Finance Bill

Bob Stewart Excerpts

Tuesday 28th June 2016 Commons Chamber

[Sammy Wilson]

I was about to say, Mr Howarth, that the reduction in corporation tax will be an additional means by which we can capitalise on those opportunities.

[Bob Stewart (Beckenham) (Con)]

Would the hon. Gentleman like to see corporation tax in Northern Ireland at the same level as in the Republic of Ireland? Would that be possible?

[Sammy Wilson]

I have two more points that I want to make. The first is that the reduction in corporation tax in this Budget gives the Northern Ireland Government more flexibility. I hope the Minister will be able to clarify how much this reduction in corporation tax will reduce the bill for the devolution of corporation tax to the Northern Ireland Assembly. The reduction of that bill enables the Northern Ireland Government to do one of two things: either to have a lower cost for the reduction—the 12.5% —or to reduce the rate below 12.5%, accepting that there will be a hit of £280 million. If that has already been factored into the Budget, the rate of corporation tax can be reduced even further to make us more competitive.

Lastly, if the Government had decided not to go down the route of lowering the headline rate, one way of giving incentives to firms would simply be to increase the number of capital allowances or make them more complex. Although it could be argued that that would allow the Government to target particular kinds of investment, it has two impacts. First, it increases the cost of collecting tax, and, secondly, it makes it more complex for firms to have their corporation tax calculated. For small firms that is a burden. For larger firms it may not be such a burden.

I wish to quote that famous Scottish economist, Adam Smith—I am sure my friends in the Scottish National party will be glad to hear this. He set out in his principles of taxation that in the collection of taxes there should be economy, certainty and equity. I believe that having more capital allowances militates against that and makes it more costly, and firms will have less certainty about what their eventual tax bill should be. That is one of the reasons why I welcome clause 43 and some of the other clauses that reduce the number of allowances, as that simplifies the tax system and makes taxes easier to collect.

There may be only 10 companies that claim the vaccine research relief, but that requires an infrastructure to carry out the collection and a number of civil servants to be appointed to do the job. If we want to find ways of cutting the cost of collecting taxes, it makes sense to look at reliefs that may not be widely used but still absorb resources within HMRC. For these reasons, my party and I will not support the opposition to clause 42 and we will join the Government in pushing it through.

Iraq Inquiry Report

Bob Stewart Excerpts

Thursday 14th April 2016 Commons Chamber

[Sir Gerald Howarth]

That is a good question, but it is a question in retrospect. At the time, not only did the chief weapons inspector tell me, to my face—and tell the other members of the Defence Committee who met him in New York—that he thought that Saddam Hussein was intent on developing weapons of mass destruction, but I was then told by the Government—the British Government, my Government—that there was a possibility that he would be able to launch those lethal weapons at 45 minutes’ notice.

That brings me to my next point, which is, of course, that all this involved Dr David Kelly, and all the tragedy surrounding that poor chap, and the dodgy dossier. I believe that one of the things for which Mr Blair and the rest of the Government will have to account to the nation is what I consider to be the usurpation of the Joint Intelligence Committee by the Prime Minister’s spin doctor, Alastair Campbell. He was the man who was putting pressure on the Committee, led by Sir John Scarlett, to release enough information to produce—to coin a phrase—a “sexed-up” dossier to make the case as convincingly as possible, to us in the House and to the British people, that there was a real threat which we could not ignore and on which we had to take action.

I think that one of the lessons we have to learn now is that the Joint Intelligence Committee must be led by a man or woman with experience in security matters, and must not be subject to political pressure. Its professional view must be respected, and its authority must not be usurped.

[Bob Stewart (Beckenham) (Con)]

I thank my very good friend for allowing me to intervene. I agree with every word that he has said so far, but one question has confused and really worried me, and I do not think we have had an answer to it yet. If there were no weapons of mass destruction—I am referring particularly to chemical weapons—what was it that killed the Kurds and the marsh Arabs? We have never found those. Where the heck did they go?

[Sir Gerald Howarth]

My hon. and gallant Friend has raised a very good question. I do not think that it will be the subject of my contribution to the debate, but I hope that he will be able to develop it if he is able to catch your eye, Madam Deputy Speaker.

I have set out the position of the Conservative Opposition at the time. We believed that it was imperative and urgent for an inquiry to be held. I have explained why I supported the war, and have described some of the shenanigans that went on in an attempt to persuade the British people that there was a justification for it. I think that the delay in the report’s publication has been wholly unacceptable, and I entirely agree with my right hon. Friend the Member for Haltemprice and Howden. Five years ago, Sir John said that it would take him a few months to prepare the final report; for five years those families have been having to wait, and have been held in limbo.

I agree that the Maxwellisation arrangement must be revisited. We cannot allow an open-ended opportunity for people who have been criticised in a draft report to respond to that criticism. There must be a time limit. As one who was deeply critical of the Saville report, which took 12 years and cost £200 million, I think that the country needs to start looking very carefully at how it conducts inquiries such as this.

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[Mr Holloway]

Absolutely. If my right hon. Friend will forgive me, I will give the House one more anecdote on this subject. I had a barbecue in my garden in Gravesend for the officers of a regiment that was about to go to Afghanistan. I asked the officer who would be responsible for engaging with the local community in Helmand province how he would do that. He came up with a pretty unconvincing answer. About 15 minutes later the colonel, the commanding officer who was about to lead his troops on a six-month tour, took me aside and said, “Adam, I’ll tell you the best way to influence the people living in Helmand positively towards us: it’s not to get on the plane in the first place.”

No one listened to the experts. The Pakistanis, for example, know a little bit about Afghanistan and the Taliban, and the Russians certainly do—but of course, as ever, we knew it all. I remember sitting in Kabul with the general who had looked after Helmand province for a couple of years after the Russians had left. I said to him, “ISAF must be consulting you the whole time.” He looked down at his four mobile phones and said, “No one has rung me yet. I am still waiting for them to ring.”

[Bob Stewart]

I thank my hon.—and gallant—Friend for allowing me to intervene. History teaches us lessons. To maintain the safety and security of civilians, the allies who liberated south-east Asia rather distastefully used the Japanese army. We should have understood that lesson when the war in Iraq was apparently over.

[Mr Holloway]

I thank my hon. Friend for that interesting intervention.

To continue my theme of the inexperienced political class ignoring the experts, Britain’s one ambassador who actually understood what was going on and expressed it to politicians now works for HSBC. On Syria, we have not taken advice from officials who have been deployed forward with the Syrian opposition, as was. They argue that ISIS is fundamentally a political and counter-terrorist problem, much less a military problem, and a function of broken politics in the countries concerned and in the wider region. We have again thrown ourselves behind an American-led, largely military strategy that, until recently, threatened to turn the whole of Syria into hell.

Iraq went wrong, and the NATO deployment to Afghanistan cannot be counted as a success, and neither can Libya or Syria. The sanctions being imposed on ordinary people in Syria today cannot be considered a success.

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[Bob Stewart (Beckenham) (Con)]

I did not intend to speak, but I rise to do so because my hon. and gallant Friend the Member for Gravesham (Mr Holloway) has asked me to speak anecdotally, as he knows very well some of my experiences. My theme for the next couple of minutes is why I believe our senior military officers have become too politicised.

In April 1993, I took soldiers into the village of Ahmici in central Bosnia. I identified a massacre where at least 100 people had been killed and I decided that I had to inform the world—it was my duty under Geneva conventions. I decided that I would have a press conference where I would identify the people I thought were responsible—special forces of the Bosnian Croat army. Then I informed the Ministry of Defence. Of course, by my action I was kissing goodbye to a glorious military career—

[Sir Gerald Howarth]

Opening up a new one.

[Bob Stewart]

Not for a while. When I returned to my base, I received a blistering telegram demanding to know how I had the authority to make such a statement. It said I was meant to be neutral and I was not to get involved in the war. I was later told that I had ordered my men to open fire in defence of themselves, that I was way out of line and that I very much risked being sacked immediately. That was rather depressing for me. However, as a result of that press conference, front pages in this country carried the story—it was in the news, on the television and on the radio—and the reaction from the public and from politicians, both Back-Bench Members of this House and Ministers, was unanimously supportive. The generals who had given me that severe wigging then sent another signal, totally ignoring the first one, saying that I had acted in the highest traditions of the British Army and I was to be congratulated. It was at this time that I thought perhaps our senior officers are too politically correct. Since then I have decided, as people who look at the Daily Mail and The Sun today will know, that political correctness is something I do not necessarily particularly agree with.

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[Chris Stephens (Glasgow South West) (SNP)]

I thank all right hon. and hon. Members who have spoken so far, including the right hon. Member for Haltemprice and Howden (Mr Davis) who led the debate, teasing out the issues. He will be aware that on a number of occasions since I was elected to this place last May, I have raised the issue of delays to the publication of the Chilcot inquiry.

In my maiden speech I said that I was here to give a voice to the voiceless, because too often cynics view this place as somewhere where peoples’ voices are not heard. Today I express not only my view, but the view of my constituent, Mrs Rose Gentle, who lost her son Gordon in the Iraq war in 2004. Gordon Gentle was 19 years of age—19. Mrs Gentle and her family, like many military families, want answers to basic questions. Were those serving in our forces in Iraq provided with the proper equipment? If not, why not, and who is responsible? Have documents been hidden, and why have they been hidden? Why were our forces there in the first place?

For those military families like Rose Gentle and her family, this delay is like reliving an inquest. In Gordon Gentle’s case the inquest was cancelled on three occasions and concluded in 2009. Last year military families wrote to Sir John Chilcot to say that they wished to see the report published by the end of 2015, and if not, they would consider their legal options. In response, Sir John Chilcot threatened them with legal costs if they took him to court. What a disgraceful and insensitive thing to say to military families who have lost loved ones. What kind of behaviour is it that threatens those who have lost loved ones? What kind of behaviour is it that threatens those who have waited over a decade to find out what actually took place, and whether the military should have been there in the first place?

Rose Gentle’s reaction to the unnecessary delays is simple—disgust. Delays have been caused by so-called Maxwellisation. Delays are now caused, we are told, because of national security. Military families’ view is that all delays are now not trusted.

[Bob Stewart]

What the military families feel could be summed up by saying that the longer the process takes, the more jiggery-pokery they think is going on with the results of the inquiry. If we continue like this, there will be a total loss of faith in what it produces.

[Chris Stephens]

Indeed, and I am sure the military families watching these proceedings will agree with the hon. Gentleman.

The length of time that this inquiry has taken has put undue pressure on military families, who want the truth. Those families are proud of their loved ones who served, but are disgusted with the Government and the Government process. That is the view of military families like Rose Gentle and her family. They feel that the military covenant has been not just broken, but shattered. They feel that their loved ones have been buried twice—once after their death, and twice by bureaucracy and evasion.

The Prime Minister wrote to Chilcot asking for clear deadlines and publication. The Government cannot and should not allow themselves to be seen to be backtracking on the Prime Minister’s strong words. Further delays are not acceptable. Rose Gentle is an inspiration to many. She has done a lot of work to assist charities such as Soldiers Off the Street, a charity with an office in my constituency which looks after soldiers who have returned from the frontline and struggle to adjust to civilian life. Rose Gentle and her family have a simple request: it is time for justice for the military families who lost their loved ones serving in Iraq. The Chilcot report must be published in the first week of May 2016.

House of Lords Reform

Bob Stewart Excerpts

Thursday 14th January 2016 Commons Chamber

[Martin John Docherty]

I could not agree more. The way that operates within this Parliament is pernicious.

Sadly, I believe that in this Parliament, at least, the aspiration and will for change are a lost cause, given that in the previous Parliament alone the Prime Minister appointed 200 new unelected, unaccountable members of the peerage, and a further 45 in the short period in which my hon. Friends and I have been returned to this House. Appointees covering the great and the so-called good include, of course, large-scale donors to political parties and former bigwigs of county halls the length and breadth of the country.

Of the peerage, let me turn specifically to a certain cadre—the archbishops and bishops of the established Church of England. While much has been made of likening their position to that of the theocrats of the Islamic Republic of Iran, my direct challenge to them is this: they have no place in debating—or voting on, should it occur—the civic or religious life of Scotland. I draw Members’ attention to early-day motion 952, submitted by my own hand and signed by many of my hon. Friends from Scottish constituencies, which calls on the Lords Spiritual to desist in their well documented, historical interference in the affairs of the community of Scotland since the times of our late and noble King David. Their interference must end if this Parliament is truly to reflect the broad kirk of representation and communities of this political state.

Let us turn our gaze on the other members of the peerage of the realm. Yes, I will admit, through gritted teeth, that within their ermine-clad utopia there are a few souls who work hard. Yet, as exposed by my hon. Friend the Member for Perth and North Perthshire in a debate in Westminster Hall only a year ago, we can see the limited work of so many who stipulate that their position is to stand for Scotland in the upper Chamber. The peerage has no constituency—we all recognise that—and yet they purport in that unelected Chamber to ensure that our constituents’ needs are met. One prime example is those peers who have given attendance and full participation a cursory glance and claim substantial sums of taxpayers’ money for the privilege of access to the Bishops’ Bar.

[Bob Stewart (Beckenham) (Con)]

May I ask the hon. Gentleman, and his colleagues, whether he would like to have a member of the SNP in the House of Lords? I think that would be good idea.

[Martin John Docherty]

I am grateful to the hon. Gentleman for a good laugh, but the answer is no.

As per convention, I shall name no names, but I direct hon. Members to acquaint themselves with the debate held in Westminster Hall on this very day one year ago, where the record of the peerage is seen to be damning indeed.

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[Bob Stewart]

I seem to remember that under the proposed legislation that was introduced in the last Parliament the elected Members of the House of Lords would have been elected by huge electorates of 3 million or 4 million people. Inevitably, people elected under such a system would say, “I had 2 million people voting for me and you had a poxy 66,000. Whose mandate is more important?” That was one of the problems that I had with the proposed legislation in the last Parliament.

[Martin Vickers]

I agree. I was not happy with that part of the proposals.

I am an advocate of first past the post when it comes to elections to this House, but I acknowledge that some form of proportional representation would be more appropriate for an elected upper House. Having said that, we must accept that people do not identify with massive areas or regions, such as those to which my hon. Friend refers. They tend to identify with their town or village and their county, as well as with their country. We need to devise a system that recognises those innate loyalties.

In closing, I urge the Government not just to tinker. I suspect that we will have more tinkering with the Strathclyde proposals, which I am not particularly enthusiastic about. The Government should go for it. I would rather have a Conservative Government reforming the House of Lords, because Conservatives recognise the value of evolution within the constitution and do not want to go for a big bang change. We have an opportunity to think carefully about this matter over the next year or two and to put forward serious proposals. We must recognise that an appointed House—an unelected Assembly—is not acceptable in the 21st century. It is time to think seriously about the way forward. I urge the Minister to acknowledge that it should be a Conservative Government who put forward the proposals. I very much hope to hear some dramatic proposals at the end of this debate.

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[Steven Paterson]

The hon. Gentleman makes a very good point, and we must move to democracy. That means that the hereditary peers—they really do stick in the craw—will be among many who have to go. We should have elections to determine that, and perhaps we should be holding conversations about how, not whether, we do that. I would certainly like us to move towards that point.

[Bob Stewart]

I support the idea of UKIP having a Member of the House of Lords. It is rather sad that there is no UKIP Member of that House, and I look forward to it happening. May I suggest that it might give the hon. Member for Clacton (Mr Carswell) a certain amount of pleasure if that Member’s first name was Nigel?

[Steven Paterson]

I will let the hon. Member for Clacton (Mr Carswell) speak for himself on that one. My own view is simply that, whatever the country, people should get the representative Government they vote for. Whether I happen to agree with the hon. Gentleman’s party or not, if people vote for it then that is who they should get as a Government—that is what I believe in terms of democracy.

How does the crooked, anti-democratic nature of the House of Lords manifest itself? To answer that, let us consider for a moment the curious case of the quite inappropriately named Liberal Democrats. The Liberal Democrats were hammered at the ballot box—not before time, many of us would say. That happened first in Scotland in the 2011 Scottish Parliament elections, when they were reduced to a rump of five MSPs out of 129, and was followed up at the UK general election last year when they were reduced to a rump of just eight MPs out of 650. In a democracy, the people speak and the message is sent. That is not the end of the story, however. The Liberal Democrats defy democracy thanks to the House of Lords. There are an incredible 111 of them along the corridor there sitting—or sleeping—on the red benches, grazing, collecting their tax-free £300 when they pass go, occasionally contributing to the debates and maybe even voting. They are down at the other end of that corridor, unelected and unaccountable. They are Westminster’s own political zombies. We really have to move forward. They are not elected and the people’s views must be paramount.

Some would say that the House of Lords provides access to expertise that cannot be found among MPs in the House of Commons. I acknowledge, because I have met some, that there are some Lords who certainly have expertise, but there are many hon. Members in this place and it cannot be beyond the wit of this place to find experts on a range of issues.

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[Liz Saville Roberts]

Most of the laws made here also affect Wales, and if we are to influence them, we must take part. We have long been cursed with the “for Wales, see England” mentality, although things have changed since 1999 and might well change again in the elections this spring.

The House of Lords should be elected through the single transferrable vote system, with a Welsh constituency and weighting to ensure that Wales is heard in all matters. Some value the apparent freedom with which the second Chamber can hold the Government to account, but I remind them that more than 70% of peers vote along party lines and that 25% of those appointed since 1997 are former MPs who either resigned or were voted out by the public. It is the only legislature in the world where losing an election helps a person win a seat.

I appreciate that many in the other place are considered experts in their fields, but we have heard mention of the ex-experts. I do not accept that this is an argument against democracy. If they are experts in their fields today—as opposed to 20 years ago—they should be persuaded to stand for office in a local public election. I also suggest that the House takes note of figures from the Electoral Reform Society, which found that 27% of peers had “representational politics” as their main profession prior to entering the Lords. Most of them were MPs. A further 7% were political staff, and twice as many peers worked as staff to the royal household than worked in manual or skilled labour, which is extraordinary, given that most people work in the latter.

[Bob Stewart]

I am listening intently and enjoying this debate a great deal, because I agree with so much of it. Would it be a good idea for sections of society, such as doctors, teachers, dustbin men—if that is the right term these days—and nurses, each to have a part of the House of Lords that they appoint, so that they can decide who represents them?

[Liz Saville Roberts]

Were we to legislate for such a thing, we would need to consider that in detail, but we ought to consider whether these representative bodies actually represent society, and we should be judging them accordingly.

The House of Lords is not the oracle of all-encompassing knowledge that many would have us believe. I remind Members that while the Houses of Parliament include almost 1,000 Lords and, at present, 650 MPs—it is interesting to note that the number of Lords is going up and the number of MPs down—the Welsh Parliament, which is responsible for the NHS, education, economic development and many other vital policy fields in Wales, has only 60 AMs. When we discount Welsh Government Ministers and other office holders, only 42 of those 60 AMs are available to hold the Welsh Government to account and scrutinise legislation. That is 42 Members to scrutinise everything from the NHS to education, from business support to inward investment, and—soon—to hold the Government to account on income tax policy. That is 42 Members in Wales in comparison with the Palace of Westminster in England, which has in excess of 1,500 MPs and peers holding the UK Government to account on their performance.

I suggest that a proportionately elected second Chamber with a drastically reduced number of peers, coupled with an increase in the size of the Welsh Parliament, would make the UK a far more modern, balanced and effective democracy. This debate has indeed shone a light on the long-overdue need for reform, but it is now up to the Government to bring forward proposals to ensure that our democracy adheres to modern standards and reflects society and its views.

HMRC Office Closures

Bob Stewart Excerpts

Tuesday 24th November 2015 Commons Chamber

[Mr Gauke]

No, I do not. As I have made clear, the number of HMRC officers has been falling since its creation in 2005, including over the past five years, and we have seen the closure of inquiry centres, as has been touched on, but HMRC’s success in dealing with tax avoidance and evasion over that period has been marked and has improved. The truth is that HMRC deals with tax avoidance and evasion principally through sophisticated data analysis and by bringing together highly skilled people. The more that we can do of that, the bigger the difference we will make.

[Bob Stewart (Beckenham) (Con)]

If HMRC requires visibility, is any consideration being given to mobile offices in vans, like mobile libraries? For example, Northern Ireland has one big office in Belfast, but it could send vans down to Armagh, Enniskillen or Londonderry.

[Mr Gauke]

HMRC’s “needs enhanced support” service was brought in as a partial replacement of the inquiry centres. My hon. Friend raises an interesting point about HMRC’s presence. However, it has a strong record in dealing with avoidance and evasion, there has been a substantial increase in prosecutions and it is hard to open a newspaper without reading reports of the wealthy facing significant tax bills because HMRC is successfully closing down tax avoidance schemes. That shows that HMRC is reducing this behaviour.

European Union Referendum Bill

Bob Stewart Excerpts

Tuesday 16th June 2015 Commons Chamber

[Sir Gerald Howarth]

I heard my hon. Friend’s intervention on my hon. Friend the Member for Stone, and he makes a valid point that we need to address. However, the purpose of amendment 10 is crystal clear: it is to stop the European Commission getting involved or funding third parties to get involved in the campaign. If a company in his constituency that received support under a European Commission scheme five years ago, three years ago, last year or whenever chose to back one side or the other, one would not be able to say that it was doing so because it had received money from the European Commission, but if the European Commission started to fund organisations that were involved in the campaign, that would be unacceptable. We do not want it interfering.

[Bob Stewart (Beckenham) (Con)]

Would it really matter, because surely both sides will get just about equal funding? Where the funding comes from does not matter in the end if both sides get the same rough amount.

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[Bob Stewart]

Should there not be a clear gap between the offering that the Government have brought back to give to the people and the start of the campaign, which we may wish to call purdah? During the short campaign before the general election, which could be seen as a model, both sides—I am talking just about Labour and the Conservatives—suddenly started to produce new policies. We cannot have that; we want a clear offering followed by a gap, and then the start of the campaign. Does my hon. Friend agree?

[Mr Rees-Mogg]

I entirely agree with my hon. Friend and that point has been made by my hon. Friend the Member for Stone. An uncharacteristically weak argument must have been given to the Minister for Europe to read out—he could not have made so poor an argument himself—when he said that if the negotiations have finished it would be very difficult for the Government not to be able to explain them immediately before the election. It cannot be that we will have the referendum two weeks after the negotiations have been concluded. That would be preposterous. There has to be a considerable period of time beforehand, so that what has happened can be understood, debated and campaigned upon. That must mean a period of a minimum of 28 days, as currently set out, but realistically we are going to need three months at the end of the negotiations before we can move straight to the referendum.

Financial Conduct Authority Redress Scheme

Bob Stewart Excerpts

Thursday 4th December 2014 Commons Chamber

[Bob Stewart (Beckenham) (Con)]

It is a pleasure to follow my hon. Friend the Member for Ceredigion (Mr Williams), who also attended Aberystwyth university. Like him, I commend my hon. Friend the Member for Aberconwy (Guto Bebb) for securing this debate and campaigning on this matter. I think that everyone in the House is grateful to him for his efforts.

Many small businesses have suffered as a result of bank mismanagement, and I wish to highlight just one of them. A constituent of mine, Mr Dean D’Eye, became a customer of the Romford lending division of NatWest—part of RBS, of course—14 years ago. He had investment and property development businesses, and his main contact point with NatWest was a man called Ray Pask. Until 2008, Dean D’Eye carried out many transactions via NatWest. His total lending across various companies totalled about £11 million, with a debt of about £5.8 million. All interest payments on his debts were paid on time, and his business had a very satisfactory gearing of less than 60%.

After the Lehman bank collapse in September 2008, however, Dean D’Eye was inundated with additional requests for information, which took up a great deal of time—time off the crucial task of doing business. Then in December 2008, without warning, NatWest retained the £139,000 profit from a property sale, despite having sent letters confirming it could be used to aid the group’s cash flow. Thereafter, NatWest mis-sold the swap products associated with Dean D’Eye’s business.

In early 2009, while the demands for even more information continued, Dean D’Eye’s group was placed under watch by the global restructuring group. Then in April 2009, the bank sent in administrators from a company called MCR to report on his business. In Dean D’Eye’s view, its subsequent report was engineered to cause maximum damage, to justify putting his business into administration.

[Sir Andrew Stunell (Hazel Grove) (LD)]

I do not know the details of my hon. Friend’s case, but I could almost recite them, given the grave similarities to cases that have arisen in my constituency. There seems to be a pattern, particularly with RBS, of following a track designed to produce a certain outcome, regardless of the strength of the business. Does he agree that the FCA should take that into account when looking at the independent assessments?

[Bob Stewart]

The point of our producing case studies is to prove that they are all along the same, incorrect path.

On 28 May 2009, NatWest formally cancelled Dean D’Eye’s overdraft, which, considering the size of the business, was small—about £40,000. Within a week, on 1 June, all his loans were called in, so that by 10.17 am on 5 June, administrators had full control of the business, which they started running from his office. This decision meant the group lost its cash flow, which in turn created a default with Dunbar bank, owned by Zurich Insurance Group. Dunbar bank has a reputation for being even more ruthless with its customers than NatWest.

As was broadcast on a recent BBC “Panorama” programme, Lawrence Tomlinson, the Government’s entrepreneur in residence, has exposed the dubious activities of NatWest’s GRG department—on that matter, retribution was taken against him as well. The NatWest GRG’s senior managers have at the very least given some obscure answers to the Treasury Committee. I understand that, since then, some of them have resigned and that the GRG has been disbanded. I gather that only 6% of the business adopted by the GRG ever re-emerged. That is hardly a success. My constituent, Dean D’Eye, now hopes to get litigation funding, so that he can take NatWest to court for the way in which it ruined his business. I cannot say that I blame him for doing so.

[Mark Garnier (Wyre Forest) (Con)]

It is a great pleasure to follow my hon. Friend the Member for Beckenham (Bob Stewart). I should like to add my congratulations to my hon. Friend the Member for Aberconwy (Guto Bebb) on securing the third of these debates. This is turning into a running series, although I hope that we shall not need a further debate on this matter in the next Parliament because we will have resolved the issue by that time.

Great progress has been made as a result of the huge amount of work that my hon. Friend has done, and it should be recognised that, in many cases, the banks have stepped up to the plate to handle the problems that they have created. However, we have been left with a cohort of claimants who feel that they are not getting the redress they deserve, and I want to concentrate on them today.

When I consider the plight of those businesses that have been mis-sold interest rate hedging products, I have yet to find a victim for whom I do not have enormous sympathy. This appalling scandal has destroyed many people’s lives, including those of people who have not been directly affected. For example, people have found themselves out of a job when their employer went bust as a result of the scandal. Other people have been creditors who could not suffer the cash flow shortfall resulting from banks taking too long to make redress payments, especially consequential loss payments, to the businesses that owed them money.

The scandal’s implications go far beyond the victims who were mis-sold swaps, and it is therefore right that we should consider the regulator’s response. The response of the Financial Conduct Authority is incredibly important, not least because this is one of the first full-blown scandals to which it has had to respond. How the new regulator behaves over this scandal will set a precedent for how it behaves in the future and tell us whether it is fit for purpose.

I want to raise a couple of issues, given that the regulator has opted for a voluntary redress scheme. That in itself is probably not unreasonable, and it gives the banks an opportunity to show how they have changed their culture and responded to the chaos they have caused. However, this is a brand new way of responding to such a crisis, and it must be looked at very carefully. The briefing note that the FCA prepared for this debate states, in the frequently asked questions section, that the voluntary approach is different from previous redress schemes, citing speed in compensation. Speedy outcomes have not been achieved in all cases, however.

It is noteworthy that the regulator cites part of the Financial Services and Markets Act 2000 as a reason for not having to make public the arrangements between itself and the banks. Any new process needs to be fully transparent if there is to be confidence in that process. There is no confidence in this process, and the situation is fundamentally flawed.

[Bob Stewart]

How can anyone possibly think that there should not be full transparency in this sort of activity? I do not understand how the FCA can justify not being transparent about all its dealings.

[Mark Garnier]

I am not sure that the FCA can justify it. The FCA is answerable to Parliament and to the Treasury Committee, and until such time as we can conduct a proper investigation into what it has been up to, how can anyone believe that this is a good system?

--- Later in debate ---

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

Thank you, Madam Deputy Presiding Officer. Sorry, Madam Deputy Speaker. I always do that; I have been thinking too much about Scotland during the day.

I welcome the opportunity to speak in this debate. Hon. Members have given several examples about problems faced by their constituents. As a constituency MP, I have heard from a number of my constituents or small businesses that have suffered similar consequences.

The motion addresses the perceived failure of the FCA redress scheme. I was of course aware that the scheme had attracted criticism. We have heard quite a lot about that today, particularly in relation to some of the problems involved in the cases that hon. Members have raised. I will speak about them in more detail.

Before I consider the merits of the redress scheme, it is worth remembering how we got into the situation of needing such a scheme in the first place. We must therefore again address the mis-selling of interest rate hedging products that made the scheme necessary, as hon. Members have done during the debate.

Hon. Members are probably aware—the banks certainly are—that I have spoken often and at considerable length about the need for banks to eradicate the culture of mis-selling and to put their own house in order. The banks have a duty, whether we call it a fiduciary, an ethical or a human decency duty, to act in the best interests of their customers. Absolutely fundamental to that is the requirement to ensure not only that customers are sold products that they want and need, but that they understand the terms, conditions and caveats that underpin them.

From time to time, things can and do go wrong, and not even the most prescient among us can anticipate all the nuances and fluctuations in the money markets that may affect the products we purchase. However, just like the rewards associated with any product, the risks must be clearly stated from the outset. It can be argued that interest rate hedging products in and of themselves might not always be bad when sold in appropriate circumstances—they may help to shield bank customers and even small businesses from the risk of sharp interest rates movements—but, as we have heard this afternoon, it is clear that in many cases the risks have not been fully explained to, or fully understood by, the customers.

The FCA has clearly laid out the shortcomings in the information that it has provided. Nearly 19,000 small business customers of major UK banks took part in the review, and among the main problems they highlighted were the poor disclosure of exit costs, the failure to ascertain customers’ understanding of risk, the straying of non-advised sales into advised ones—that has been raised this afternoon—and the fact that the sale of products was driven by rewards and incentives. I will briefly take each in turn.

In its briefing, the House of Commons Library gives the example of a customer who was sold an interest rate hedging product that lasted longer than the loan whose risk it hedged. When the bank chose not to renew the loan, the customer was left with a stark choice between paying the extortionate breakage fees and continuing to pay the monthly cost of the hedging product. The latter option has been likened to a customer continuing to pay for the insurance on a car that they have sold. It is important to note that, unlike for a fixed-rate loan, an interest rate swap agreement is separate from the loan contract and must be terminated independently. From some of the speeches in this debate, it is clear that that has not always been entirely understood by those involved. Repaying the underlying borrowing does not automatically terminate the interest rate structures, and as we have heard, customers are not always made sufficiently aware of that.

Most of us who do not work in finance, banking or associated professions will perhaps have a rather sketchy understanding of the risk. There is nothing wrong with hedging against risk; it is a widely used practice that has occurred in many different manifestations for many years. However, the concept of hedging against risk has spawned a diverse range of products that are sometimes dizzying in their complexity, even for those who perhaps run their own businesses and think of themselves as if not “sophisticated” in the way defined, none the less as having a reasonably good handle on things, yet they find themselves caught out.

Derivatives are the most common example of that. Interest rate hedging products are not as complex as some derivatives, but they are complex enough to confound the unwary, especially where they involve structured collars that can effectively result in customers paying more if interest rates fall beneath an agreed level. That requires a finely balanced judgment by any customer, and an understanding of the vagaries of interest rates. It is crucial that the bank selling interest rate hedging products explains and defines the product to the customer and ensures that it matches their circumstances, but as we have heard, many banks did not do that.

[Bob Stewart]

Surely it is the bank’s duty when it starts to fiddle around with interest rates to warn the customer that that is happening and not just suddenly do it.

[Cathy Jamieson]

The hon. Gentleman makes a good point, and some of the concerns and examples have been about banks that seemed to be selling products, but not outlining the potential for interest rates to drop or giving customers information about the bank’s own forecasts. We have real difficulties with such circumstances.

Bede Griffiths Charitable Trust and Southern India

Bob Stewart Excerpts

Tuesday 25th November 2014 Westminster Hall

[Bob Stewart (Beckenham) (Con)]

It is a pleasure, Mr Gray, to serve under your chairmanship. It is good to see you again for the second time this morning—we had breakfast together.

On the evening of 15 December 2005, a young man called Tim attended a Christmas party in the City of London. Tim had recently left Chigwell school in Essex and was doing work experience before going to university. He was a decent, popular and intelligent boy at school, and he clearly had a great future ahead of him. At the end of the evening, he left the party, happy and sober, to travel from Liverpool street station to his parents’ home in Goodmayes. At the station, he took a late train home.

The next day, I was having lunch at the Army and Navy club with Dr Tony Pruss, an old school friend and also Tim’s father. Tony, his brother Adrian and I had all been pupils at Chigwell school and were reminiscing over lunch about the old days, as friends do. After lunch, just as we were leaving the club together, Tony received a mobile phone call from Mary, his wife. She was frantically worried because Tim had not returned home the night before. He would normally contact her to say where he was, but Mary had heard nothing.

Tony was instantly concerned and with good reason. Shortly thereafter, Tony and Mary were told that Tim’s body had been found alongside the railway track at Shenfield station. The world fell around Tony and Mary Pruss. Like any loving parents, they simply could not believe what had happened, but tragically it was the truth.

A few weeks later, I attended the inquest into Tim’s death in support of my friends, Tony and Mary Pruss. The coroner heard evidence that Tim had been hit by a train coming into the station having walked off the platform for some reason. Nobody knew why, but it might have been to excuse himself because, at the time, no lavatory facilities were open at the station. Tim was certainly not inebriated or drugged. The coroner heard evidence that Tim’s death must have been instantaneous—thank goodness. His death was deemed to have been a dreadful accident.

The death of Tim Pruss hit Chigwell school hard. As I have said, Tim had been hugely popular and a great character when he was there. The school was established by Archbishop Harsnett of York in 1629 and was very much a Christian foundation, and to this day takes its heritage very seriously. It has and continues to have contacts with missionary activities abroad and, at this time, particularly in an area of southern India called Tamil Nadu. There it supports the Bede Griffiths Charitable Trust’s work among the local people. Indeed, the school often sends out parties of students to visit, to learn and to try to help people less fortunate than themselves.

Tim Pruss had told his parents that he would like to go to Tamil Nadu but, as is the way with the young, he just did not go. However, Tony and Mary Pruss remembered that Tim had wanted to go there and it gave them the idea, too. They decided to look at the work of the Bede Griffiths Charitable Trust in Tamil Nadu and flew there. Once in India, they realised that they could help. They decided to use the money they had set aside for Tim’ education and inheritance to good effect. Shortly thereafter, the Tim Pruss Memorial school was established as a part of the Bede Griffiths Charitable Trust.

Bede Griffiths, the Benedictine monk after whom the charity was named, was born in 1906. He studied English literature and philosophy at Oxford and graduated in 1929. By 1932, he was a Benedictine monk and he ministered in England and Scotland until the early 1950s. He then joined a well-established Benedictine community in south India at Shantivanam in Tamil Nadu state. It was not long before people of all religions in the area came to regard him as a very special person and one whose views were well worth hearing. His Shantivanam ashram—a sort of cross between a monastery, centre of learning and community centre—became renowned principally because of Bede Griffiths. Although he died in 1993, his thoughts live on in his books and writings.

In this country, the Bede Griffiths Charitable Trust was established in 2004. To avoid confusion, may I point out that there is also a Bede Griffiths trust in the United States, but they are not linked in any way? The Bede Griffiths Charitable Trust has the specific task of helping to fund worthwhile projects in and around Shantivanam. The main aim of its projects is to help some of the most deprived people who live there.

Bede Griffiths Charitable Trust projects focus on education and training, with particular support for children, women and the elderly. For example, last year the trust did considerable work in Tamil Nadu state. The biggest project was the Tim Pruss Memorial school, but there were a few other equally worthy activities, such as providing educational expenses for children; provision of milk and rice for the poorest people, and of food and clothing for the elderly; and the running costs of a kindergarten, a tuition centre, a community centre and a home for the elderly. In 2013, the trust received more than £37,000 from donations and charitable events. The majority of that money—£23,000—went to the Tim Pruss Memorial school.

Early each year, the trust managers in India submit an application to the trustees for grants for their financial year commencing in April. Applications are normally accompanied by a financial statement of the project’s income and expenditure in the previous year and, of course, audited accounts. The trustees, some of whom are not far from me at the moment in the Gallery, visit Tamil Nadu at their own expense once a year on average, and the project managers show them where the money they have raised and donated has been spent. In addition, evidence is gathered by regular updates from the relevant project managers. The work of the charity is undertaken entirely by volunteers, with the result that there are very few overheads and that 98% of the income raised goes directly to supporting activities in Tamil Nadu.

The Tim Pruss Memorial school is at Inungur, which is a remote area where pupils have great difficulty in getting to a Government school. They are taught in English and are well funded by Bede Griffiths Charitable Trust grants, as well as by a small number of contributions from individual donors.

The school has 275 pupils aged between three and 11 years old. It provides an English-based education under the leadership of the headmaster, Mr Senthil Kumar. Obviously, the biggest costs are staff salaries, which come to close to £23,000 per annum. Parents make a small contribution where they can. The school has been operating since 2007 and has expanded one building at a time. After an initial grant of £7,000 in 2008, a junior school building was erected, and by 2009 it was officially named as the Tim Pruss Memorial school. In 2012, Tim’s brother, Michael Pruss, who is also an old Chigwellian, raised a further £10,000 by running a marathon in Long Beach, California. He is something to do with the film industry, and quite powerful in it. The money he raised was used to build a new hall. Of course, Tim’s parents, Mary and Tony, have played a key role in all the developments.

One of the founding trust members was the Rev. Dr Chris Collingwood, then Chigwell school chaplain. It was he who invited older pupils and parents on an annual school trip to experience life in the Indian subcontinent, particularly after the 2004 Boxing day tsunami. During those visits, pupils saw the work of the trust in some of the projects in the local community and around Shantivanam. Chigwell school continues to support the trust and send annual trips to Tamil Nadu. The students learn a lot during such visits. To start with, they get to understand a little of India and its geography, climate and people. They also experience life in the Christian monastic community at the Shantivanam ashram, where they stay. They are encouraged to join in at least some of the chapel services, and to attend some of the talks that are led by the priests and lay brothers who live at the ashram. Most of all, they see the positive effects of social projects in poor rural areas.

In 2013, those on the Chigwell school trip completely redecorated the older part of the old people’s home, an old house that had become drab and dirty. The students brought paint with them and, under the supervision of a qualified surveyor, completed the decoration within a day. Eighteen students, six parents or former pupils, a school governor and two trustees went on a self-financed trip to Tamil Nadu. A multi-purpose hall for meetings and school meals in the Tim Pruss Memorial school has been built with more than £14,000 raised by fundraising and donations. Additional money has been allocated by the trust to cover the running costs of a tuition centre, two kindergartens, a home for the elderly and two centres training adults in typing, computing and tailoring.

The home for elderly people established by the trust has 17 residents, of whom one is a Muslim and one a Christian—the remaining 15 are Hindu. Fourteen of the residents are from local villages but three are from further away. The home is an old house with a new block providing accommodation behind it. The £13,000 to build the new block came from one donation from a Chigwell school family. Since then, the Bede Griffiths Charitable Trust has helped towards the running costs of the home by contributing £1,000 a year. Residents live in twin single-sex rooms in the new block but come together in the old house for meals and social events. A warden and a part-time assistant run the home.

Recently, a gift of more than £1,500 enabled a brick-built home to be constructed following a fire that destroyed a single-parent family’s home, which had been constructed from wood and leaves. Altogether, around 15 homes have been built following trust donations. However, Chigwell is not the only school involved in fundraising for the trust. The Prince’s Mead school in Winchester, whose head teacher is Ms Penelope Kirk, has also been a terrific donor. It supported the school when it was just one small building, prior to 2007, and continues to do so. I should declare my interest in the Bede Griffiths Charitable Trust: recently, because of my friendship with Dr and Mrs Tony Pruss, as well as my links to Chigwell school, I was asked to be involved and am now a patron.

I should like to say how fitting and appropriate it is that my hon. Friend the Member for Bexleyheath and Crayford (Mr Evennett), who is the pairing Whip and a very good friend, is replying to the debate. By chance, his son Tom, who also attended Chigwell school, was a good friend of Tim Pruss’s brother, Michael, whom I mentioned on account of his raising a lot of money for the Tim Pruss Memorial school. In a way, this is rather a family occasion all round.

The charity is clearly exceedingly well run by its trustees, who are Adrian Rance, the chairman, Mark Bradbury, the secretary, Greville Norman, the treasurer, Tony and Mary Pruss, Helen Dixon, who is in the Gallery, Elizabeth Tysoe, Pippa Mistry-Norman—also at Chigwell—and David Gower, second master at Chigwell school. I hope the debate will raise the profile of the Bede Griffiths Charitable Trust. I commend the trust to the House and ask the Department for International Development and the Foreign Office to note the excellent, well supervised work being done by that great charity.

[The Lord Commissioner of Her Majesty’s Treasury (Mr David Evennett)]

I congratulate my constituency neighbour, my hon. Friend the Member for Beckenham (Bob Stewart), on securing this important and timely debate. I commend him on his excellent, thoughtful speech, and apologise for the absence of my right hon. Friend the Minister of State, Department for International Development, who is appearing at the Select Committee on International Development this morning. I have been asked to respond as the DFID Whip, and am delighted to do so on behalf of the Government.

I offer my condolences to Tim’s family on what was a tragic loss for them and his many friends. I know Chigwell school, as my hon. Friend mentioned, because my sons Mark and Tom both went there, and I went to the neighbouring grammar school, Buckhurst Hill county high school for boys, which was next door but is now sadly no more.

We have today learned an awful lot about the Bede Griffiths Charitable Trust and its work, and the problems of southern India. We have also heard about Tony and Mary Pruss’s dedication. I commend them for their endeavours in memory of their son, and for their huge contribution to helping the less fortunate in Tamil Nadu state. The trust does vital work there. We have heard about its important provision for the poorest people, those who are suffering, the elderly and the young; and about its support for local community facilities. The Tim Pruss Memorial school in Inungur is helping 275 pupils in a remote area of the country who would otherwise have had great difficulty in going to a Government school. Those are positive, constructive approaches to assist a part of the world with considerable disadvantages.

As my hon. Friend the Member for Beckenham knows, the Government have made a commitment to international development, and I am proud that Great Britain was the first G7 country to reach the target of 0.7% of national income for aid spending. Not only do the Government play their part in helping a variety of causes globally, but the great British public also do their bit to support those aims. One need only think of the extraordinary response to the Philippines appeal after Typhoon Haiyan last year, or the millions donated to help tackle Ebola in west Africa in the past few weeks. We as a country can be proud of the contribution that our people are making in voluntary donations.

One can also see that compassion and dedication clearly in the sheer number of fantastic civil society organisations in this country, such as the Bede Griffiths Charitable Trust, that make a difference in the developing world. Working with civil society organisations forms an integral part of DFID’s approach to reducing poverty, promoting wealth creation, achieving the millennium development goals, tackling climate change and dealing with conflict.

Civil society can play an important role in reaching poor and marginalised people and communities in places that the Government and private sectors have not been able to reach. They do so through their ability to build relationships, trust and legitimacy, their grass-roots knowledge of needs in developing countries and their responsiveness. It is a crucial part of creating the open societies required for tackling poverty and its underlying causes and creating economic growth and development. Many smaller and medium-sized groups such as the Bede Griffiths Charitable Trust are more out of sight and perhaps receive less fanfare, but they do powerful work on the ground, which is why debates in the Commons to highlight them are important. The good work being done needs to be recognised and publicised. My hon. Friend has done a marvellous job in doing so today.

There are many organisations running projects that no one else thought of doing. In fact, it is often smaller grass-roots organisations that can make connections on the ground and help to change how people act for the better. Of course Government support is vital, which is why the UK Government support smaller civil society organisations through DFID’s global poverty action fund, which provides grants to charities across the UK to help them fight poverty in the world’s poorest countries. For example, the charity Women and Children First UK is helping reduce maternal and newborn mortality in Mumbai.

Such schemes have achieved great results, supporting some fantastic organisations, which is why UK Aid Direct was launched, a new £150 million funding scheme to support small and medium-sized national and international civil society organisations in reducing poverty over the next five years. As a successor to the global poverty action fund, UK Aid Direct will build on the success and momentum created by that fund. It will also bring more flexibility and allow the work with civil society to respond to opportunities as they arise. The scheme highlights DFID’s ongoing commitment to the role of civil society in poverty reduction and recognises the important contributions made by small and medium-sized civil society organisations.

Applications for the first £30 million funding round for UK Aid Direct closed today. In the first funding round, projects will focus on finishing the job on the health millennium development goals, and particularly on sexual and reproductive health and rights. It is a particularly important focus for development at this time, as the MDGs for reducing child mortality, improving maternal health and combating HIV/AIDS and other diseases are off-track. DFID is looking for innovative, ambitious projects whose proposals will demonstrably have a tangible impact on our efforts to achieve the off-track MDGs.

[Bob Stewart]

On that point, it would be lovely if DFID would consider a grant to the Bede Griffiths Charitable Trust if possible. It is an extremely well run charity, and it undoubtedly offers value for money. I just make that point.

[Mr Evennett]

I note my hon. Friend’s plea. I know that my officials have listened to it, and I will respond in a moment.

The poorest areas civil society programme works with Indian civil society organisations in the seven poorest states and helps socially excluded groups claim their rights. The programme has led some impressive initiatives, such as the campaign for complete abolition of the inhuman practice of manual scavenging, a caste-based practice in which human excreta are cleaned manually by individuals from the Dalit and Muslim communities in India, who face untouchability and social exclusion.

Faith-based organisations such as the Bede Griffiths Charitable Trust play an important part in reducing poverty in developing countries. Religion unquestionably plays a role within civil society, and we can use that to help advance the development agenda. Faith is often part of individual or group identity, which gives faith groups considerable legitimacy; they are often seen as more embedded in the local community than some development actors. Faith groups inspire confidence and trust. Indeed, they are often the first groups to which the poor turn in times of need and crisis, and to which they give in times of plenty. Faith communities can be motivated by different ethical values and beliefs from most secular organisations, including a sense of service, selflessness, generosity, mindfulness and compassion. They are often less transient than many secular civil society organisations and can mobilise many adherents and significant financial resources. Faith groups make a significant contribution to poverty reduction.

I now have an answer to my hon. Friend’s question. We are happy to provide information to him, so that the trust can get in touch after the debate. I cannot promise any more than that, but we in the Department are always willing to consider any opportunity.

Faith groups are a key development partner. They empower poor people so that their voices are heard. They can subject Governments to critical scrutiny and bring distinct and valuable perspectives to policy formulation processes. To strengthen our relationship with faith groups, the UK Government have launched the faith partnership principles paper, and we are working with faith groups to ensure that those principles are put into practice. The paper sets out the principles—transparency, mutual respect and understanding—that will guide our relationship with faith groups, as well as plans to build a common understanding of faith and development, document the impact of faith groups through systematic research and discuss areas of difference in a constructive way without threatening wider collaboration. DFID’s work with faith groups over the last 10 years has benefited many millions of men, women, boys and girls. My hon. Friend referred particularly to the generosity, commitment and hard work of Tim’s family, the trust and others with counterparts in India.

India has grown rapidly in the last decade and is now one of the world’s major economies, but remains home to one third of the world’s poor. In recent years, India has rapidly increased its spending on health, education and other development issues. In recognition of India’s changing place in the world, the Secretary of State for International Development announced in a statement to Parliament in November 2012 that we have agreed with the Government of India to move to a new type of development relationship. After 2015, our partnership will focus on sharing skills and expertise, making private-sector investments that will help the poorest people and generate returns, and strengthening partnership on global development issues such as food security and climate change.

UK aid is delivering results in India; for example, it is reaching out to 3.6 million pregnant women and to children under five through nutrition programmes, and will give roughly 2 million people access to improved sanitation by 2015. This Government are assisting civil society organisations of all shapes and sizes in playing a critical role in fighting poverty, and we will continue to do so. The world has made unprecedented progress in the fight against poverty in the last two decades.

In this debate, with a great deal of interest, we have learned all about the Pruss family and their commitment, the Tim Pruss memorial school and the Bede Griffiths Charitable Trust. I am pleased to acknowledge the trust’s commitment to making a difference, and the time and effort given by Dr and Mrs Pruss and all those involved in this important charity. I hope that we have been able to put on record the work that has been done; my hon. Friend the Member for Beckenham has done a superb job in doing that. After this debate, we in the Department will certainly consider in what ways we might assist, but the most important thing is to congratulate the trust and all involved in it, and to support it in continuing the good work that it has done so far.

Money Creation and Society

Bob Stewart Excerpts

Thursday 20th November 2014 Commons Chamber

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

It is a pleasure, as always, to follow the right hon. Member for Oldham West and Royton (Mr Meacher), who gave us a characteristically thoughtful and radical speech. I do not necessarily start from the same premises as him, but what he says is an important contribution to the debate, on the securing of which I credit my hon. Friend the Member for Wycombe (Steve Baker). He has done the House and the country a service by forcing us to focus on the issue of where money comes from and what banks do. He did so in an insightful way. Above all, he showed that he sees, as our old universities used to see, economics as a branch of moral sciences. It is not just a narrow, analytical, economic issue, but a moral, philosophical and ultimately a theological issue, which he illuminated well for the House.

A lot has been made of the ignorance of Members of Parliament of how money is created. I suspect that that ignorance, not just in Members of Parliament but in the intellectual elite in this country, explains many things, not least why we entered the financial crisis with a regulatory system that was so unprepared for a banking crisis. I suspect that it is because people have not reflected on why banks are so different from all other capitalist companies. They are different in three crucial respects, which is why they need a very different regulatory system from normal companies.

First, all bankers—not just rogue bankers but even the best, the most honourable and the most honest—do things that would land the rest of us in jail. Near my house in France is a large grain silo. After the harvest, farmers deposit grain in it. The silo gives them a certificate for every tonne of grain that they deposit. They can withdraw that amount of grain whenever they want by presenting that certificate. If the silo owner issued more certificates than there was grain kept in his silo, he would go to jail, but that is effectively what bankers do. They keep as reserves only a fraction of the money deposited with them, which is why we call the system the fractional reserve banking system. Murray Rothbard, an Austrian economist much neglected in this country, said very flatly that banking is therefore fraud: fractional reserve banking is fraud; it should be outlawed; banks should be required to keep 100% reserves against the money they lend out. I reject that conclusion, because there is a value in what banks do in transforming short-term savings into long-term investments. That is socially valuable and that is the function banks serve.

We should recognise the second distinctive feature of banks that arises directly from the fact that they have only a fraction of the reserves against the loans they make: banks, individually and collectively, are intrinsically unstable. They are unstable because they borrow short and lend long. I have been constantly amazed throughout the financial crisis to hear intelligent people say that the problem with Northern Rock, RBS or HBOS, or with the German, French, Greek and other banks that ran into problems, was the result of their borrowing short and lending long, and they should not have been doing it, as if it was a deviation from their normal role. Of course banks borrow short and lend long. That is what banks do. That is what they are there for. If they had not done that they would not be banks. Banking works so long as too many depositors do not try to withdraw their funds simultaneously. However, if depositors, retail or wholesale, withdraw or refuse to renew their short-term deposits, a bank will fail.

If normal companies fail, there is no need for the Government to intervene. Their assets will be redeployed in a more profitable use or taken over by a better-managed company. But if one bank fails, depositors are likely to withdraw deposits from other banks, about which there may also be doubts. A bank facing a run, whether or not initially justified, would be forced to call in loans or sell collateral, causing asset prices to fall, thereby undermining the solvency of other banks. So the failure of one bank may lead to the collapse of the whole banking system.

The third distinctive feature of banks was highlighted by my hon. Friend the Member for Wycombe: banks create money. The vast majority of money consists of bank deposits. If a bank lends a company £10 million, it does not need to go and borrow that money from a saver; it simply creates an extra £10 million by electronically crediting the company’s bank account with that sum. It creates £10 million out of thin air. By contrast, when a bank loan is repaid, that extinguishes money; it disappears into thin air. The total money supply increases when banks create new loans faster than old loans are repaid. That is where growth in the money supply usually comes from, and it is the normal situation in a growing economy. Ideally, credit should expand so that the supply of money grows sufficiently rapidly to finance growth in economic activity. When a bank or banks collapse, they will call in loans, which will reduce the money supply, which in turn will cause a contraction of activity throughout the economy.

In that respect, banks are totally different from other companies—even companies that also lend things. If a car rental company collapses, it does not lead to a reduction in the number of cars available in the economy. Its stock of cars can be sold off to other rental companies or to individuals. Nor does the collapse of one rental company weaken the position of other car rental companies; on the contrary, they then face less competition, which should strengthen their margins.

The collapse of a car rental company has no systemic implications, whereas the collapse of a bank can pull down the whole banking system and plunge the economy into recession. That is why we need a special regulatory regime for banks and, above all, a lender of last resort to pump in money if there is a run on the banks or a credit crunch, yet this was barely discussed when the new regulatory structure of our financial and banking system was set up in 1998. The focus then was on consumer protection issues. Systemic stability and the lender-of-last-resort function were scarcely mentioned. That is why the UK was so unprepared when the credit crunch struck in 2007. Nor were these aspects properly considered when the euro was set up. As a result, a currency and a banking system were established without the new central bank being given the power to act as lender of last resort. It has had to usurp that power, more or less illegally, but that is its own problem.

This analysis is not one of those insights that come from hindsight. Some while ago, Michael Howard, now the noble Lord Howard, reminded Parliament—and indeed me; I had completely forgotten—that I was shadow Chancellor when the Bill that became the Bank of England Act 1998 was introduced. He pointed out that I then warned the House:

“With the removal of banking control to the Financial Services Authority…it is difficult to see how…the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”

And so it turned out. I added:

“setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 731-32.]

So that turned out, too. I could foresee that, because the problem was not deregulation, but the regulatory confusion and the proliferation of regulation introduced by the former Chancellor, which resulted from a failure to focus on the banking system’s inherent instability, and to provide for its stability.

This failure to focus on the fundamentals was not a peculiarly British thing. The EU made the same mistakes in spades when setting up the euro, and at the very apogee of the world financial system, they deluded themselves that instability was a thing of the past. In its “Global Financial Stability Report” of April 2006, less than 18 months before the crisis erupted, the International Monetary Fund, no less, said:

“There is growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risk on their balance sheets, has helped to make the banking and overall financial system more resilient…The improved resilience may be seen in fewer bank failures and more consistent credit provision. Consequently, the commercial banks…may be less vulnerable today to credit or economic shocks.”

The supreme irony is that those at the pinnacle of the world regulatory system believed that the very complex derivatives that contributed to the collapse of the financial system would render it immune to such instability. We need constantly to be aware that banks are unstable, and are the source of money. If instability leads to a crash, that leads to a contraction in the money supply, and that can exacerbate and intensify a recession.

[Bob Stewart (Beckenham) (Con)]

I am listening carefully to my right hon. Friend. Does that mean that the banks are uncontrollable, as things stand?

[Mr Lilley]

No; they can and should be controlled. They are controlled both by being required to have assets, and ultimately by the measures that Government should take to ensure that they do not expand lending too rapidly. That is the point that I want to come on to, because a failure to focus on the nature of banking and money creation causes confusion about the causes of inflation and the role of quantitative easing.

As too many people do not understand where money comes from, there is confusion about quantitative easing. To some extent, the monetarists, of whom I am one, are responsible for that confusion. For most of our lifetime, the basic economic problem has been inflation. There have been great debates about its causes. Ultimately, those debates were won by the monetarists. They said, “Inflation is caused by too much money—by money growing more rapidly than output. If that happens, inevitably and inexorably, prices will rise.” The trouble was that all too often, monetarists used the shorthand phrase, “Inflation is caused by Government printing too much money.” In fact, it is caused not by Government printing the money, but by banks lending money and then creating new money at too great a rate for the needs of the economy. We should have said, “Inflation follows when Governments allow or encourage banks to create money too rapidly.” The inflationary problem was not who created the money, but the fact that too much money was created.

The banks are now not lending enough to create enough money to finance the growth and expansion of the economy that we need. That is why the central bank steps in with quantitative easing, which is often described as the bank printing money. Those who have been brought up to believe that printing money was what caused inflation think that quantitative easing must, by definition, cause inflation. It only causes inflation if there is too much of it—if we create too much money at a faster rate than the growth of output, and therefore drive up prices—but that is not the situation at present.

--- Later in debate ---

[Zac Goldsmith (Richmond Park) (Con)]

I want to put on record my gratitude to my hon. Friend the Member for Wycombe (Steve Baker) for having initiated this debate, and to his supporters from various parties. Having heard his speech—or most of it; I apologise for being late—I am even more satisfied that it was right to cast my vote for him to join the Treasury Committee.

My hon. Friend has introduced an incredibly important debate. As we have heard, this issue has not been debated here for well over a century. We would not be having it were it not for the fact that we are still in the midst of tumultuous times. We had the banking crash and the corresponding crash in confidence in the banking system and in the wider economy, and now, partly as a consequence, we have the problem of under-lending, particularly to small and medium-sized businesses. This subject could not be more important.

The right hon. Member for Oldham West and Royton (Mr Meacher)—I will call him my right hon. Friend because we work together on many issues—pointed out at the beginning of his speech that this issue is not well understood by members of the public. As I think he said later—if not, I will add it—it is also not well understood by Members of Parliament. I would include myself in that. I suspect that most people here would be humble enough to recognise that the banking wizardry we are discussing is such a complex issue that very few people properly understand it.

[Bob Stewart]

I totally associate myself with my hon. Friend’s comments about ignorance and include myself in that. It seems to me that the system is broken. The banks will not lend money because the Government have told them that they have to keep reserves. We do not like quantitative easing because that means that the banks are not lending. There is something very wrong with the system. It is not a case of “if the system isn’t broke, don’t fix it”, but “the system is broke, and someone’s got to fix it”.

[Zac Goldsmith]

My hon. Friend makes a valuable point that I will come to later.

If Members of Parliament do not really understand how money is created—I believe that that is the majority position, based on discussions that I have been having—how on earth can we be confident that the reforms that we have brought in over the past few years are going to work in preventing repeated collapses of the sort that we saw before the last election? In my view, we cannot be confident of that. The problem is the impulsive position taken by ignorant Members. I do not intend to be rude; as I said, I include myself in that bracket. For too many people, the impulse has been simply to call for more regulation, as though that is going to magic away these problems. As my hon. Friend the Member for Wycombe said, there are 8,000 pages of guidance in relation to one aspect of banking that he discussed. The problem is not a lack of regulation; it is the fact that the existing regulations miss the goal in so many respects. Banking has become so complex and convoluted that we need an entirely different approach.

When we talk to people outside Parliament about banking, the majority have a fairly simple view—the bank takes deposits and then lends, and that is the way it has always been. Of course, there is an element of truth in that, but it is so far removed from where we are today that it is only a very tiny element.

Childcare Payments Bill

Bob Stewart Excerpts

Monday 17th November 2014 Commons Chamber

[Priti Patel]

I welcome the hon. Member for Wirral South (Alison McGovern) to her position and post. It is good to hear from her. Obviously, she did not have the full benefit of participating in the Committee, so it is good to hear her views today.

New clause 2 is about the Bill’s impact on child care costs, an issue that we discussed at some length in Committee. The new clause would require the Government to publish a review of the Bill’s impact on the cost of child care three months after it passed into law, and every three years thereafter. The review would have a particular focus on the effectiveness of the Act in making child care more affordable, the average cost of child care for working parents, and the impact of supply-led measures on costs.

As I have said many times in debates on this Bill, the Government have made a clear commitment to review the impact of the scheme two years after full implementation. That was set out in the impact assessment published alongside the Bill. The Government feel that a two-year assessment period is reasonable and will allow sufficient time for the scheme to become bedded in, so that the full impacts can be assessed and properly evaluated in the context of wider Government policy. We do not think that there is anything to be gained from adding a further review after only three months.

I think that all hon. and right hon. Members are rightly concerned about the impact that high child care costs have on working parents. We understand the cost of child care, and the Government are committed to supporting parents to meet that cost; that is the purpose of the Bill.

[Bob Stewart (Beckenham) (Con)]

I assume that the Minister and her team will watch this very closely from the start. She may not need a review: if she saw something going wrong, she would take immediate action to correct it, before the two-year point.

[Priti Patel]

I thank my hon. Friend for his comment. Naturally, we want to get this right, so there is oversight at every level. Later in my remarks, I shall touch on areas where his remarks are valid and pertinent.

We know that child care is an expensive outgoing for many families across the country. This Government understand the need for both demand and supply-led measures to ensure that the costs of child care do not spiral out of control. We have been taking steps to ensure that both sides of the problem are properly considered. The Government believe that increasing supply is an effective way of limiting further price rises, and are therefore making significant reforms to support the child care sector in increasing the supply of places.

The Government are taking actions beyond the scope of the Bill to improve the quality and supply of child care provision. These reforms are designed to ensure that any increase in demand for child care arising from the new scheme will be matched by increased supply and not by increased costs. The latest figures show that there are about 100,000 more child care places than in 2009, and the Government are taking action to grow the supply of child care still further, which will improve choice and affordability for parents. For example, we are making start-up grants of up to £2 million available to help people set up new child care businesses. We are also enabling good and outstanding childminders to access funding for early education places. Only 4,000 do so currently, but as a result of our reforms, up to 32,000 will be automatically eligible. We are making it simpler and easier for schools and child care providers to work together to increase the amount of child care available on school sites, and only this year we have introduced childminder agencies, which are designed to improve the support available for both childminders and parents, and to simplify existing regulatory frameworks to allow nurseries to expand more easily.

We recognise that child care costs place a significant financial burden on many families, but research shows that after 12 years of consistently rising prices, the costs of child care in England have stabilised for the first time. There is encouraging evidence that costs of some of the most popular types of child care are falling in England. For example, the Family and Childcare Trust reported in March that the cost of nurseries in 2014 was 2% lower than in the previous year in real terms. Similarly, the cost of after-school clubs reduced by 5% in real terms during the same period. Once inflation is taken into account, costs for the majority of parents have fallen. This means that more parents are able to access affordable child care and support their families, and shows that the Government’s reforms are making a difference. We should compare that with the situation under Labour, when costs rose nearly 50% between 2002 and 2010, and the average cost of child care rose faster than inflation.

Alongside these measures to increase the provision of good quality, affordable child care, the Government have taken significant steps to support families in meeting their child care costs.

National Insurance Contributions Bill

Bob Stewart Excerpts

Tuesday 11th November 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I would like to think that the Minister and I are always vociferous and meticulous in our deliberations on finance and taxation matters, and that we have both been efficient in our deliberations on the Bill. That is because, as the Minister explained, this is a short Bill which aims to simplify the administrative process of paying class 2 national insurance contributions for the self-employed. It applies measures from this year’s Finance Bill, now the Finance Act 2014, to NICs, and introduces a targeted anti-avoidance rule, a so-called TAAR, to tackle disguised self-employment made possible through employment intermediaries and offshore employers. We have supported the Bill throughout its previous stages in the House and will do so today.

Until now, as the Minister explained, payments of class 2 and class 4 NICs by the self-employed have had to be made separately. When the Office of Tax Simplification looked at these matters in 2012, it proposed bringing class 2 NICs within self-assessment, and suggested that this change would bring administrative benefits to self-employed persons and businesses. In July 2013, HMRC published a consultation document in which it noted that the present system places significant burdens on small businesses, and that although class 2 NICs accounted for less than 0.3% of the £102 billion or so of NICs collected by HMRC in 2012-13, they accounted for more than 40% of national insurance-related telephone calls to HMRC and the resulting processing work. The Bill therefore changes the liability for class 2 NICs so that it arises at the end of the tax year and not weekly, as now, and moves class 2 NICs into self-assessment, so that self-employed people can deal with their class 2 NICs together with their income tax and class 4 NICs.

We support the aim of making the system easier for self-employed people and reducing the administrative burden caused by the current separate systems for the collection of class 4 and class 2 NICs. Almost one person in six is self-employed, so this is a significant issue affecting a large number of people. Making the system easier to navigate is therefore welcome and of genuine practical benefit for the self-employed.

A number of specific issues were raised by stakeholder groups regarding eligibility for maternity allowance and the impact of this simplification on people claiming universal credit. Those are issues that we raised on Second Reading, which the Minister dealt with in Committee. We were also able to take evidence from expert witnesses who gave evidence to the Committee. We had some useful clarification and reassurance from the Minister on those points, which has dealt with the concerns raised. We are grateful for that.

We noted in Committee that communication of these changes to the people affected by them will be very important, a point which the Minister acknowledged. We were concerned particularly about people who might be described as digitally excluded. It is of course easier for the Government, and it is a responsible time and expense-saving mechanism, to put lots of advice on the internet, but there are groups, perhaps especially those who are self-employed and who may ultimately be reliant on universal credit, who might be described as digitally excluded, and it is important that they can access information about how the changes may impact on them. The Minister gave assurances to the Committee that those matters were in hand. We will continue to scrutinise this aspect as the Bill progresses and becomes law.

As the Minister explained, the Bill also extends provisions relating to follower notices, accelerated payment notices and measures to tackle high-risk promoters of tax avoidance schemes that were passed in the Finance Act 2014 in relation to income tax. It applies those rules to NICs as well. As the Minister noted, we have had extensive debate on these measures, primarily during the passage of the Finance Bill 2014. In Committee the Minister provided a helpful update on how the measures relating to income tax are bedding in.

We heard encouraging evidence from expert witnesses that these measures were already having a positive behavioural impact on the way in which individuals approached their taxation affairs, and that the measures were preventing people from getting involved in schemes that they might previously have taken a chance on. We welcome that. We will continue to scrutinise the impact of these measures, and in particular the effectiveness of HMRC’s internal governance mechanisms in relation to follower notices. These are important changes and they continue to have our support.

Clause 5 introduces a new TAAR to cover the payment of national insurance contributions, which sits alongside the provisions in this year’s Finance Act aimed at tackling employment intermediaries who falsely label workers as self-employed to reduce their tax liabilities. For workers who are falsely badged as self-employed, particularly for those who do not know that that is the case, which has happened on an alarmingly regular basis, the effect is that they are not eligible for many of the benefits available to employed earners, such as holiday and sickness pay.

This year’s Finance Act amended legislation directly to address the issue in relation to the payment of income tax. A worker will now be designated as an employee if they are under the supervision, direction or control of someone else, and in that case they must be paid through PAYE, rather than as a self-employed worker. That is a change from the previous designation, under which a worker is deemed to be an employee if they provide their services personally. It was found by HMRC that many intermediaries were able to exploit that test by claiming that there was no obligation for the worker to provide their services personally. To get around that, a clause was often inserted into a worker’s contract stating that they could send somebody else to do their work, even though in reality the employer wanted that specific worker.

[Bob Stewart (Beckenham) (Con)]

I seek clarification from the Minister or the hon. Lady, who understand these things well. A part-time worker has to pay national insurance contributions, and so does the employer. I was a little puzzled that that might not be the case, but it is, is it not?

[Shabana Mahmood]

I am grateful for the question. If workers are above the threshold which is in place for the paying of national insurance contributions, the usual rules apply. I am sorry if I confused the hon. Gentleman; I was talking about self-employed people, which is a particular case in the context of the Bill. Clause 5, as I said, introduces a targeted anti-avoidance rule to prevent a type of abuse that has been occurring through employment intermediaries.

The role of the TAAR envisaged in the Bill is to prevent the circumventing of the rules so that workers who would be employed earners if it were not for the intermediary arrangements are treated as employed earners. That will allow HMRC to consider both the motive for setting up such an arrangement, including whether it was set up to avoid NICs, and what was achieved, including whether it resulted in less NICs being paid. As I said, the problem of bogus self-employment is widespread and complex. We heard evidence on that, particularly in Committee where one witness said that there were ways in which companies were trying to avoid paying national insurance contributions. The Minister helpfully told the Committee that he and his officials were already looking into that.

Taking action in this area is difficult. If often feels as if the Government of the day are playing catch-up with companies intent on trying to find ways of getting around the rules, but tackling bogus self-employment is necessary for parties of all political persuasions to protect revenues to the Exchequer. The Minister and I may occasionally disagree on the emphasis and priorities for action in dealing with false self-employment, but the TAAR introduced by clause 5 is a useful addition to the Government’s armoury for tackling this type of tax avoidance, and we support that measure.

Question put and agreed to.

Bill accordingly read the Third time and passed.