Royal Mint Advisory Committee

Chloe Smith Excerpts

Tuesday 27th March 2012 Written Statements

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

In accordance with the Cabinet Office’s guidance on public bodies, I have launched a review of the Advisory Committee on the Design of Coins, Medals, Seals and Decorations, also known as the Royal Mint Advisory Committee. This review will examine the Committee’s functions and whether it should exist at arm’s length from Government. If it does, the review will go on to examine whether the Committee’s control and governance arrangements continue to meet the recognised principles of good corporate governance. I will inform the House of the outcome of the review when it is completed.

Illegal Alcohol and Tobacco Sales

Chloe Smith Excerpts

Tuesday 27th March 2012 Westminster Hall

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

It is a pleasure for me, as it is for every hon. Member, Ms Dorries, to serve under your chairmanship for the first time.

I am grateful to have—I hope—a relaxed amount of time to respond in detail to the many points that have been raised today, beginning with those presented so well at the outset by my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman), who secured the debate, and then those of other hon. Members who have contributed. I welcome, as my opposite number did, a fairly consensual, constructive debate—if I blur some questions about tobacco packaging—in which hon. Members have sought answers rather than conflict.

I begin by reassuring hon. Members that the Government share the recognition that alcohol and tobacco fraud is serious. We are committed to bringing it down in the ways that I shall describe. Fraud of the kind that we have discussed this morning clearly affects not only public revenues and all the uses we put them to, but the livelihoods of honest businesses, as many hon. Members have said.

Questions have been asked about HMRC’s performance, for which I am one of two Ministers with departmental responsibility. First, my hon. Friend the Member for Hereford and South Herefordshire asked whether we could do better in publishing numbers of seizures and other such data. Such statistics are available on demand. I should be happy to enter into conversation with him about what he is seeking. In brief, detailed statistics on both seizures and prosecutions are no longer published. There was little evidence that such data were put to any use by those outside HMRC. However, I am happy to assist my hon. Friend if he has particular questions.

My hon. Friend also asked whether it is true that fewer cigarettes are seized today than in 2001-02. On that point, I will open up my description of the work that we have been doing to combat fraud. I assure him that between 2002 and 2011, between 1.7 billion and 2 billion cigarettes were seized every year. In this year, 2011-12, to the end of February—the period for which figures are available—1.7 billion have already been seized.

On HMRC’s broader strategy, starting with alcohol fraud, hon. Friends and other hon. Members will be aware that, in 2005, HMRC first launched its strategy to tackle alcohol fraud, focusing on fraud in the spirits sector. I am pleased to report notable success in halving the size of the illicit spirits market since 2005-06. In 2009, HMRC launched a refreshed alcohol strategy, which aimed at expanding the scope and reach of its compliance work and tackling all forms of alcohol fraud. Since then, its enforcement activity targeting alcohol fraud has been stepped up by more than 50%, which, again, I am sure that hon. Members welcome. However, the battle is not yet won, as all hon. Members have highlighted. We have a way to go. Our commitment to tackling alcohol fraud in all its forms remains strong.

Hon. Members will be aware that, only last Friday, the Home Secretary announced a new alcohol strategy, for which I welcome the support shown here today. That initiative, which is cross-Government work at its finest—I shall come on to the concept of cross-Government work—sets out a wide range of Government action to tackle excessive alcohol consumption and to turn the tide against irresponsible drinking, which, to put figures on it, costs the UK taxpayer £21 billion a year and led to almost 1 million alcohol-related violent crimes and 1.2 million alcohol-related hospital admissions last year alone.

The strategy sets out how local areas will be given more power to tackle local problems, including the ability to restrict opening and closing hours, to control the density of licensed premises and to charge a late-night levy to support policing. I am confident that my hon. Friend the Member for Bristol West (Stephen Williams) will support that kind of local approach—he nods to indicate that he does, which is excellent. Such a strategy clearly has the benefit of giving people the information and support that they need to make the right choices—in particular, through the health arena, for example, by asking the chief medical officer to review the alcohol guidelines for adults and by working with industry to take 1 billion units out of the market by 2015.

The strategy also reveals the Government’s determination to get to grips with one of the root causes of the problem by stemming the tide of cheap alcohol. We are doing so through methods such as the introduction of a minimum unit price, which will ensure for the first time that alcohol can only be sold at a sensible and appropriate price. Relevant to the debate, the strategy acknowledges the Government’s role in responding to emerging threats or issues, some health-related, such as the rising incidence of liver disease.

[Andrew Griffiths]

Does the Minister agree that the new proposal for minimum pricing will not only tackle the problems of binge drinking and preloading and the cost of policing and accidents and emergencies, but will support our community pubs and be good for the pub trade?

[Miss Smith]

My hon. Friend makes precisely the point that I have made myself several times in recent days. Our proposed pricing, which we are consulting on, will not affect the price of a pint in a pub—I am proud to put that on the record today. For good measure, I note that last week’s Budget added only 3p to the price of a pint in a pub, several of which I enjoyed over the weekend after all the hard work. Perhaps that returns me to the rising incidence of liver disease on a note of bad taste.

Some of the other threats and issues for the Government to look at in their alcohol strategy might be crime-related, such as the increase in alcohol duty fraud, which I am about to go on to, and some might be both health and crime-related, such as the growing availability of counterfeit alcohol, which can be dangerous for consumers. The strategy is targeted explicitly at harmful drinkers and at places such as problem pubs and irresponsible shops, including those that sell cheap or counterfeit alcohol. Over the forthcoming months, the Government will run a number of public consultations on the strategy’s proposals.

Alcohol duties are an important source of Government revenue, raising approximately £9 billion a year in public funds. Alcohol duty fraud, by contrast, costs the country as much as £1.2 billion every year, which takes money away from public services such as schools and hospitals. As has been mentioned, community pubs are facing difficult circumstances in tough economic times, as we are all aware in our constituencies. The Government want to protect community pubs and the tens of thousands of UK jobs provided by the food and drinks sector. Such jobs ought not to be put under even greater threat by the growing availability of illicit alcohol. Indeed, the overwhelming majority of law-abiding businesses throughout the industry, from small brewers to corner shops, that sell alcohol legally are put at a grossly unfair competitive disadvantage as a direct result of alcohol fraud.

Latest estimates show that beer fraud in particular is an acute problem, with losses to the public purse estimated at as much as £800 million in 2009-10. That is unacceptable and cannot be allowed to continue.

[Andrew Griffiths]

rose—

[Miss Smith]

My hon. Friend might want to ask about cider and wine, and I shall come to them in a moment. I would not dream of failing to answer that question for him, but I will work through a few more points before coming to that strand.

Ensuring that honest businesses can compete fairly is a Government priority. Another priority brings me on to joint working, as mentioned by several hon. Members, notably my hon. Friend the Member for Hereford and South Herefordshire and the hon. Members for North Antrim (Ian Paisley) and for Kilmarnock and Loudoun (Cathy Jamieson). I hear the calls for a single Minister in this respect, but let me first outline what we already do, which I hope will assist and which, I am sure hon. Members will agree, takes us fairly close to having accountability in the right places.

Her Majesty’s Revenue and Customs has a seat on the board of the UK border force and works closely with it, not only in designing and developing fraud strategies but in operational activity, such as sharing intelligence, tackling the organised criminals who have been rightly attacked in today’s debate and conducting joint exercises. The director of border revenue is accountable to the Treasury through me, the Economic Secretary to the Treasury, so hon. Members can see HMRC, the Home Office and the Treasury coming together. The border force was introduced recently, as announced by the Home Secretary; its responsibilities are explained on the website. I have regular meetings with the chief executive and others in that organisation, so that we work effectively together.

I hope that begins to reassure hon. Members that the right parts of Government are working together. Moving on to what we can do together, with the UK border force, HMRC already carries out substantial enforcement activity against all forms of alcohol fraud, successfully disrupting illicit supply chains and penalising those involved in the fraud. However, given the scale of the problem, enforcement alone is not enough to provide the level playing field that we all seek for our legitimate businesses, so I come to the Budget proposals for further ways to bust fraud and to explore all potential enforcement and legislative measures, which include restricting criminals’ access to stocks of illicit alcohol in the first place and tackling the illicit supply of alcohol to wholesalers and retailers. On the table are options including the introduction of fiscal marks for beer, supply chain legislation and a licensing scheme for wholesale alcohol dealers. I heard the points made by my hon. Friend the Member for Hereford and South Herefordshire on licensing more broadly and on the closure of premises, which is definitely one weapon in the arsenal.

I can clarify something for my hon. Friend at this point. HMRC can refer cases to other regulatory authorities for consideration of the revocation of a retailer’s licence to sell alcohol. I am aware of at least one case—from the Hereford and Worcester BBC news, no less, in 2011—in which a shop in Hereford lost its licence after smuggled cigarettes and alcohol were found during two raids.

[Jesse Norman]

As I mentioned to the shadow Minister, the hon. Member for Kilmarnock and Loudoun, some premises are not licensed at all and therefore not subject to the loss of a licence. In many cases, such premises are not controlled by the people in them, so raiding them, fining them and impounding the goods may deter the individual but does not deter the criminal ring behind the business. What is required is some method of closing the premises for a period.

[Miss Smith]

My hon. Friend makes an extremely valuable point. That will require joint discussion and consideration, but I hope that local authorities will seek to take a role in it under the powers that we wish to allow them through the alcohol strategy and other means.

Questions were asked about fiscal marking. The consultation document was launched yesterday and is available on the HMRC website. In response to the point about how we are conducting the consultation, I welcome the continued engagement of the alcohol industry. There is already a joint HMRC and industry group on fraud and other matters of concern, which I hope satisfies the hon. Member for Kilmarnock and Loudoun.

Turning to wine and cider specifically, cider revenue losses are not believed to be as substantial as losses elsewhere. On wine, I am well aware of the points about equivalence not only of wine, to which my hon. Friend the Member for Great Yarmouth (Brandon Lewis) referred, but of cider. Most wine comes from outside the UK, so fiscal marks are less practical than for beer. The consultation refers to how to mark bottles and cans that move through the UK.

[Andrew Griffiths]

First, I am intrigued that the Minister says that because wine is imported, it is less likely to be controlled. Surely, it is more likely to be smuggled because it is being imported. Secondly, why is there is no publishable estimate of wine fraud? Why does her Department have no estimate of the value and cost of wine fraud into this country?

[Miss Smith]

I think that I had better come back to my hon. Friend in slightly more detail than I can in the time remaining now. I urge him and anyone else who is interested to take a close look at the consultation paper and the information contained within it, and to reply. I reiterate that I am keen to work with industries of all shapes and sizes, whatever their products, to understand the impact on them and the available data. One of the key efforts that I and my officials have made to date has been to work with several key industry groups, including the British Beer and Pub Association and independent brewers in advance of publishing the consultation document to understand the available data that can be acted on.

We are aware of course that any new measures might attract costs during implementation. The Government are sensitive to that and keen to be on the side of legitimate businesses in drawing out issues of cost and practicality and moving to a solution that safeguards them and jobs.

On tobacco fraud, it is a sad fact that although tobacco duty raises around £9 billion a year, duty fraud costs the UK more than £2 billion a year and undermines the efforts by the Department of Health to reduce smoking prevalence. Trade in illicit tobacco makes cheaper tobacco more readily available to the youngest and most vulnerable people in society, as the hon. Member for Stockton North (Alex Cunningham) ably described. As with alcohol fraud, tobacco fraud takes trade away from honest businesses, so it is a matter of pride that HMRC has halved the illicit cigarette market in the UK since 2000.

I want briefly to introduce minimum indicative levels, which some hon. Members will be aware of. The hon. Member for North Antrim made a point about how to stop and search what is coming in. Since October last year, the Government have reduced the MILs for personal import of cigarettes and tobacco into this country, which reduces the opportunity for fraud and brings us into line with the rest of the European Union. MILs are a guide to personal use, so if someone has more than the level, having already been stopped, they will be more likely to be challenged further on their assertion that the goods are for personal use. There are, of course, points to be made, perhaps in another debate, about the free movement of goods and the fact that all goods imported for commercial purposes must have their excise duty paid.

I turn to what HMRC must do further to avoid complacency and, with the border force, to maintain a strategy to address the source, supply and demand for illicit tobacco in this county. The aim of the tobacco strategy is to intercept as much illicit product as possible before it crosses the border into the UK. The Government are providing more than £25 million in additional funding over the next four years in direct support of that strategy. That is part of the extra £917 million reinvestment in HMRC specifically to tackle organised crime, tax evasion and avoidance, all of which contribute to the delivery of an additional £7 billion per year in tax revenue by 2014-15. That is a sign of our intention, commitment and confidence on reducing fraud.

Details of the strategy and what our increased investment will provide that might be of interest include additional criminal investigators to target criminal gangs and to prosecute more offenders involved in tobacco fraud at all levels, additional intelligence and enforcement staff to tackle smuggling and an expansion of HMRC’s intelligence and enforcement work overseas, to target supply-chain activity in high-risk source and transit countries for illicit tobacco.

I heard the call by my hon. Friend the Member for Bristol West for better registration and to work with the World Health Organisation to trace the movement of tobacco products. He will know that the UK is a partner and a signatory to the WHO. The agreement is worldwide and in the form of the framework convention on tobacco control. During the next few weeks, a UK representative will attend a meeting in Geneva, where we hope to obtain agreements to that framework convention, which will provide a wide range of control measures. I shall be happy to talk to my hon. Friend about that later if he wishes.

The hon. Member for North Antrim referred to organised crime. I have joined him at a Select Committee evidence session covering some of the issues. In addition to duty losses that we have discussed—illicit production, counterfeiting and the abuse of cross-border shopping rules—the most significant threat that we face in relation to alcohol and tobacco fraud today comes from organised criminal gangs, which smuggle alcohol products into the UK in large commercial quantities, duty unpaid. HMRC is working closely with key partners to tackle organised crime in line with the Government’s strategic approach, which was set out in a paper published in July 2011.

That strategy outlines a comprehensive approach to reduce the risk to the UK and its interests from organised crime by reducing the threat from organised criminals, vulnerabilities to the UK and criminal opportunities. The key players in that work include HMRC, the UK Border Agency, the Serious Organised Crime Agency and, of course, the police. They are overseen in their work by the organised crime partnership board. I hope that that reassures hon. Members that we have a truly multi-agency response to organised crime. All four bodies are represented, for example, in the establishment of the new organised crime co-ordination centre. They are all closely involved in the design and build of the new National Crime Agency.

In conclusion, the Government’s response to alcohol and tobacco fraud is articulated in HMRC’s alcohol fraud and tobacco strategies and was reaffirmed in last week’s cross-Government alcohol strategy. It represents a coherent package of measures to hit back hard against these types of fraud from several directions. I thank my hon. Friend the Member for Hereford and South Herefordshire and other hon. Members who have contributed to today’s lively but well-informed and wide-ranging debate. I am sure that my colleagues in other Departments who have been mentioned today will be grateful for the comments and insight provided and will take the points made into account in the further development of their work in this area and with industry when appropriate.

Budget Resolutions and Economic Situation

Chloe Smith Excerpts

Friday 23rd March 2012 Commons Chamber

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I am grateful for the opportunity to respond to the debate and to reinforce, at the end of the first few days of Budget discussions, the Government’s determination to restore the UK to prosperity.

I regret that you have not been here for the whole debate, Mr Deputy Speaker. During the day, we have heard from the Opposition, in general terms, vacuousness, hypocrisy and a lack of ideas. Specifically, the efforts from the Front Bench of the hon. Member for Pontypridd (Owen Smith) show no grasp of the situation. I note he continued to put forward the view that child benefit should continue for millionaires. That is not something that the Government support.

As the House is already aware, it is because of decisive action that this Government have taken since the June Budget of 2010 that we have secured and maintained the stability of the UK economy. This year’s Budget builds on that strong foundation; it safeguards our economic stability; it creates a fairer, more efficient and simpler tax system; and it drives through reforms to unleash the private sector enterprise and ambition that is critical to our recovery.

[Mr Stewart Jackson]

Does my hon. Friend share my concern that the hon. Member for Barrow and Furness (John Woodcock) is being rather shy about sharing the good news this week? Because of this Government’s decisions on the tax and regulatory reform and regime, GlaxoSmithKline is going to provide £0.5 billion and 1,000 jobs to his constituency.

[Miss Smith]

That is right, and the word I would use is “churlish.” Perhaps the hon. Member for Barrow and Furness (John Woodcock) will justify now why he does not welcome that type of investment.

[John Woodcock]

I am delighted to get the chance to address the Minister on this, as I was delighted to welcome the Prime Minister to our patch. But will the Minister agree with Opposition Members, and in fact with GlaxoSmithKline, that it was the patent box legislation that Labour put forward that, as Andrew Witty said before the last election, would transform the life sciences sector? Will the Minister say thank you to us for putting that forward? We are glad that she has taken it on.

[Miss Smith]

If only they had been so full of good ideas in the last 13 years. It is absolutely clear from the timing of GSK’s announcement, the day after the Budget, that it is responding to the actions that we took to put this economy back on track. We will not return to growth through unsustainable debt, irresponsible spending and over-reliance on any one sector or any one region. Nor will we jeopardise the progress that we have made in tackling our debts. That is why, as the Chancellor said, this Budget will have a neutral impact on public finances and implements fiscal consolidation as planned. I could refer here to the CBI, for example, which says that there were many calls on the Chancellor to spend money he did not have.

Opposition Members have made interesting contributions to today’s debate. The hon. Member for City of Durham (Roberta Blackman-Woods) suggests that the coalition is unaware of the global crisis around us. I think the IMF knows that Britain is no longer in the fantasy land of Europe, and I think householders also know that we are in the very real land of securing the future for our children—of spending what we have and of taking this country away from the turmoil in the euro area and back to a strong foundation for private sector growth.

This Budget is

“one of the best ever for UK GDP growth”,

says the Centre for Economics and Business Research, but perhaps the hon. Lady disagrees.

[Roberta Blackman-Woods]

I wonder whether the Minister will answer my question about why, given the need for economic growth in the north-east, there is no mention whatsoever of County Durham in the Red Book.

[Miss Smith]

Mr Deputy Speaker, it may take more time than I have to list all the counties of the UK, although I would be happy to try if you were to be charitable with me. I think the point about the Budget is that it lays out what the Government are doing across the country, and it lays out what the reality is. I will explain the reality, and that is that 226,000 new jobs were created in the private sector last year. That makes over 600,000 since we came into government. The Office for Budget Responsibility forecasts that from the start of 2011 to 2017, a total of 1.7 million jobs will be created in the market sector. That is private sector growth built on a foundation of economic stability.

I will explain how we have gone even further to encourage greater growth—unless the hon. Member for Luton South (Gavin Shuker) would like to do that job for me.

[Gavin Shuker]

I am delighted to raise a very important point, and I hope a non-combative one. What is the Government’s position on the child poverty targets, enshrined in law, by 2020?

--- Later in debate ---

[Miss Smith]

This Government take child poverty extremely seriously, and this Government of course— [Interruption.] I beg your pardon. Is the hon. Gentleman still chuntering? Would he like to clarify his question?

[Gavin Shuker]

I will help the Minister. There is a legal framework in place, under laws passed by the previous Government, to hit child poverty targets by 2020. Will she give Her Majesty’s Government’s position on that target?

[Miss Smith]

I certainly join the hon. Gentleman in seeking to combat and take out child poverty, but it is this Government who will do that on the basis of our work through the Budget to put private sector growth at the heart of the recovery. The Government will consider all the matters that feed into poverty and not simply transfer income from one side of a line to another.

Let me outline the other key things that we are doing in the Budget. We are overhauling the planning rules, cutting corporation tax, restoring our international competitiveness and creating an invitation for investment in the UK’s economic future. As the House knows, the Government have already set out plans for some £250 billion of infrastructure investment in the next decade and beyond. That is critical to renewing our infrastructure network, which enables Britain to compete with emerging giants in the global market.

The Chancellor provided further details on those ambitions. They include taking forward a feasibility study into ownership and financing models for the road network; supporting Network Rail to invest a further £130 million in the northern hub rail scheme, and providing up to £150 million to projects in core cities, as well as Growing Places funding to empower communities and businesses to lead development in their areas.

Various hon. Members asked questions. I single out those of the hon. Member for Liverpool, Riverside (Mrs Ellman), the Chairman of the Select Committee on Transport, to whom my right hon. Friends will be happy to write to answer her specific questions. I thank other colleagues for their contributions. They will appreciate that I am now rather short of time owing to the pressing matters that Opposition Members raised.

As we invest in our physical infrastructure, it is also important that we invest in our digital infrastructure. That covers matters such as mobile coverage and broadband. It also means pushing such investment into cities; some cities will come forward for the super-connected cities initiative.

We want to help build on our long and very rich history of scientific and technological leadership. It is essential to sustain that and capitalise on our strength. It is also essential that we make the UK manufacturing supply chain more competitive. That sort of investment provides a springboard for entrepreneurs and manufacturers to lead a private sector recovery across all sectors and all parts of the country.

Just as we encourage businesses to expand at home, we must also focus on helping British businesses to expand overseas in ways in which my right hon. Friend the Chancellor set out last week. We can go further on exports—we aim to double our nation’s exports to £1 trillion by the end of the decade. We will not sit idly by while China, India and Brazil forge ahead.

Of course, if we want our businesses to take those risks to invest and hire new workers, we must ensure that they have access to finance. That is why the Budget contains the national loan guarantee scheme, on top of our deficit reduction strategy, which has earned market credibility and low interest rates. We are ensuring that the full benefits of those low interest rates are passed on to businesses throughout the UK.

It is this Government who are taking the decisive action needed to make Britain the best place to start, grow and finance a business; who are putting ingenuity, innovation and the enterprise of people in businesses at the heart of our recovery, and who are restoring our competitiveness and putting the UK at the heart of the global market. We are unashamedly backing business in the Budget by creating the most competitive tax system in the world, removing the bureaucratic burdens on businesses and investing in infrastructure.

My hon. Friends have already mentioned GlaxoSmithKline. I could add Nissan, Jaguar Land Rover and Tesco, which have announced that they are creating thousands of new jobs in the UK.

The Government are building a sustainable and prosperous economy in a recovery that builds on our strengths across all regions of the country and all the creativity and productivity of our private sector. We are also putting money in the pockets of low-paid workers. As the Chancellor said in his Budget speech, the Opposition borrowed us into trouble, we will earn our way out.

Ordered, That the debate be now adjourned.— (Mr Dunne.)

Debate to be resumed on Monday 26 March.

Fuel Tax Policy

Chloe Smith Excerpts

Wednesday 21st March 2012 Written Statements

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

At Budget 2011, as part of a package of measures to help motorists facing high petrol prices, the Government announced a fair fuel stabiliser (FFS) that would be funded by higher taxation of the profits from oil and gas companies when oil prices are high. As a result, the rate of supplementary charge on oil and gas production is now 32%. The Government also stated that, if the oil price falls below a set trigger price on a sustained basis, we will reduce the supplementary charge back towards 20% on a one penny per litre in each such year.

The Government said at the time that it believed a trigger price of $75 per barrel would be appropriate, and that it would set a final level and mechanism after seeking the views of oil and gas companies, and motoring groups. Following this period of informal consultation, I can announce that the fair fuel stabiliser will be implemented with effect from 21 March 2012.

The trigger price will be set at £45 sterling (being the rounded sterling equivalent of $75 based on the latest OBR exchange rate forecast for 2012). The trigger price will be fixed in sterling, and reviewed every three years. Whether the trigger price is met will be assessed annually on the first working day of February, starting in 2013. This assessment will be based on two FFS reference prices:

The average daily dollar oil price (per barrel) in the three months immediately prior to the date of assessment, converted to sterling using the average daily Bank of England exchange rate across the period.

The average daily dollar oil price (per barrel) in the week before the date of assessment, converted to sterling using the average daily Bank of England exchange rate across the period.

Each FFS reference price will be calculated using the North sea average reference value as established in the Oil Taxation (Market Value of Oil) Regulations 2005 (SI2006\3313).

Both reference prices are required to be met for the trigger price to be met. Thus, under the current tax regime (i.e. with the supplementary charge at 32%), if at the assessment date either of the two FFS reference prices is £45 or above, the trigger price has not been met and supplementary charge will continue to be levied at 32%. If both reference prices are below £45, the trigger price is met.

If oil prices were at a level where the trigger price had previously been met and supplementary charge were being levied at a lower rate, both the FFS reference prices would need to rise to £45 or above for the trigger price to be met again.

Any changes to the rate of supplementary charge and fuel duty that result from the trigger price being met will be announced at Budget in the year in question.

Tax and Customs Co-operation Programme

Chloe Smith Excerpts

Wednesday 14th March 2012 Written Statements

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I wish to inform the House that the Government have opted in to the proposal for a regulation of the European Parliament and of the Council establishing an action programme for customs and taxation in the European Union for the period 2014-2020 (known as FISCUS).

This proposal establishes a tax and customs co-operation programme to support the effective functioning of the internal market and operation of customs procedures, and to improve the functioning of taxation systems within the EU by increasing co-operation between member states. The programme aims to contribute to the Europe 2020 strategy for smart, sustainable and inclusive growth, by strengthening the functioning of the single market and EU customs union. It also has the objective of driving technical progress and innovation in national tax administrations with the aim of developing e-tax administrations and contributing to the establishment of a digital single market.

The UK has benefited from participation in predecessor programmes, in particular, through involvement in multilateral controls which can assist with the detection of tax fraud and through using customs 2013 activities to reduce administrative burdens for compliant businesses. The programmes also fund the maintenance and development of EU communication and information exchange systems. This is an area where spend on research and development can represent good EU added-value by providing economies of scale in the development of cross-EU networks.

First-time Buyers

Chloe Smith Excerpts

Wednesday 14th March 2012 Westminster Hall

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I start by joining the round of congratulations to my hon. Friend the Member for Winchester (Steve Brine). He has not only secured an important and topical debate, but spoken with real passion. I pleased to respond on behalf of the Government, both to him and to those who have also contributed with passion, whether from Blackpool, Milton Keynes, Cornwall or elsewhere. We have heard about homes, homelessness, history and our hopes for our children. We have heard about stalled development and proper community development, which I will touch on briefly. If Mr Gray will forgive me, I will also insert a small piece of history from my own constituency of Norwich North. I believe that the Mile Cross estate was the first council estate in England built outside London, something that I am very proud about. I shall stop there, before Mr Gray tells me to sit down.

My hon. Friend the Member for Winchester highlighted the package of support that the Government have introduced to help people own their home, and I will set out our progress on that. Before I do so, I will deal with some of the questions that were asked about the detail, principally by my hon. Friend. He asked whether NewBuy could be extended to existing properties, not just new properties. NewBuy builds on an industry-led scheme. That is very important, because it builds on support from both builders and lenders. It makes homes affordable, it stimulates economic activity, and, crucially, it increases supply.

The Home Builders Federation estimates that new build could deliver 25,000 additional homes in three years, supporting in turn up to 50,000 additional jobs, which I think all hon. Members will agree represents a real boost to the economy at a time when it is most needed.

On new versus existing, it is important to state that home building and the supply of new homes at present is not meeting the demand in the economy, so there is a pressing need for new build in that sense. A scheme focused on existing homes would be different and could have different financial consequences.

My hon. Friend also asked about the first-time buyer discount on stamp duty land tax, as did the hon. Member for Pontypridd (Owen Smith). Hon. Members will be aware of a review by Her Majesty’s Revenue and Customs in November 2011, which brought forth some staggering numbers that they may not be aware of. The review indicated that only 1,000 of the additional first-time buyers who bought a property between April 2010 and 2011 would not have purchased it without the relief. That 1,000 figure is derived from the 118,000 first-time buyers who used the relief, of whom it is believed 117,000 would have done so anyway. Hon. Members will agree that those remarkable numbers suggest that the relief was not effective in increasing the numbers of first-time buyers entering the housing market.

[Owen Smith]

Will the Minister give way?

[Miss Smith]

Before the hon. Gentleman asks me further questions, I must address his point about the cost of furthering the relief for a year being estimated at £150 million. I hesitate to give way to him, because in his comments and the questions that he asked me, he once again showed his party’s rather tenuous grip on credibility—if he thinks that such a sum represents value for money in helping first-time buyers and other purchasers. He then quibbled about whether the scheme that I shall outline really helps first-time buyers. He must ask serious questions if he thinks that £150 million spent in that way furthers that aim with no dead weight.

[Owen Smith]

rose—

[Miss Smith]

If the hon. Gentleman would like to justify that, I am happy to hear him.

[Owen Smith]

I would have to look at the numbers before lending them any credibility. It would also make sense for the Minister to concede that her comments are based on numbers predicated on a scheme that has not yet ended. She is talking about November numbers, whereas the scheme runs through to March. The Council of Mortgage Lenders suggested that there has been a 20% increase in the intervening period, which will radically change the figures.

[Miss Smith]

The hon. Gentleman knows as well as I do that the scheme ends on 24 March 2012. No doubt some will try to get in before then. Indeed, a review has to take place at a certain point and, on the broad thrust of a year, if figures such as those I mentioned have been achieved, it is unlikely that it would continue to be a sustainable way to support first-time buyers.

Let me turn now to the point of the debate, which is to query how we can best support those who wish to enter home ownership. There has been a clear correlation in recent decades between wider economic problems and volatility in the housing market. The best thing that we can do, first of all, to support the housing market is improve the country’s financial and macro-economic stability. That is why we are taking action to get public finances back on an even keel. Only through that action will we give people the confidence to invest in new homes and allow the building industry to go ahead and build the homes that we need.

We need to tackle the underlying structural issues that have had such negative consequences for the housing market. That is why the Government are taking action to improve stability in the credit markets and are reforming the planning system. Without such reforms we will face cyclical problems, time and again, of the sort experienced in recent years. However, we understand that we need to help people now, which is why we are taking action to help first-time buyers and other purchasers own their own home.

The effects of the recent financial crisis were particularly pronounced for first-time buyers, as mortgage lenders have cut back on low-deposit products. I can confirm, from Government figures, that the average age of an unassisted first-time buyer is 37, compared with 33 before the crisis. The Government are taking action now to help first-time buyers and others to attain home ownership.

On Monday, the Prime Minister launched the NewBuy scheme, which will deliver a significant increase in housing supply—I have already put numbers to that—and access to affordable mortgages for those without large savings who wish to purchase a new home. The scheme is not aimed at borrowers who cannot afford the mortgage, but at borrowers who lack the savings to fund a deposit, giving creditworthy borrowers a leg-up in the property market. I should like briefly to note hon. Members’ comments about second-steppers, who are important and have serious contributions to make in our effort to get the housing economy moving.

Detail on products is available to Hon. Members who wish to look for it, but I can confirm that although prior to Monday there were no 95% loan-to-value new build mortgage products on the market, today buyers will now be able to purchase a new build property with a 5% deposit. Builders are partnering with lenders to offer 90% to 95% mortgages. Three lenders are offering new mortgage products in that arena. We expect more builder-lender relationships and associated mortgage products to be confirmed over the coming weeks and months. Therefore, in total, the Government have made provision to help up to 100,000 families and young people to buy their own home.

We are committed to invigorating the right to buy, which hon. Members have applauded in today’s debate. On Monday, the Prime Minister announced that we will support social tenants who aspire to own their own home, by raising the discounts to make it attractive to do so across England. Right to buy has already helped nearly 2 million people since its introduction, but discount rates were reduced by the previous Government and the number of sales fell dramatically. From 2 April, the discount limit will be raised to £75,000 across England, so in London, for example, it more than quadruples the current limit. It will help thousands of people realise their home-owning aspirations. However, we are also committed to ensuring that it does not erode the social housing stock, which is why for every home bought under right to buy a new affordable home will be built.

NewBuy and right to buy sit within a broader suite of options intended to help first-time buyers and others into home ownership. Firstbuy, which was announced in Budget 2011, is a fixed-term measure designed to support the housing market, given constrained credit availability and challenging economic conditions. Under that scheme, the Government and around 100 house builders are together providing some £400 million to assist almost 10,500 first-time buyers to purchase with a 20% equity loan a new build property in England by spring 2013. We have had more 4,250 reservations since the scheme opened in September. The three largest participating house builders have reported sales of more than 1,200 homes in the first four months. Hon. Members will agree that those results show that the Government are taking action now, as needed, to support those who wish for the first time, or indeed at other times, to be a home owner and to continue to build the kind of communities that we all aspire to see throughout the country for our children and grandchildren.

Once again, I thank my hon. Friend the Member for Winchester for his reasoned, thoughtful and passionate contribution to the debate that he has given us the opportunity to participate in. I thank other hon. Members who have made equally passionate and inspiring contributions on what we all hope for those we represent.

Pay and Consultants (Public Sector)

Chloe Smith Excerpts

Tuesday 13th March 2012 Westminster Hall

[Mr Slaughter]

My hon. Friend is absolutely right. Our constituencies share the world-renowned Imperial health care trust. When I was first introduced to the new chief executive, I assumed that he was just that—a paid chief executive. It was only when I read the articles in The Sunday Times that I understood that he was being paid £2,000 a day as a consultant. I do not know whether it was always the intention to regularise his position or whether it was The Sunday Times and perhaps my hon. Friend who acted as a prompt. I am, however, pleased that the chief executive, Mark Davies, applied for the job and has now been appointed to the full-time position. If that is a precedent in removing such anomalies and abuses, I hope that it will be followed.

Going back to the point made by the hon. Member for St Austell and Newquay (Stephen Gilbert), I do not object at all to the review. However, as he will have seen, the issue goes wider than Departments and non-departmental public bodies. It is my understanding—the Minister may want to correct me when she responds or even now—that that is the limit of the review at the moment. Even in the statement on 2 February, my hon. Friend the Member for Tynemouth (Mr Campbell) asked about local government—a topic to which I will return—and the hon. Member for Warrington South (David Mowat) asked about the BBC. Will the Minister update us on whether the terms of reference of the review have been extended to cover those areas, what progress has been made so far and when will we see a report?

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

To assist the debate in its early stage, I am happy to confirm that the review extends to all bodies that are covered by Her Majesty’s Treasury’s guidance on managing public money, with which Members will be familiar. That includes all central Government bodies, such as Departments and their arm’s length bodies. On the subject of the BBC, I can confirm that the review will not cover arrangements in public corporations, public broadcasting authorities or the publicly owned banks. I hope that that information is of assistance.

[Mr Slaughter]

That is disappointing. I wish that both local government and councillors were covered. The leader of Kensington and Chelsea is paid a six-figure salary. The days of councillors being volunteers or being paid small amounts have gone. The review should also cover health trusts, non-executive directors of health trusts, the whole panoply of organisations that surround the public sector bodies, the Local Government Association and the Local Government Improvement and Development board, because those are the organisations in which abuses are likely to take place. We are talking about bodies that recruit people who have retired from the public sector and who, because of restrictions on their earnings thereafter—such earnings affect pension rights—will be prone to adopt these devices to avoid being classed as employees.

The figures for high pay in the public sector speak for themselves. The Chief Secretary conceded that he had cognisance of more than 180 civil servants on packages in excess of £142,500. I commend the work of the TaxPayers Alliance—I have been doing that quite often recently—in publishing the “Town Hall Rich List”, which shows that the highest paid chief executives, who are, I think, in Wandsworth, are on around £350,000 a year. That list of shame, which is regularly updated and published, is a great public service.

Let me just say, though, that as someone who has spent 20 years in local government, I have worked with some very fine public servants who did not do the job primarily for money. I even had a chief executive who capped his own salary, which is not something that we see much of at the moment. However, I have also had the unedifying experience of seeing the last chief executive of Hammersmith and Fulham, which is one of the smallest unitary local authorities in the country, retire on a salary of £281,000 a year. That salary had been increased by £11,000 in the last year of service—the salaries of everyone else in the organisation had been frozen—in order, I suspect, to enable him to retire on the maximum pension. The authority would not divulge the details of that pension but the House of Commons Library calculated that it would be substantially in excess of £100,000 a year. In addition, he received a lump sum payment of a sum much larger than £250,000 a year. To my mind, that is not where local government should be.

I will return to the issue of consultants. I say again that I am grateful to a number of organisations for their help, particularly the PCS union, which takes an interest in this subject.

--- Later in debate ---

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

It is a pleasure to serve under your chairmanship, Mr Howarth, in an important debate to which hon. Members have contributed with some thoughtfulness. I should like to mention my entry in the Register of Members’ Financial Interests for 2009.

Hon. Members are aware that we face a tough challenge to repair the damage to our economy resulting from the recent crisis. Restoring the economy to prosperity requires restraint in many sectors of society. It is right that public sector pay restraint plays a part in that fiscal consolidation. I shall start with general pay restraint and then refer to various areas mentioned by hon. Members.

I am confident that all hon. Members agree that public servants do a crucial job delivering the high-quality public services on which we all rely. It is right that we continue to offer rewards to those who have skills that would help and assist all our constituents who need those services. At the same time, however, given the pressures on public finances, public pay restraint can help to protect jobs and services in the public sector. That is why, in the June 2010 Budget, the Chancellor announced that there would be a two-year pay freeze for public sector workers earning more than £21,000. At the autumn statement, the Chancellor announced that, for the two years following the freeze, public sector pay awards would average 1%.

On senior pay restraint, it is particularly important, in a context of overall pay restraint, that senior managers show leadership on pay. That is why, at the first meeting of the coalition Cabinet, Ministers announced that they would take a 5% pay cut and that their pay would be frozen for the rest of the Parliament. In May 2010, it was announced that the number of senior civil servants receiving bonuses would be reduced by two thirds, which I am sure hon. Members welcome. At the same time, it was also announced that the Chief Secretary to the Treasury would sign off any appointments for those earning more than £142,500, in areas where Ministers control pay. Of course, much of what we are discussing today can only cover the areas where central Government have control over pay. There is a certain amount of complexity in that landscape to which I may not have time to do justice, but I hope that hon. Members will understand what the Treasury could comment on today.

The Government asked Will Hutton to review senior pay in the public sector. The Government accepted his recommendation that Departments publish a top-to-median pay multiple each year, and Departments will include that as part of their annual reports from this year.

Likewise, the Government are also clear that any consultancy arrangements in the public sector should provide good value for money. In May 2010, we announced that the Cabinet Office and the Treasury would join forces to drive out waste, through a new group called the Efficiency and Reform Group. One of that team’s first priorities, with immediate effect, was to freeze all new consultancy spend unless it was an operational necessity. Where such spending was proposed, ministerial sign-off was required for £20,000 or above. This spending control remains in place. Because of that decision, in the 10 months from May 2010 to March 2011, £870 million was saved through a reduction in consultancy spending by central Government. I am sure that hon. Members welcome that.

On tax avoidance by senior staff, which has been of interest to hon. Members throughout this debate, the Government have been clear that we are committed to tackling all forms of tax avoidance. We do not believe that tax avoidance is appropriate in the public sector. Indeed, it is expressly forgiven—[Interruption.] It is expressly forbidden—I hope Hansard can hear this—in a document entitled “Managing Public Money”, which I know hon. Members have as their bedside reading. The hon. Member for Eltham (Clive Efford) asked whether an NHS trust would be covered by that guidance and I confirm that that would be so. All bodies covered by that guidance are covered by the Chief Secretary’s review, which has been mentioned in the debate.

The review occurred after it came to light that a senior public servant had been appointed in way that could be perceived as minimising his tax. The Chief Secretary therefore announced a review of the tax arrangements of senior public sector appointees. This review will consider the extent to which use is made of arrangements whereby the tax position of appointees can be perceived to be minimised, and will make appropriate recommendations. The review will include individuals being paid through PSCs, to use an abbreviation relevant to this debate.

Several hon. Members, including my hon. Friend the Member for Wimbledon (Stephen Hammond), have mentioned that there is much complexity here that the review should reasonably take into account. The review is not intended to be a witch hunt.

The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) asked specifically about IR35. She will know that in the Budget last year, following a review by the independent Office of Tax Simplification, the Chancellor announced that IR35 would be maintained, but that Her Majesty’s Revenue and Customs will take forward options for improving its administration. That is a separate point, but I hope that that answers the hon. Lady’s question.

[Cathy Jamieson]

I thank the Minister for that clarification, but I hope that she offers slightly more information in terms of how the administration will be improved and whether any of the guidance will be changed.

--- Later in debate ---

[Miss Smith]

I had better write to the hon. Lady, not being able to cover that matter under the terms of today’s debate.

The review is due to report to the Chief Secretary by the end of March, so hon. Members will understand that I cannot comment further at this time.

Local government is outside of the scope of the review, although I hear the points made by the hon. Member for Hammersmith (Mr Slaughter), including his wish for the review to go wider. He will know that the Secretary of State for Communities and Local Government has written to the Local Government Association to urge it to consider similar action.

It is right that light should be shone upon practices in the local government sector as well, although central Government do not control pay in local government: it remains, rightly, a matter for local authorities. We have taken several steps to bring greater local accountability and transparency to pay in local government, which I think local taxpayers welcome strongly. They now have the tools and information needed to hold their councils and elected councillors to account, through the Localism Act 2011.

[Mr Slaughter]

I hear what the Minister is saying and I look forward to the review, but will she at least hold open the prospect of widening its ambit, because what she has just said is not correct? In my experience, in my local authority, the audit committee is not meeting—it is being made inquorate by the majority party—and documents are being refused, not only to me but to the leader of the opposition, who has particular rights in law to get such documentation. If councils are going to abuse the position of trust, surely the Government and HMRC must act in this matter.

[Miss Smith]

Perhaps the hon. Gentleman feels that the council was better off his watch, when it was 363rd in respect of value for money out of 387 local authorities.

Let me provide one example of ways in which local authorities are now more transparent. I have no doubt that the good citizens of Hammersmith enjoy holding the pay practices of the council to account through measures under the 2011 Act. They can do that because local authorities are obliged to publish their pay policy statements by the end of March.

On the responsibilities that I am drawing attention to, the Government believe that there should be public accountability in this regard, not only for employees but for elected councillors. The responsibility for meeting the transparency that we all demand of the public sector rests not only with locally elected councillors through some of the measures in the 2011 Act, but with citizens who are now empowered to understand more about the choices that their councils take.

It is right that, as we call time on a decade of ever-increasing centralisation, targets, levers and poor value for money, greater localism must come with greater transparency and accountability. Opening up the pay deals of top town hall jobs to public scrutiny will mean that taxpayers know with certainty that their interests are being protected, complementing measures taken by central Government to control and cut consultancy spending under their areas of responsibility, while also freezing and tackling excessive pay elsewhere in the sector.

Oral Answers to Questions

Chloe Smith Excerpts

Tuesday 6th March 2012 Commons Chamber

[Mr David Crausby (Bolton North East) (Lab)]

13. What assessment he has made of the effect on families of the changes in eligibility rules for working tax credit to be introduced in April 2012.

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

The Government are reforming tax credits to ensure that support is targeted on those most in need and costs are controlled. The change to the working hours requirement for couples with children makes the system fairer by reducing the disparity between lone parents and couples. Lone parents have to work 16 hours a week to be eligible for tax credits, so it is right that couples should have to work more hours between them.

[Jessica Morden]

Some 730 families in Newport will be hit by the changes to tax credits, which means that they will either have to work more hours or face losing up to £3,800 a year. The Government have so far demonstrated no understanding of the difficulties faced by families in this position trying to find extra work. Will the Minister tell my constituents exactly where these mythical hours will come from?

[Miss Smith]

I shall be precise. I can tell the hon. Lady that the number of vacancies was up by 11,000 in the last three months to January 2012, and 1.07 million people moved into employment in the last quarter.

[Luciana Berger]

I was interested to hear that response from the Minister because a representative of the Union of Shop, Distributive and Allied Workers in my constituency told me that in one supermarket alone close to 30 employees had requested extra hours. Those extra hours just do not exist. Will she confirm that from April a couple with children on the minimum wage who cannot increase their hours to 24 per week will be £728 better off out of work?

[Miss Smith]

I cannot comment on that particular set of circumstances, as the hon. Lady will appreciate, but the fact is that about 80% of households with children will see their tax credit awards rise. It was the previous Government who allowed nine out of 10 households with children to be eligible for tax credits. That was unsustainable and uncontrolled spending.

[Jonathan Reynolds]

The Minister will remember that in an Adjournment debate last November I warned her about the devastating impact that the cuts would have, particularly because the hours were simply not available for people to increase the number they worked to meet the eligibility criteria. This week, a coalition of charities has written to the Government begging them to postpone these devastating changes. May I ask her and the Chancellor to meet some of the families affected so that they can understand what the impact will be on them from April?

[Miss Smith]

Any elected MP will regularly meet constituents in their constituency and discuss a range of matters. I certainly do that, and when I have met those affected in my constituency—whether as a constituency MP or, most recently, as a Minister—I have explained the fairness of this measure, which is that it puts couples on a par with lone parents. Where is the Opposition’s concern for single mums and dads, who have always had to face that challenge?

[Catherine McKinnell]

The Minister knows fine well that in today’s economy part-time workers will find it extremely difficult, if not impossible, to get the extra eight hours a week to keep their working tax credits. The lowest-income families will lose £3,870 a year, which would be crippling for any family, let alone the poorest. To accord with reality—something that the Minister should get back in touch with—what are this Government going to do about that?

[Miss Smith]

This Government’s main priority, as the hon. Lady knows very well, is to reduce the deficit left to us by her party, for which her party shows no responsibility whatever. She will also know that the cumulative average loss for households from our measures next year will in fact be £310.

[Mr Crausby]

Last week a young woman constituent employed locally by the Stroke Association complained to me that as a result of the association’s funding being cut, her hours were being reduced from 28 to 20, so she loses eight hours’ pay and tax credits as well. What advice can the Minister give my constituent other than to stop work and go on benefits?

[Miss Smith]

I would be sure that the hon. Gentlemen’s constituent in that case took a clear look around at the opportunities available throughout the economy. I refer him to my previous response, which is that vacancies were up in the three months to January 2012. There are jobs out there: hon. Members need only to hear, for example, this morning’s announcement from Nissan—somewhere near the hon. Gentleman’s constituency—to know that there is work available.

[Margot James (Stourbridge) (Con)]

Is my hon. Friend aware that, according to the Office for National Statistics, there are currently 476,000 job vacancies? It should be possible for a couple, between them, to find an extra eight hours’ work. Does she agree?

[Miss Smith]

I do agree with my hon. Friend. As I have said already, it is a question of fairness. This measure asks a couple to do what a lone parent has always had to do, and I think that is fair.

[Harriett Baldwin (West Worcestershire) (Con)]

Can the Minister confirm that, under the current system, a single parent who is offered more than 16 hours’ work a week by his or her employer would face a marginal withdrawal rate of up to 97%, and that such anomalies will disappear with the change to the universal credit?

[Miss Smith]

My hon. Friend makes a very fine point, and she is absolutely right that the reform paves the way for the universal credit, through which this Government are proud to be tackling the incentives that make work pay.

[Charlie Elphicke (Dover) (Con)]

Should we not look at providing tax help for hard-pressed families in totality and in the round, in particular, through measures such as increasing the personal allowance to £10,000 for income tax?

[Miss Smith]

I certainly agree, and my hon. Friend will know, just as other Members of this House do, that that measure would take more than 1 million low-income earners out of tax altogether, which is a healthy start and a step on the path to our economic recovery.

[Rachel Reeves (Leeds West) (Lab)]

We have heard incredible complacency so far from the Minister about couples in receipt of working tax credit, who are desperately worried. Liz, a low-paid worker in Suffolk, told her union, the Union of Shop, Distributive and Allied Workers, that

“two weeks ago my boss informed me that the likelihood of finding the eight extra hours I need was next to none, at least for another three months. I have been looking for another job to boost my hours, but so far have had no joy”.

What advice would the Minister give to Liz and thousands of families in her position, who stand to lose up to £4,000 in just a month’s time?

[Miss Smith]

Liz from Suffolk might like to listen to Rachel from Leeds, who says that

“we must ensure we pass the test of fiscal credibility. If we don’t get this right, it doesn’t matter what we say about anything else.”

[Rachel Reeves]

The Minister offers Liz cold comfort, especially as the Government’s own figures show that families are likely to be £728 better off out of work, rather than in work, as a result of these crazy changes. The Minister could not answer my last question, so let me ask her about another family. Let us imagine that a single mum with three kids who is earning £42,000 a year is offered a promotion that would take her pay to £43,000. If she takes the pay rise, she will lose almost £2,500 in child benefit—every single penny of it. What is the Minister’s advice to her? Should she turn down the promotion to keep her child benefit, or should she reduce the number of hours she works?

[Miss Smith]

It is absolutely extraordinary that the hon. Lady is unable to deal with any aspect of her own challenge on fiscal credibility. May I ask her whether she voted for the welfare cap that highlights the average family’s earnings within the example that she just gave?

[Mr Speaker]

I remind the House that Members ask the questions and Ministers answer them.

Consumer Insurance (Disclosure and Representations) Bill [Lords]

Chloe Smith Excerpts

Tuesday 6th March 2012 Commons Chamber

[Chris Leslie]

I think a deal has been transacted on the Floor of the House. However, under the provisions of the Bill, a series of disclosures may be requested from hon. Members seeking such insurance.

My point is simply that we need to know the impact that the Bill will have on pet insurance and other discretionary insurance, but also, perhaps more importantly, on essential types of personal insurance that we all want our constituents to have, such as household insurance, flood risk insurance and motor insurance. In those cases, there is less wiggle room for individuals to decide not to take out insurance.

There are separate discussions to be had in another place about the problem of certain drivers thinking, “Well, the fine that I get for driving uninsured is less than the cost of motor insurance, so I will take my chances and drive uninsured.” In my view, the penalty for driving uninsured needs to be higher than the cost of getting insurance. That is a pretty straightforward point, but you would be surprised, Mr Deputy Speaker, by the small fines that are sometimes issued to people who drive uninsured. I am sure that hon. Members will know of cases in which constituents have unfortunately been involved in accidents caused by uninsured drivers. When those uninsured drivers are prosecuted the fines are a pittance, which sends the message, “Why bother with insurance?” We must return to that issue, but it is a moot point whether it would fall under the scope of a review under the new clause.

Mandatory types of insurance are particularly important in the Bill. I can foresee circumstances, particularly with car insurance, in which the insurance sector feels that it is not getting much return. Many of our constituents howl with derision at the sheer expense of motor insurance—the AA recently said that it rose by about 16.4% in 2010. The Bill will make provision for the disclosure of certain extra pieces of information, even though people have no choice but to take out motor insurance if they want to drive; it is a legal requirement.

People will be surprised to find that even though motor insurance costs are escalating—that problem needs to be tackled in a number of ways—the insurance sector says that motor insurance is not massively profitable. The Association of British Insurers has described it as one of the most challenging products for insurers. I believe it has stated that premiums amounted to £10.7 billion and claims to £10.3 billion in 2010, so often the margins are not particularly great.

It is difficult for hon. Members, as non-experts in that trade, to know whether insurance companies are making significant profits, but let us take them at their word that they are not doing so. I can envisage a situation in which insurance companies say, “We want to back out”—pardon the pun, Mr Deputy Speaker—“of the motor insurance trade.” They might feel that in order to do so, they will deter new contracts for motor insurance. One way of doing that would be by placing a series of extra hurdles in front of customers wanting to obtain such insurance.

Many young drivers will know to their cost how difficult it can be to get insurance cover for their vehicles. I do not know whether the Minister has a driving licence—

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

indicated assent.

[Chris Leslie]

She does have a driving licence.

[Miss Smith]

I have insurance as well.

[Chris Leslie]

I am glad the hon. Lady has insurance—I would expect nothing less. The Government car service will certainly have insurance. Not so many years ago, when she was under the age of 25, she might have found it extremely difficult even to find companies that would insure her. She is doubtless a very careful driver with an unblemished record, and she might find it easier to get insurance as a woman driver, but many young male drivers find getting insurance incredibly difficult. My point is simply this: we need the ability to review the impact of the Bill to test what is happening in motor insurance, particularly for those drivers who struggle to get insurance.

Additional hurdles could be placed in the way of those drivers. I do not object to the shift in the balance of disclosure in the Bill—I want to put that on the record—but it is important that we take time to recognise that there could be circumstances in which those seeking motor insurance find it more difficult to get as a result of these measures. We just do not know, which is why we need a review one year after the commencement of the legislation.

Another aspect of a review would be households subject to flood risk. Apparently—I did not realise this until I researched it—one in six homes in the UK are subject to the “at risk” category in respect of flooding. Amounts paid out by insurers since 2000 exceed £4.5 billion. A recent article in This is Money said that annual flood damage claims are running at more than £1 billion each year, and that 200,000 homes could become uninsurable by 2013 if an agreement cannot be reached between the Government and the industry on high-risk areas. That is incredibly important to the affected individuals, whether in Hull, where people recently had difficulty in gaining insurance, or elsewhere.

The changes on disclosure could well affect the ability of individuals to take out an insurance contract. Many who have taken out flood insurance might have found, unwittingly, that they were unable to receive a payment even though a catastrophe had occurred—a flood, a river bursting its banks or whatever—because they did not realise they were supposed to disclose certain aspects.

I want a review of the Act after one year. The provisions will, I hope, improve the situation and we will find that more people can take out flood insurance in a way that means they and insurers are assured that the contract will be fulfilled and that payouts can be made following floods and other such eventualities, but we do not know what the impact of the measure will be.

The Bill is relevant to flood victims, for whom the cost of insurance—if they can get flood insurance at all—could increase 500%. It is therefore very important that we have a review to see what happens in such circumstances. It is important that we see what is happening in the market for discretionary types of insurance as a result of the Bill, but we also need a review of the essential, mandatory, roof-over-the-head types of insurance. For those reasons, it would be helpful if the Minister accepted that such a review will take place.

--- Later in debate ---

[Mr Deputy Speaker (Mr Nigel Evans)]

That probably goes too wide for this particular debate. I call Chloe Smith.

[Miss Chloe Smith]

I welcome the three contributions and the interventions we have just heard. I wholeheartedly welcome the cross-party support that the Bill enjoys overall. In responding to the points made, I am sure that I will make my hon. Friend the Member for Christchurch (Mr Chope) happy today. I also take this opportunity to thank my hon. and learned Friend the Member for Sleaford and North Hykeham (Stephen Phillips) for his learned and helpful contributions.

On a brief note of discord, I am afraid, I must recommend a purchase to the hon. Member for Nottingham East (Chris Leslie), who kindly recommended motor insurance to me and llama insurance to my hon. Friend the Member for Lichfield (Michael Fabricant). I must recommend to him the Standing Orders of the House of Commons—he can purchase a copy for a mere £10, if he cannot find a copy in the Library—page 53 of which contains the answer to his questions about Second Reading Committees in relation to Law Commission Bills. I recommend that reading to him.

I will address the new clause in some detail and answer the question about review. I think that my hon. Friend the Member for Christchurch will be pleased to know that the Treasury is already committed to a post-implementation review of the Bill in three to five years which will examine whether the Act, as we hope it will then be, has achieved its objectives, identify whether there are any unintended consequences, and assess the costs and benefits of the legislation. I say to the hon. Member for Nottingham East, then, who might press his new clause, that given that it seeks a review, it is an unnecessary addition to the Bill.

It is also unnecessary, particularly in the context of the Bill, to draw our attention to the cost and availability of consumer insurance, because the Government already take those issues very seriously. We do not need a review of the Bill to draw attention to the issues because we are already taking action on them. I will go into two of the areas that the hon. Gentleman mentioned: motor insurance and flood insurance. Hon. Members will know that three weeks ago the Prime Minister met the insurance industry and consumer groups to discuss rising premiums and the steps that we will take to bring them down.

On motor insurance, the Government have already taken a wide-ranging series of actions to tackle the rising costs of car insurance, and we are committed to doing even more. We are proceeding with a series of legal reforms that will reduce the costs associated with personal injury claims. The cost of claims following motor accidents is a crucial driver of insurance premiums, and we think that under the current system too many people can profit from minor or spurious accidents at the expense of motorists. We expect our ban on referral fees and our reform of no win, no fee agreements to reduce both the level of fees and the number of frivolous claims. We have also committed to reducing the £1,200 fee that lawyers can currently earn from small-value personal injury claims. In return, insurers have committed to ensuring that those savings will be passed directly on to policyholders, which I am sure all hon. Members here today would welcome.

--- Later in debate ---

[Mr Chope]

My right hon. Friend anticipates my next point, which was to say that this should be, and will be, sorted out in the marketplace. Perhaps a new company called Simple Insurance could be formed—if no such company already exists—with my hon. Friend the Member for Cardiff North (Jonathan Evans) as a director. It could promote itself on the basis that it would ask just a few easily answerable questions that would not prove too burdensome. I agree with my right hon. Friend that that would be a better way of dealing with this matter. However, the amendment underlines the fact that many of the forms are far too complicated and intimidating, to the extent that people often tick all the boxes without looking at the small print. That is how many of them get into difficulties. These forms are often not filled in by the persons themselves but by somebody on the end of a telephone. Again, that can lead to difficulties of language or understanding. It is not just my hearing that sometimes makes it difficult for me to understand what people are saying on the other end of a phone when they are seeking information. There are some important issues here, but I do not think that the amendment has proposed the right solution to the problem.

[Miss Chloe Smith]

I shall answer a few questions. On this amendment, I am indeed with my hon. Friend the Member for Christchurch (Mr Chope) and my right hon. Friend the Member for East Yorkshire (Mr Knight), as I believe that the market will assist us in this area. I shall deal with the amendment principally on that basis.

The amendment, as hon. Members will have seen, would create a duty for insurers to make disclosure requests that are proportionate to the benefits generated. Following discussion in Committee, we return to the issues today; I hope I shall be able to add to what my colleague, the Financial Secretary said there.

There is no disagreement with the principle that the burdens on consumers should be as light as possible. That applies to the group of consumers mentioned by the hon. Member for Nottingham East (Chris Leslie) and, indeed, to all others who wish to purchase insurance. As the amendment rightly recognises, there is a balance to be struck between burden and benefit. The Government believe this balance is best struck by the Bill as it stands, with commercial pressures operating as a factor in that case.

I shall recap those points shortly, but I want to set out some background information on the types of questions currently asked, as I know Members were interested in that topic in Committee. They were particularly interested in the average number of questions asked when consumers enter into different types of insurance policy. I was able to take only a rough look at such things, but for some current policies it can take about 13 to 18 questions to underwrite home insurance and 12 to 18 to underwrite motor insurance. Requirements linked to these straightforward, mass-market products do not on this rough measure appear to be at all excessive. Simply counting questions, however, rather misses the point.

If insurers asked only a single question, this would be far more burdensome for consumers. I think it is much easier to answer a series of short, targeted questions—and this Bill sets out that they must be specific and clear—than it is to answer a single general question like “Has anything changed?” or “Is there anything I need to know?”

The Law Commission undertook a more sophisticated analysis of burdens on consumers, which was contained in its first discussion paper and has informed the development of this Bill. It discovered real problems in 2007 with the questions being asked in life and critical illness insurance. For example, one insurer asked, “Have you had any physical defect or infirmity, or is there any ailment or disease from which you suffer or have suffered or to which you have a tendency?” This seems impossibly difficult to answer and appears to require the consumer to begin at birth and work through every single visit to the doctor. Yet that might qualify as proportionate under this amendment because it is only one question. Reassuringly, there have been significant moves in this sector to improve the questions since 2007. The design of this Bill will further promote this improvement.

It is worth explaining briefly—I think the hon. Member for Nottingham East referred to this earlier—that different consumers face a different set of questions in order to purchase a similar policy by virtue of the channel they choose, whether it be through an aggregator, by telephone or face to face in a broker’s office. There is a need for insurers to tailor the requests they make in these different ways.

The burdens placed on consumers form the nub of the issue, and there is evidence that insurers already pay careful attention to those burdens. It has already been argued tonight that this is partly driven by market pressure, so let me add to those arguments. Clearly, a consumer has the choice to purchase from an alternative provider if disclosure burdens are too high. Indeed, some insurers have advertised products on the basis that they are easy to purchase. Comparison sites consistently study these drop-off rates and try to make the process as easy as possible.

It strikes me that no business wishes to run the risk of losing a customer entirely—the scary scenario that the hon. Member for Nottingham East has set out. No business would wish to do that because it would represent the loss of a customer. We hope that no consumer would wish to be in that position, as they would not then get the security of the product that they are looking for.

There are, of course, some savings to be made for insurers who get the right balance between getting the information they need and making it easy for consumers to purchase their product. The cost of asking another question is not insignificant, and insurers are well aware of that when they design their questionnaires. I refer the House to a PricewaterhouseCoopers report in November 2007, which considered the financial impact of the Law Commission’s insurance project as a whole. It estimated that increasing underwriting by two to three minutes per policy would equate to up to an extra £3,600 per 1 million of gross written premiums—equivalent to around an extra £150 million spent in the UK general insurance market alone. That does not include other costs associated with asking more questions, such as for the gathering and processing of the data. It is clear that there is a strong existing incentive for insurers to ensure proportionality.

I shall deal briefly with the Bill’s other provisions, in case Members do not already find the arguments about market pressures compelling enough to rely upon tonight.

Two further features of the Bill mean that if insurers impose burdens on consumers, they might undermine any right they have to refuse or reduce a claim. Under clause 4(1)(b) an insurer is not entitled to a remedy unless they can show that a consumer’s misrepresentation induced them to enter into the contract—at all or on its current terms. As a result, the Bill creates no benefit for insurers if they ask questions to seek answers on which they would not need to rely. Furthermore, under clause 3, a long and complicated questionnaire might have a bearing on whether a consumer has taken reasonable care not to make a misrepresentation. Insurers are at greater risk of having to pay claims, despite not having been given the correct information, if they make things difficult for the consumer. So in my view, there is no danger that the Bill will place extra burdens on consumers—as a result of those two measures in addition to the market forces mentioned earlier. Our impact assessment does not expect the Bill to result in significant changes to the questions asked by insurers. Rather, the Bill brings the statute into line with existing best practice and regulation. It is fair to say that we are updating the law, not altering the approach of insurers.

I do not believe that it would be beneficial for this Bill to go further than it does by seeking to change practice by prescribing the content and number of insurers’ questions. If we were to prescribe or limit the information insurers were able to seek, it might even increase premiums. Let us take, for example, the recent European Court of Justice ruling—one hon. Member has already referred to it—on the use of gender in insurance pricing, which shows that limiting the risk factors that insurers can use will increase the average cost of insurance.

Creating a duty for insurers in primary legislation would not be the appropriate solution. We continue to work closely with the insurance industry on this issue and with consumer groups on a range of issues. Where there are specific concerns about practice in certain parts of the market, the Government have worked with the industry on guidance. Accepting this amendment and creating a provision is unnecessary. It will throw out the careful balance in the Bill, and it is not the most effective way to make sure that consumers do not face excessive burdens. I therefore ask the hon. Gentleman to withdraw his amendment.

[Chris Leslie]

I hear what the Minister says, but I do not agree that she needed to dig through the barrel of reasons to resist the amendment. I know that officials tend to list a number of reasons—typically to address drafting or other deficiencies—but when she talks about upsetting the balance of the Bill as a whole simply to place a duty on insurers to show regard to a principle about the imposition of a burden or restriction being proportionate to the benefits, I think she is going a little too far. However, the aim of the amendment was to test the position.

--- Later in debate ---

[Miss Chloe Smith]

I beg to move, That the Bill be now read the Third time.

I shall do my best to be brief but comprehensive. I think that Members on both sides of the House can agree that the current law relating to pre-contractual disclosure and representation in connection with consumer insurance contracts is unreasonable. I think we can also agree that the alternative practices favoured by regulators and insurers, although not always consistent, give the consumer far better protection from the unreasonable refusal of claims. The Bill updates the law to reflect what has rightly become market practice, and in doing so it clarifies the duties of consumers and how they can expect to be treated by insurers.

On behalf of my hon. Friend the Financial Secretary to the Treasury, who began the process, I thank all Members who have spoken during the Bill’s passage and who have, without exception, recognised that it constitutes a valuable and much-needed updating of statute. We also owe thanks to the Law Commissions, whose joint report on the issue and extensive work has produced a Bill that implements this change with the backing of a wide range of consumer groups, as well as that of the industry and regulators.

The drafters of the Marine Insurance Act 1906, if they are still with us, will not have envisaged the ways in which consumers currently purchase insurance cover for such purposes as their homes, their cars or their health—or their llamas. They will also not have envisaged the existence of the comparison website, and the way in which it requests information from consumers.

In October 2010, a letter with a range of signatures was sent to The Times in support of the Bill. It described the current law as designed to

“govern face-to-face commercial insurance deals in the coffee houses of Georgian London.”

The 1906 Act is not suitable for the modern insurance market, especially as it contains harsh penalties for reasonable failures to disclose or accurately represent information by those purchasing insurance. The Bill replaces the current burdensome duty requiring the consumer to provide all information that might influence the judgment of a prudent insurer with a requirement for consumers to take reasonable care to answer the insurer’s clear and specific questions. It also makes penalties for non-disclosure or misrepresentation proportionate, rather than allowing the insurer to legally void the contract in all cases. Consumers have been protected by the Financial Ombudsman Service—which has been applying those proportionate remedies for some time—as well as by market practice and Financial Services Authority rules, but there are real benefits in aligning the law with that practice.

In some circumstances, the different legal and regulatory positions cause problems for both industry and consumers. At present, the FOS receives about 1,000 complaints a year about non-disclosure and misrepresentation. About half the insurers’ decisions are upheld, a figure we would expect to be much higher if there were sufficient clarity about the rules. That indicates that insurers find it difficult to locate and interpret the relevant rules.

We believe that those two key provisions—the change in the duty of the consumer and the provision of a proportionate rather than a harsh set of remedies for the insurer—shift the balance of the law in favour of the consumer. Some parts of the Marine Insurance Act are heavily biased in favour of insurers, and the Bill attempts to rectify that bias.

[Mr Chope]

Has my hon. Friend or her Department produced any estimate of the likely reduction of the burden on the Financial Ombudsman Service?

[Miss Smith]

Some estimates have been made, and I believe that my hon. Friend will find some of them in the impact assessment, but I am sure that my hon. Friend the Financial Secretary will be happy to deal with the point in more detail.

The Bill takes a high-level approach, updating the principles set out in law to bring them into line with good practice rather than attempting to set out prescriptive detail. That should help to prevent the law from becoming outdated again as market practice develops.

I hope that Members will accept the advice of consumer representatives who wrote to the Committee—including Age UK, the British Heart Foundation, Consumer Focus, Macmillan Cancer Support, the Trading Standards Institute, Which? and UNLOCK—and will give the Bill its Third Reading.

--- Later in debate ---

[Miss Chloe Smith]

I thank all Members for their comments on Third Reading and at other stages. This Bill will produce a long overdue update of the law. I am pleased that we all recognise the value it brings for customers as well as the industry. The only final additional point to make is that it is clearly right that our regulators have adopted an approach more reasonable than that set out by the current law, but we need clarity and consistency between regulators and the courts, which this Bill provides.

I commend the Bill to the House, and I hope it will be welcomed elsewhere, as it has been here tonight.

Question put and agreed to.

Bill accordingly read the Third time and passed, without amendment.

Treasury

Chloe Smith Excerpts

Tuesday 6th March 2012 Ministerial Corrections

[Miss Smith]

In the quarter to January, there were 11,000 vacancies across the economy, meaning that 1 million people moved into work.

[Official Report, 5 March 2012, Vol. 541, c. 679-80.]

Letter of correction from Chloe Smith:

An error has been identified in the response given to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson).

The correct response should have been:

[Miss Smith]

In the quarter to January, there were 11,000 vacancies across the economy, and in total 1 million people moved into work.