of thing—which was not done when his party was in office. That will benefit thousands of small charities all around this country, and it is the sort of thing that he should welcome. Likewise, Big Society Capital has been created to help charities and voluntary organisations to raise funds.

Budget Leak Inquiry

Andrew Love Excerpts

Thursday 22nd March 2012 Commons Chamber

[Mr Gauke]

My hon. Friend makes a good point about our more deliberative and consultative process for tax policy making, and some of the announcements in the Budget yesterday were the culmination of a long process of consultation, for example the reforms of controlled foreign companies, which have been widely welcomed. As a corporate tax regime, ours is increasingly recognised around the world, and I am delighted that, as my hon. Friend the Member for Mid Norfolk (George Freeman) pointed out earlier, we had the announcement from GlaxoSmithKline this morning.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

How does the Minister explain the headline on Wednesday morning in the Financial Times—it could have been any of the major newspapers—which stated: “Osborne in tax grab on top-end property”? The article went on confidently to assert that the duty would be 7% on properties priced at £2 million and above. Surely that was a leak. If it was not, what was it and what will he do about it?

[Mr Gauke]

I do not believe that the figure of 7% came from the Treasury, but we also ought to recognise that in last year’s Budget the Chancellor made it clear that we were looking at getting more money from those owning high-end properties, so it should not have come as a complete surprise that there was an announcement along those lines in the Budget yesterday.

Amendment of the Law

Andrew Love Excerpts

Thursday 22nd March 2012 Commons Chamber

[Christopher Pincher (Tamworth) (Con)]

I will certainly attempt to share the time, Madam Deputy Speaker.

Although it is a great pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore), I hope she does not mind me saying that the performance that I most enjoyed from her side of the House was that of the shadow Chancellor, whom Government Members think of with great affection. His performance reminded me of that of an ageing, end-of-the-pier show entertainer, rather like Archie Rice in the film “The Entertainer”, who was once a great character actor, but who, as he gets to the end of his career, has to reheat jokes to get more and more lame laughs. Members will remember that the last words of Archie Rice in “The Entertainer” were, “I’ve had enough.” That sums up our view of the shadow Chancellor.

I was at the Pickerings business breakfast in my constituency just a few days ago, where small and medium-sized enterprises, the engines of growth in my constituency, made three points to me: we need to deal with access to credit, we need to deal with the cost of business taxation, and we need to deal with the burden of bureaucracy that weighs them down. I will not go over the points that many hon. Members have made, but we have heard about the national loan guarantee scheme and Project Merlin, which is providing more money to businesses, allowing them to invest, create jobs and build growth. We have heard about the reduction in corporation tax from 26p to 24p, with a view to taking it to 22p and an aspiration to reduce it to 20p.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Will the hon. Gentleman give way?

[Christopher Pincher]

I will not, because I do not have much time.

The corporation tax reduction sends a message that this country and its businesses are open for business.

--- Later in debate ---

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

I am grateful for the opportunity to respond to this debate. Over the course of the last two days, debate has been wide-ranging and there have been 60 Back-Bench speeches. At the heart of the debate is the Government’s determination to restore the UK to prosperity. As hon. Members are already aware, it is because of the decisive action that this Government have taken since the June Budget of 2010 that we have secured and maintained the stability of the UK economy, sheltering it from the turbulence that undermines our nearest neighbours and securing record low market interest rates that support families and businesses across the UK. Stability is a vital precondition for growth, and this Budget builds on those solid foundations, safeguarding a stable economy, creating a fairer, more efficient and simpler tax system, and driving through the reforms to unleash the private sector enterprise and ambition that are critical to our recovery.

The Government are unashamedly committed to building a recovery through enterprise, private sector investment and exports. That is why John Cridland, the director general of the CBI, has said:

“The Chancellor has also painted a clearer vision of how the UK will earn its living in the future and, by seizing the opportunity to make sure our corporate tax system is more internationally competitive, he has sent a powerful signal to companies to invest, do business and create jobs in the UK.”

Kevin Green, the chief executive of the Recruitment and Employment Confederation, said:

“Changes to corporation tax will encourage businesses to invest in their workforce. Plus, in continuing and speeding up year-on-year reductions the Chancellor creates certainty for businesses, which is so important in encouraging growth.”

This commitment to building a recovery through enterprise, private sector investment and export will help to unwind the imbalances and distortions that the previous Government built up, expanded and ignored, to everyone’s cost.

We will not return to growth fuelled by unsustainable debt, irresponsible spending and over-reliance on one sector and one region. I would have thought that the hon. Member for Hartlepool (Mr Wright) would at least have recognised that when Labour was in office, despite the many billions of pounds spent on regional development agencies, the gap between the north and the south widened, not narrowed. That is the legacy that they left to this country. Rather than growth being dependent on debt-fuelled expansion, as in the Labour days, Britain will earn its way in the world. While the previous Government let the economy slip into a stupor of spending and competitive decay, we are reversing that decline and revitalising our ambition.

[Mr Love]

Will the Financial Secretary explain why, after feeding in all the numbers related to the Budget, the OBR did not make any changes to its growth forecasts for the coming years?

[Mr Hoban]

We face a challenge. The OBR has said, on this Budget and the autumn statement, that the scale of the problem we inherited from the previous Government was bigger than everyone thought. The scale of the boom was bigger and the scale of the bust was bigger. That is the legacy that we are tackling.

Critical to realising our goal are the far-reaching tax reforms that the Chancellor announced yesterday. We are committed to creating the most competitive tax system in the G20—a tax system that supports work, encourages growth and keeps our most successful businesses here in the UK. While the previous Government increased taxes on small businesses, we have cut the tax rate on small companies to 20%; while the previous Government wanted to increase national insurance on jobs, we have cut it; and while the previous Government sat idle as our competitiveness drained away, we have already taken action to reduce the headline rate of corporation tax to 23% by 2014, cutting one of the most important and growth-impeding taxes there is.

As the Chancellor announced yesterday, we are going even further by cutting the rate of corporation tax to 22% by 2014—a headline rate of corporation tax dramatically lower than that of our competitors. It is the lowest in the G7 and the fourth lowest in the G20. It is a sign that we are open for business, an invitation for investment and a spur for prosperity and job creation across the economy. That is also why we are cutting the 50p rate of income tax—a rate higher than in the US, France, Italy and Germany, and a rate that damaged our competitiveness while raising nothing in additional revenue. From April next year, the top rate of tax will be 45%, which will restore our competitiveness and galvanise our private sector.

I turn briefly to what the Government are doing to help protect pensioners. I want to make it clear that the Government have taken action to help pensioners. We have taken action to protect the winter fuel allowance, free prescriptions and eye testing, free television licences and free bus passes, and our triple lock on state pension uprating means that the basic state pension is £120 a year higher than it would have been had the previous Government remained in office. The triple lock means that from next month, the state pension will increase by an extra £5.30 a week—in cash terms, the biggest increase in the state pension that we have seen. We are freezing the age-related allowance in cash terms, but no pensioner will pay more in tax. This measure simplifies the tax system, moving everyone towards a simple tax system, where everyone has the same allowance. Even taking into account the change in age-related allowances, everyone will be better off as a consequence of the increase in the basic state pension.

However, there are other things that we need to do to secure future economic growth. As a number of my hon. Friends have said, we need to lift the layers of stifling bureaucracy that serve to suffocate growth. For too long, businesses have been trapped by a web of bureaucratic cynicism and nimbyism. If we want our most innovative and entrepreneurial businesses to lead our economic recovery, we have to match their can-do attitude. That is why the Budget announced a fundamental overhaul of the planning system, replacing 1,000 pages of guidance with just 50, and introducing a presumption in favour of sustainable development and a new planning guarantee, so that no decision should take more than 12 months, including appeals.

However, if businesses are to seize the opportunities to grow, we have to ensure that they have the finance they need to feed their ambition. If we want businesses to take the risk to invest, hire new workers and take a leap into the export market, we need to ensure that they have access to finance. In particular, it is critical that we support smaller businesses, which provide more than 50% of private sector jobs and 30% of private sector investment and have the potential to become the global leaders of tomorrow. That is why the Chancellor launched the national loan guarantee scheme earlier this week, to give smaller businesses with a turnover of up to £50 million access to cheaper loans. Through the scheme, the Government will provide guarantees on unsecured bank borrowing, enabling banks to borrow at a cheaper rate and pass on the full benefit to their customers. We have provided £5 billion of guarantees in the initial phase, with up to £20 billion of guarantees available in total.

Oral Answers to Questions

Andrew Love Excerpts

Tuesday 6th March 2012 Commons Chamber

[Mr Osborne]

We are introducing legislation through the Financial Services Bill. It creates the financial conduct authority, which will have additional powers and will, I think, be a powerful champion of consumers. Rather than wait for legislation, we are taking action with the industry’s agreement to introduce a seven-day ban on store card retail incentives so that people cannot take out a store card and immediately get a special offer with it in the shop; and we are stopping excessive card charges being hidden on statements.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

What is the Chancellor going to do about the exorbitant interest rates being charged to vulnerable consumers by pay day lenders, which are now so ubiquitous on our high streets up and down the country?

[Mr Osborne]

I agree with the hon. Gentleman that there are practices in that industry that we want to see stopped—and I would highlight two in particular. The first is the rolling over of loans, which we are working with the industry to stop; the second is the ongoing use of continuous authorities to take money out of bank accounts, which people might not be aware that they have granted to a pay day loan company or anyone else. We are dealing with those specific abuses and, as I say, we are creating a new powerful consumer champion in the financial conduct authority.

Oral Answers to Questions

Andrew Love Excerpts

Tuesday 24th January 2012 Commons Chamber

[Danny Alexander]

My hon. Friend is absolutely right. The national infrastructure plan sets out a medium-term plan for £250 billion of much needed investment in this country’s infrastructure. Alongside that, we brought forward plans at the autumn statement for £6 billion of further investment in capital projects in this Parliament and announced a scheme working with pension funds to get £20 billion-worth of pension fund investment into infrastructure. Those are all the right things to ensure that in the long term, we rebalance our economy and make our infrastructure stronger.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

With unemployment at 2.7 million and rising rapidly, what contribution will the national infrastructure plan make to reducing unemployment this year and next year?

[Danny Alexander]

As I said in my answer to my hon. Friend the Member for Henley (John Howell), alongside the national infrastructure plan, we announced in the autumn statement significant new investment in infrastructure projects this year, next year and the year after that, all of which will both contribute to growth in the immediate term and help to build the better infrastructure we need to ensure that our growth is stronger in the medium term.

Public Service Pensions

Andrew Love Excerpts

Tuesday 20th December 2011 Commons Chamber

[Danny Alexander]

I do not know quite how disappointed my hon. Friend is, but I am certainly very disappointed in the stance of the PCS. I hope that it will come round in time to seeing this as a beneficial and positive agreement. It is striking that, in the end, other trade unions have looked at the interests of their members and put those first rather than be too worried about the rhetorical position of a small minority of unions.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Will the right hon. Gentleman now answer the earlier question about the level of opt-out likely to arise from settling these schemes? I am thinking particularly of the local government scheme, which is a funded scheme that will be adversely affected by high levels of opt-out. Will he be clear about what work has been done on this matter and whether there are remaining concerns for trade unions and employees?

[Danny Alexander]

At the start of the process, the Office for Budget Responsibility forecast opt-out rates resulting from the contributions increase as being about 1% of pay bill. Of course, because the local government scheme is a funded scheme, one thing we are allowing is that savings delivered by long-term reform, such as increasing the retirement age or moving to a career-average basis, can be used to cover the cost of some of the contribution increases. It is therefore possible that once the final local government scheme is put in place, local government workers will face little or no contribution increase because they are in a funded scheme.

Banking Commission Report

Andrew Love Excerpts

Monday 19th December 2011 Commons Chamber

[Mr Osborne]

There is a specific reference to full account portability in the report, as my hon. Friend will see when she reads it, and that is there partly because of the point that she made to me about it in the Treasury Committee. We will consider full account portability if the switching service that we introduce is not effective and does not deliver the expected consumer benefits.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The House is not clear from an answer that the Chancellor gave to my right hon. Friend the Member for Morley and Outwood (Ed Balls) whether he supports the Vickers recommendation that in order to create an effective challenger bank, Lloyds needed to divest itself of a greater number of branches. Does he agree with that recommendation, and if so, when is he going to implement it?

[Mr Osborne]

We are confident that the sale proposed by Lloyds of 600 branches to the Co-op will create a sufficiently strong challenger bank because it is to an existing institution rather than a new institution. Obviously, that sale is subject to commercial negotiations and the deal is not yet done, but we think that it meets the conditions set out in the Vickers report. We have kept in close personal contact with John Vickers throughout this process.