Banks and Banking
Chris Leslie Excerpts(11 years, 7 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I am glad to have the opportunity to debate this issue on the Floor of the House. The last review—I believe they take place roughly every five years—was in 2008, as part of the changes introduced by the 1998 reforms. We feel that this is a reasonable way of funding the Bank’s policy work, and requiring clearing banks to deposit a proportion of their sterling deposits with the Bank of England to then allow the reinvestment of those, yielding returns of—I am told—roughly around £130 million to pay for administrative and research overheads, seems sensible. As those investment returns have underperformed, what was a Bank of England surplus in 2008 became a deficit recently, and we understand the need to revisit this. We understand the need for the Bank of England to cover its costs; after all, it is not as if it can manufacture money out of thin air. Oh no—actually it can manufacture money out of thin air, but that is another story.
There are two principal issues on which I would like to focus, the first of which is that the order raises the question about the Bank of England’s running costs generally and whether its budget is necessary and justified. The Minister helpfully talked about some of its plans in terms of efficiency savings. It is regrettable that the Bank’s forecasts for economic growth have gone somewhat awry, and they have not necessarily improved in recent years. No doubt the Bank will account for itself on quite why things have gone wrong. Before the financial crisis, the Monetary Policy Committee on average underestimated growth by 0.5%; since the crisis, the Committee has started to overestimate growth by 2%. Obviously, this difficult situation has led to criticisms from David Blanchflower and others, most specifically about the calibre of the forecasting arrangements.
We have also seen problems with the Bank’s development of new approaches to encourage lending to small businesses by the mainstream banks. That has required several iterations, which have not necessarily been successful. There are also the difficulties that the Bank has had in meeting its inflation target, with the Governor having to write to the Chancellor on nine occasions since 2010 because of the missed targets. We know that the Bank of England will have significantly higher costs and that the new Governor of the Bank will have a much larger remuneration package than is currently the case.
The order raises a second question about the impact on the economy if the banks are required to deposit extra sums with the Bank of England, which is why I have a couple of specific questions that I hope the Minister will address. What is the total of sequestered deposits at present, and what would it be under the new 0.18 ratio? Is it roughly £3 billion at present, going up to about £4.5 billion? If an extra billion is sequestered by the Bank of England, what will be the impact on bank balance sheets? I think he said that building societies were likely to be exempt from this measure, but I would be grateful if he clarified that. He will understand that we are concerned about the impact that this might have on the bank levy, which is calculated on bank balance sheet liabilities. If there are changes to balance sheet arrangements as a result of this measure, will that have an impact on Exchequer revenue?
Lastly, is there any anxiety about removing flexibility from mainstream banks that might otherwise have chosen to support lending to businesses, which these sequestered deposits might inhibit? We understand the need for the change, and this has been a useful opportunity to take stock, but we also seek assurances about any impact that these changes might have on banks and building societies and the wider economy.
Public Service Pensions Bill
Chris Leslie Excerpts(11 years, 7 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
It is refreshing to have the Minister in this emollient frame of mind. His words suggest a tacit acknowledgment that he has been on the wrong side of the argument to date. I am pleased that the House of Lords continued to insist that the Government should think afresh on the issue. Clearly, there is an unfair disparity between Ministry of Defence and civilian firefighters and police, and every rule of natural justice suggested that that anomaly needed to be addressed.
I make the point in passing that it was a little unwarranted for the Government to tell the Lords that it was not allowed to continue with its point of principle—this was one way of shutting it up—because of financial privilege. Nevertheless, I am glad at the ingenuity of the Lords in keeping the issue alive with their proposal for a review.
The Government could not resist tinkering with that proposal. The Minister has explained why he made some of those changes, but I want to press him for a few reassurances. We welcome the proposal for a review, as broadly agreed by the Lords, but we now need—if you will forgive the pun, Mr Deputy Speaker—to keep the Government’s feet to the fire.
The Government have to address the issue of the physical demands on individual personnel and whether it is reasonable to insist that they should keep working in arduous and dangerous conditions until they are 67. The review has to get the Government and Ministers finally to answer the question about how it can possibly be fair for one set of firefighters and police to work until they are 60 and for MOD staff to work until they are 67. The review should address whether the job description can realistically be fulfilled by those who continue to work into their late 60s.
Ministers have changed the Lords amendment so that it no longer mentions the need for statements of requirements, which are official MOD documents and would address any concerns, especially among heads of forces. However, I think that the Government’s amendment sort of preserves the original meaning. The review should also reveal whether an insistence on staff working until they are 67 would have a perverse effect on the taxpayer, because it might cost more as a result of the numbers forced into early retirement on the grounds of sickness or illness.
I have three principal questions on which I would like the Minister’s reassurance, although he has addressed them in part. First—the hon. Member for Colchester (Sir Bob Russell) alluded to this—the Lords felt that it was important that Treasury Ministers and the Secretary of State for Defence should undertake the review jointly, that it should not be brushed off to one Department or the other, or to a third, independent reviewer, and that it should be the Government’s set of conclusions. Sometimes Treasury documents refer to a Secretary of State and sometimes they refer to the Chancellor of the Exchequer. I sensed from what the Minister said that both Departments would be involved in the review. Will he give that reassurance?
Secondly, when will we get the review? The Minister said that it is not normal practice to refer to Royal Assent as the date that triggers the announcement of how many months it will take before reports and reviews will be produced. I am not sure whether I agree with him, but I will go with it on this occasion, given that he has spoken in the spirit of compromise today. He said that the process would start as soon as possible. I got the impression that he was implicitly saying that it would take two months or similar to trigger clause 9 and then six months thereafter. He implied that we would get the review at the end of this calendar year, so it would be helpful if he could confirm that general time frame. He also responded to the intervention by the hon. Member for Banff and Buchan (Dr Whiteford) by reassuring us that there will be ongoing consultation with employee representatives.
Thirdly, a source of anxiety since our debate on Monday—the Minister has not touched on this—has been the question of the abatement of MOD firefighter and police pay as part of the necessary adjustment to ensure parity between the civilian and civil service pension schemes. Obviously, it would be unfair to deduct a sum from the pay of MOD firefighters and police at source—that seems to be the case historically—as well as to ask them to pay again when additional contributions begin under the new scheme. Will the Minister assure us that that discrepancy will be properly addressed in the review? The risk of a duplication of contributions would be unfair and there is some anxiety about this. The level of the abatement needs properly to reflect the relative value of benefits in the new scheme. This is a complex point, but it would help if the Minister could assure us that the abatement issue will be drawn to a conclusion.
Public Service Pensions Bill
Chris Leslie Excerpts(11 years, 7 months ago)
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Sajid Javid
To be clear, what I have said is that the Ministry of Defence is willing to consider keeping the age at 65. It has not yet made that decision, which would require further engagement, although it has set out how it intends to engage. As I think my hon. Friend knows, under these proposals the answer to his question about a police officer would be 60, as opposed to 65 for civil servant pension schemes.
Chris Leslie (Nottingham East) (Lab/Co-op)
When the Minister complains that agreeing to these Lords amendments would create a unique circumstance, is he not really admitting that the unique characteristic of this particular class of MOD firefighter and MOD police officer is that they are the outliers? They are the only ones who will have to work all those extra years, whereas other police officers and firefighters in comparable roles will retire at 60. That is essentially what he is saying.
Sajid Javid
During the Bill’s passage through Parliament, the Opposition spokesman has raised mostly constructive issues and, as we shall see during this debate, the Government have accepted many of them. This is one issue, however, on which he and his party have little credibility. He says that the current retirement age for MOD police and fire service workers is higher than that of their civilian counterparts, but that situation was created by the Government whom he supported, so he really does not have much credibility on the issue.
Sajid Javid
I will give way to the hon. Gentleman again. Perhaps he will now tell me whether the previous Government considered these issues when they changed the retirement age from 60 to 65 for MOD fire service workers and policemen.
Chris Leslie
I was not part of the Government at that time, but the key point is that, as he knows and as we have heard throughout the debates that have been quoted in interventions today, even Lord Hutton did not spot this anomaly. Lord Hutton says that, if he had known about it, he would of course have corrected it and aligned the MOD firefighters with all the other firefighters. I am prepared to say that the last Government overlooked this issue; it was an error. It was a mistake, and we should be big enough to admit that. Is the Minister now big enough to throw away his Treasury brief, which simply tells him to resist all changes, and to act for himself and do the right thing by treating all firefighters the same?
Sajid Javid
I am very comfortable that the Government are doing the right thing by resisting the amendments. As the debate progresses, I hope that more hon. Members will be persuaded that we have taken the right approach to this complex issue. I shall explain further as the debate progresses.
Sajid Javid
I have to disagree. Of course that is not the right thing to do. This Bill is about 12 million workers in the public sector and their pensions, and about the settlement between those employees, their employers and the taxpayer, and it is vital that we make this reform so we can get the public finances on a sounder footing. I think the hon. Gentleman knows that, but I do not blame him for trying.
I hope hon. Members at least understand why we are taking this position on these amendments. I have explained why we have to resist the amendments, citing the financial privileges of this House on this occasion. I therefore urge hon. Members to disagree with this group of amendments.
Chris Leslie
Although the Minister had quite a long preamble, not necessarily on these amendments, all I would say is that, clearly, with life expectancies increasing, it is in general reasonable to ask people to work for longer before retirement. There is no disagreement on that general principle. We need to adjust the public service pension schemes so that they remain sustainable, which is why we support so many of the changes Lord Hutton recommended. However, as hon. Members know, there are certain categories of workers for whom having longer careers is not realistic because of the physical demands of their professions. There are some physical tasks that it is not reasonable to expect a 67 or 68-year-old to undertake.
The Bill acknowledges that in part, by excluding three categories of worker— firefighters, police officers and members of the armed forces—and fixing their normal pension age at 60. That is a rational position, but there are other professions that we believe the Government should keep under review because they also can be exceptionally physically demanding, such as NHS paramedics and care workers. There is clearly a need for some flexibility to accommodate scheme-specific capability reviews for these associated professions, and it is a great shame that the Government have not allowed the latitude for that in the Bill. We debated that in Committee.
Lords amendments 78 and 79 are aimed at correcting what most people thought to be an oversight: the fact that, for some bizarre reason, Ministry of Defence firefighters and MOD police officers are excluded from the definitions of firefighters and police officers in the Bill. There are about 2,000 MOD police and 1,000 or so MOD fire and rescue scheme workers who essentially carry out the same crucial, but onerous, tasks as police and fire service workers under the auspices of the police authorities and the Home Office.
Sir Bob Russell
In addition to the point the hon. Gentleman has just made, does he agree that, particularly with regard to Faslane and the nuclear submarines and installations there, MOD firefighers and police officers carry out duties that the civilian police and firefighters do not have to do?
Chris Leslie
I am grateful to the hon. Gentleman for making that point, because I think that is indeed the case, but my general point is about the physical demands on these individuals. Today we are debating whether their retirement age should be, as the Minister thinks, 67 or above, or whether it should be at 60—the same age as for other firefighters, police officers and members of the armed forces. It is a simple proposition and the House has the power to make a judgment on it today.
Richard Fuller
The hon. Gentleman makes the case on physicality for those three classes of public sector employees, but the crucial issue is that those people put their lives at risk, which other public sector workers do not. Can he advise the House why the issue was not raised, and why those people were missed, in earlier pension scheme reforms?
Chris Leslie
That is a very pertinent question. We heard from the Minister that 12 million people were affected by the various public service and civil service pension schemes. We heard that even Lord Hutton, in his detailed inquiry, was not aware of the 350 or so affected individuals, because it was a new scheme that started in 2007, and only some MOD firefighters and police will come into the age bracket. Given the complexity of pensions, it is not surprising that some issues were not spotted; apparently even some employee representatives and others were not aware of the anomaly at the time.
These things happen. Mistakes can be made, but it is really important that when a mistake is pointed out, people assess whether they are big enough to accept that it needs to be corrected and justice is done, or whether their pride is such—whether or not this applies to the civil service—that they try to retrofit their arguments to justify a clearly unjustifiable anomaly. That is what the question boils down to.
The only reason I can see for different treatment for those groups is that one set happens to be employed by the Ministry of Defence and the other is in the public service at large. It is such an evident anomaly that the House of Lords, when made aware of the lacuna, correctly sought to repair the fault in the Bill, but incredibly we heard from the Economic Secretary—I am delighted that he has been joined by the Chief Secretary; perhaps he can be lent on by more enlightened colleagues—[Interruption.] The hon. Member for Colchester (Sir Bob Russell) says he will have a go, but he does not have much time as the question will be put shortly. [Interruption.] Anyway, Ministers are not particularly interested in listening to the debate, so it might be useful if the hon. Gentleman could text the Economic Secretary to suggest that he pays attention.
In essence, the Economic Secretary said that the Government were too proud to admit that they had got it wrong. They are still defending the indefensible, but the arguments for admitting the error are overwhelming.
Alison Seabeck
Does my hon. Friend share my concern that if the Government do not accept some of the changes, some people—albeit a small number—who cannot carry out normal duties will be unable to do the job for which they are being paid? Therefore fewer people will be able to fight fires or to respond in the most physical of circumstances. How does my hon. Friend see the future for those employees?
Chris Leslie
Quite a few of those employees already retire before the normal retirement age because of issues of physicality—the sheer effort involved in undertaking such physical tasks. It is entirely unreasonable and unfair that there is such a discrepancy between public service workers who carry out the same job. They are all called on to put their lives on the line. The burden of justifying the anomaly now rests with the Government, but other than some rather unconvincing arguments, which the Minister barely touched on, they have failed to discharge their burden and to illustrate why MOD firefighters and police are so different. The Minister took interventions from many colleagues and on a number of occasions he said, “Oh well, I’ll come to it in my speech,” but amazingly he never did.
Simon Hughes
Given that neither the Labour Government nor Lord Hutton spotted the issue, and it has now been raised with this Government, does the hon. Gentleman not think that a reasonable way forward is what the Minister suggested at the end of his speech? We should allow the MOD and the unions to see if they can negotiate a proposal that could be implemented under the broad remit of the Bill. That must be the reasonable, sensible, grown-up way forward.
Chris Leslie
At this eleventh hour, no, because the issue has been familiar to the Government for many months. The Minister said that there was not even a proposal on the table. We are able to judge, as Lord Hutton was able to judge, as suggested by the quotes from the House of Lords debate, the definitions of firefighter, police officer and armed forces, for whom the Bill categorically specifies the normal pension age as 60. The right hon. Gentleman is suggesting that some sort of negotiation is needed about whether those individuals are indeed firefighters or police officers of the same class. I disagree with him, if he is naive enough to think that the Treasury and the Ministry of Defence do not need to be pushed on the issue. Today is the opportunity to vote on it. I know he will listen to the debate and I hope he will vote in the right way and not try to find some excuse for kicking the issue into the long grass, hoping that people will forget about it yet again. We have the opportunity to deal with it now. Let us have a bit of gumption and deal with it in the way that we can do.
Simon Hughes
May I tell the hon. Gentleman respectfully why I disagree with that? This is not just about age. It is about a whole package of benefits, some of which are much more advantageous to people in the civil service than they would be to someone in a parallel position in local government. I am not in a position, and even those on the Labour Benches who represent unions are not in a position, to do a deal here on their behalf. If Government are committed to a deal being done, it must be right to remit the issue to the employer and the unions to negotiate an outcome.
Chris Leslie
I am very sorry that the right hon. Gentleman’s true colours have come through in that way. He is clearly not going to support the move to reduce the retirement age to 60. He should, and I will tell him why. The key question was put by Lord Eatwell in the other place, who asked about the different treatment and whether the Government could justify it. He asked:
“In what way is it less onerous, when they”—
that is, the MOD firefighters—
“have to work on military establishments”—
as the hon. Member for Colchester (Sir Bob Russell) said—
“dealing on occasion with extremely dangerous materials, and occasionally also in war zones? How is their job less onerous?”—[Official Report, House of Lords, 12 February 2013; Vol. 743, c. 568.]
Unfortunately, my noble Friend did not receive a satisfactory answer to the question, so I repeat it now to the Minister: what reason is there for that different treatment? Do not Ministry of Defence police officers have to stay fit, remain physically alert and intervene in events of great physical danger? Do not Ministry of Defence firefighters have to be ready to run the gauntlet, endure the exertions of search and rescue in extreme circumstances, take intense risks, prove their stamina and make sure that they can rise to the most testing of circumstances? The arguments that justify excluding the police and fire and rescue workers from the link between state pension age and normal pension age apply equally to the MOD police and the MOD firefighters. Just because they are a tiny number of workers should not mean that Ministers can just turn a blind eye and ignore the issue. We cannot allow it to be swept under the carpet. There is no reason for the difference, and the Government have no justification for opposing the amendments.
Stephen McPartland (Stevenage) (Con)
This is a difficult amendment owing to its emotive nature, with a small number of people feeling almost as though they have been victimised. If the Government reject the amendment, can the hon. Gentleman offer those workers some hope that if Labour formed a Government in 2015, it would do as the Lords amendments say?
Chris Leslie
I am amazed that hon. Members who are in government refuse to take responsibility for the offices that they hold and for the decisions that they have in their grasp. I said that it is important to admit that a mistake has been made for these 350-odd MOD firefighters and police. Why on earth cannot Members on the Government Benches say the same? [Interruption.] If the Minister wishes to correct me, I shall be delighted to hear.
Mr Reid
It was a legitimate question from the hon. Member for Stevenage (Stephen McPartland). Labour is seeking to form the next Government. The next election is only two years away. Surely the hon. Member for Nottingham East (Chris Leslie) should answer questions about what his party will do if it is in power?
Chris Leslie
How much more of an answer can I give than the actions that we will take in the Division Lobby today? Instead of the party political games that the Liberal Democrats and the Conservatives are playing today, it is a responsible thing to do to try to help—[Interruption.] They laugh, but this is not a laughing matter. They expect these firefighters and police officers to work up to the age of 67 or above, and that is not the right thing to do.
Chris Leslie
I have given way enough to Conservative Members and I want to make some progress because it is important to bottom out these specious arguments that the Minister can barely grasp.
Lord Hutton said that the reasons for giving uniformed forces a lower normal pension age is the
“simple argument that the nature of their service is unique and should be reflected in the pension arrangements that we make for them. ”—[Official Report, House of Lords, 12 February 2013; Vol. 743, c. 520.]
In his report he recommended that the Government set a new normal pension age of 60 across the “uniformed services”. That was the phrase that he used. He did not refer to the type of pension they were in; instead he referred to “uniformed services”, and argued that they deserved to be singled out because of the nature of their work. The spirit of Lord Hutton’s recommendation clearly applies to MOD firefighters and police officers. Lord Hutton said:
“The nature of the work the uniformed services perform is unique and this needs to be reflected in their Normal Pension Ages. The modernised firefighters scheme has struck a balance between recognising these changes in life expectancy, but also recognising the unique nature of the service provided by scheme members. The Commission’s view is that the Normal Pension Age in this scheme, 60, should be seen as setting a benchmark for the uniformed services as a whole.”
We agree with Lord Hutton’s reasoning that the amendment was merely intended to correct an oversight that has occurred in drawing up the Bill. He supports the amendment and the reform is based on his idea. He said that
“if, during the course of my inquiry, I had known about the unique circumstances of the MOD firefighters, I would have referred specifically to them in my report…Sadly, this issue was not drawn to my attention, so it did not make any specific recommendations about the MOD firefighters or the MOD police. If I had known about it, I certainly would have done so.”—[Official Report, House of Lords, 12 February 2013; Vol. 743, c. 570.]
It is important to mention this. We are towards the end of the Bill’s passage and we have not had much opportunity to debate it. This has been brought to my attention during the course of turning the pages on the detail of this pension legislation. The Opposition say the same as Lord Hutton. This is just one of those anomalies that we should be big enough to admit was wrongly overlooked in previous reforms.
It is true that the last Government raised the normal pension age for the civil service to 65 for post-2007 entrants, and that included Ministry of Defence staff. However, I am now convinced that had we known then about the small group of firefighters and police officers who are technically on the civil service payroll rather than employed by police or fire authorities, we would have taken account of these groups, and an exception could have been carved out. There should be no embarrassment inside the Treasury in admitting that this was an oversight. Regarding this previous change, even the Defence Police Federation said that the
“Council of Civil Service Unions did not consult the DPF, and we did not have the opportunity to make the above points about the physical demands of being an MDP officer”.
The issue was not raised or considered when it should have been. Those staff should not be punished because of that particular oversight. If Lord Hutton is able to admit the oversight and if Opposition Members in this Chamber are able to admit the oversight, the Economic Secretary should be big enough now to do the same. Rather than just read out the brief provided to him, he should engage his brain, use his own judgment and discretion, and do the right thing. If he engaged the brain of the Chief Secretary, who is sitting alongside him, that might go some way towards a solution.
There is the cost to the public purse argument, but as I understand it, only 56 people have joined the Ministry of Defence police, and fewer than 300 have joined the defence fire and rescue service since 2007. So the anomaly could be easily corrected by bringing a small minority of pensioners back into line with the pre-2007 entrants’ normal pension age of 60. We are not talking about a large number of firefighters or police officers here. Sadly, we have had to get to the Floor of the House of Commons to put the pressure on the Government. What the Government have tried to present as a cost is in reality a reduction in the predicted saving from this overall package of changes. They overestimated the savings to be made by overlooking the existence of this particular group of fire and police officers and failed to include them in the definition of uniformed services.
The Minister might put up various arguments, but the question of physical burden cannot be overlooked. A worker for the Ministry of Defence police may be required to wear 11 stone-worth of kit, and a normal shift will involve wearing 5 or 6 stone-worth of equipment for up to 11 hours. Workers in the Ministry of Defence fire service carry out the already difficult and dangerous job of firefighters, but do so in war zones and other extremely hazardous conditions around the world.
The fact that these workers are labelled civil servants should not blind us to the reality of what their jobs entail. Along with the police and the armed forces, they are the only public service workers who have to undergo regular fitness tests. In fact, the majority retire before 60 because they are unable to meet the high demands their jobs entail. They are also recognised as uniformed forces in the civil service pension scheme, and there is a small reflection of that already. Unlike civilian police forces, there is no option in the MOD police for officers to move to unarmed work if they struggle to cope physically. Even when mainstream police officers are armed, they are not expected routinely to carry guns around beyond the age of 55.
Another point that has been brought to my attention today—I imagine that this is something none of us is massively familiar with—is that many MOD firefighters have to work alongside colleagues who will qualify for retirement at 60. Royal Air Force firefighters—I think that they are called Trade Group 8—will often be on similar operations with service colleagues, working in the field together. One colleague will retire at 60, whereas another standing next to him will be required to work to 65, 66, 67 or beyond. The same applies to Royal Navy firefighters, who are regarded in their classification as armed forces. This is riddled with anomalies, and it would be very simple for Ministers to overcome them. They really ought not to have allowed this to become such a large point of debate.
Ian Paisley
It should also be pointed out that many of those personnel also serve in war zones, are deployed overseas and have been decorated for their service, which I think sets them apart, with regard to the changes that the Government are refusing to make.
Chris Leslie
Absolutely. Sadly, there is also an argument that the Government, by holding out in this way, are letting down those serving in our armed forces. They are giving the impression that they think they can sweep the issue under the carpet and let it ride. There are already concerns that they might be increasing the risk to national security by cutting the number of MOD police officers—from 3,600 to 2,400 by April 2016—and in many ways a feeling of betrayal is starting to accumulate.
This matter might be an irritant for the Minister, whom we know is looking for a pat on the head from his betters higher up the food chain, but it would be nice if he, rather than trying to deliver a neat and perfect Bill with no loose ends by resisting any issues that annoyingly come up in the course of debate, used his position to take account of the important questions that come up. I have encountered a number of such issues in my time at the Opposition Dispatch Box and as a Minister, and it is quite plain that at some point in the next few weeks Ministers will have to put their hands up and admit that they will back down. It would be far neater and quicker, and to the Minister’s credit, if he said so now.
This matter needs to be resolved. Telling MOD firefighters and police officers to stop rocking the boat and to accept a half-baked assurance that the Government might enter into some negotiations on whether the pension age should be 65 gives them no way to protect their situation beyond the short duration of the Minister’s tenure in office. We need to correct that glaring error in the Bill. I commend Lords amendments 78 and 79 and urge the House not to disagree with them.
Mr Reid
I am disappointed that the Government have not accepted Lords amendments 78 and 79. I support the rest of the Bill, which I think contains good proposals for tackling the issue of people living longer, but I think that that one part is an anomaly and an oversight, as Lord Hutton has admitted. It will leave MOD police and fire personnel in an anomalous position as the only uniformed personnel who will not retire at 60.
Many of my constituents who work as police and firefighters at Faslane and Coulport will be affected. As has been said, their counterparts in local authority fire services and other police forces will retire at 60, and I believe that they, not other civil servants, are the correct comparison for defence police and firefighters.
Chris Leslie
The hon. Gentleman is fortunate—as are we all—to have been elected by his constituents to make decisions, and what could be simpler than this? Essentially it is about whether all firefighters and police officers, whoever their technical employer, should be able to retire at 60. The hon. Gentleman is flannelling around trying to find reasons not to do that, but in his heart of hearts he thinks they should retire at 60—does he not?
Stephen McPartland
I genuinely believe that people should have the opportunity to make that decision and consult the Government and the trade unions. I do not want a broad-brush approach to this matter. It is not that I do not trust the shadow Minister, but he is trying to pull me into a political trap. I am not interested in politics in that sense; I am interested in representing my constituents and I do not want to accept an amendment that could technically make those fire and police officers worse off in the future. I would like to know far more about the details behind the amendment and what accepting it would mean.
The Minister mentioned a figure of around 8% that could be a reduction in net pay. If we accept such an amendment, and the mistake made by the previous Government in 2007 is reversed, I think we should negotiate with trade unions and fire and police officers so that we fully understand what its impact will be on their take-home salary at the end of each month, and how it will affect decisions in their careers and moving forward. I want everybody to have a fair opportunity, and as I have said, I am proud of the public sector and the work it does. Although the amendment seems fair, I do not feel that I can support it because of the broad-brush approach that could lead to MOD police officers and fire service personnel having a worse set of circumstances in a year or two, just so that party political points can be scored. Unfortunately, I will not be able to support the amendment, but I urge the Minister to provide us with more detail in his winding-up speech about how he will encourage the MOD to sit down with the unions and ensure that the pension age will not rise above 65, and that any decision on the pension age will be about 65 and downwards.
John McDonnell
I welcome the new enthusiasm on both sides of the House for negotiating with trade unions. We have seen 18 months of industrial action followed by the imposition of a pensions settlement on a large number of civil service workers. I therefore welcome this enthusiasm for negotiating the issue out.
The Government’s policy on pensions was twofold: they wanted to bring together a consistent retirement age across the services, while, as part of public service reform, ensuring a process of modernisation, with retirement schemes reflecting the requirements of service delivery. From what we have received today, I think we are reintroducing an element of chaos into the retirement age. Far from ensuring consistency, we seem to be building anomaly upon anomaly. Far from pragmatically reflecting the reality of delivering a service, we are about to undermine another service.
On delivery, we should learn the lessons of 2007. I did not support the increase in the retirement age for firefighters in 2007, just as I have not supported this legislation. The lesson that the Fire Brigades Union taught us was that once we increase the retirement age in such a physically demanding job, apart from having a physical effect on those workers and their lives—and on their families, too—we do not save money, because people take ill-health retirement, as others have said. At the end of the day, this is not part of a modernisation process; it is a step backwards.
The other issue raised was consistency—this argument that there will be consistency across the uniformed services. However, that was never the case anyway, because we argued for the Prison Service and uniformed services in the health service to be included, but they were excluded. The issue of consistency is drawn even more sharply by the exclusion of the group of staff we are discussing in this debate, who are clearly part of a uniformed service. They are being discriminated against purely on the basis of who employs them. Firefighters who are employed by local government via a fire authority are within the scheme at age 60, whereas those employed by these other bodies are not. That is not just policy making on the hoof; to be frank, it is incompetent policy making.
As for the disbenefits, when a general agreement is taken into legislation in this way there is always the facility for the employer and others to adjust contribution rates, albeit as part of a negotiated settlement, but we usually legislate and then iron out the detail of the contribution rates, with the matter usually being resolved through an adjustment of the employer’s contribution.
Let me turn finally to the process. The Minister helpfully tried to respond, but there was insufficient detail. If there is to be negotiation on this issue, we need at least a commitment about the time scale. There has to be a limited time scale, over the next three months, in which we can resolve these anomalies and give this group of workers some security, because the current insecurity is causing concern.
Chris Leslie
My hon. Friend is spot on. We need that time frame, but do we not also need a commitment from the Minister today that the age of 60—this is the equality issue—is, at the very least, a possibility that is on the table? So far we have not had that.
John McDonnell
Today we have at least set out the parameters of what the negotiations will be. The age of 60 has to be No. 1 on the agenda, followed by ironing out other anomalies. The second issue is the point I raised in an intervention on the Minister. We have to have a clear definition of the legislative process by which the negotiated settlement will be speedily agreed through the House. Will it be tacked on to other primary legislation or might there be a speedy regulation change that enables us to implement the process?
Richard Fuller
I do not wish to disagree with my hon. Friend, but I may have to do so. Many jobs in both the public and private sector are physically demanding, but I would not advocate a different retirement age purely on the basis of physicality. The Opposition Front-Bench spokesman tried to make a specific point about physicality, but I believe that that is the wrong course to take. I believe that this group of workers—the MOD police force and firefighters—have an additional requirement placed on them by us, the taxpayers, whereby we ask them as part of their responsibilities potentially to put their lives at risk, or at least to put the safety and interests of the public ahead of themselves. If I may say so, that is a far more appropriate basis for our looking at this particular issue. People may wish to make the case for physicality, but there is a special case here that goes above and beyond that. That is, I think, the reason why the Minister has taken such great interest in trying to find a solution on this issue.
I welcomed hearing the Labour party admit that it completely forgot about these people when it was in office and raised the pension age. Hearing that was welcome, because all Governments make mistakes and people do get missed out in the transitions. Let me explain what I would like to hear from the hon. Member for Nottingham East (Chris Leslie) today. There is a chance in future—I do not think it will be in 2015, but it is likely at some time for these public sector workers in the MOD, the fire service or the police force—of there being a Labour Government.
Richard Fuller
I am pleased that the shadow spokesman raises that possibility. Is he therefore prepared to put his money where his mouth is—today? He has made a commitment, but is it just words? If he is so confident of being in office, will he pledge today to ensure that these MOD workers have the same conditions as he advocates? I give way if he wishes to make that pledge.
Chris Leslie
The hon. Gentleman knows, I hope, that we are not making this decision in 2015; we are making it here and now in 2013. We have to confront the issue. He is trying to find all sorts of reasons not to disagree with the Whips who are leaning on him, saying “Please do not vote with your conscience on this particular issue.” We have accepted that the issue should have been addressed in 2007. Now that there is no excuse for lacking awareness of it—it is being debated now—is he really going to vote today, in his full awareness of these facts, to say that this particular group of firefighters should not be entitled to retire at 60 when all the other firefighters are? Is that really what he is going to do?
Sajid Javid
That is characteristic of the hon. Gentleman, as he opposes a lot in this Chamber, and perhaps did so even when his party was in government.
My hon. Friend the Member for Colchester (Sir Bob Russell) raised a number of points. I agree with his comments about fitness for the purpose. He asked about whether MOD firefighters and police officers are fit for the purpose and that is key, because it is essential that we set retirement ages that are appropriate for the jobs in question, as I said in my opening speech.
My hon. Friend also touched on the related issue of pension contributions. If we just accept these amendments, there will be consequences from the changes. The hon. Member for West Dunbartonshire (Gemma Doyle), speaking for the Opposition, intervened on my hon. Friend on that matter, but what she said was wrong, because there would be consequences. We would have to think about who would pay for these changes, and if there were a change in the retirement age we clearly could not have a situation where, for instance, the civilian firefighters and the MOD firefighters had the same retirement age but paid different pension contributions. We would have to consider such issues. The hon. Lady knows that such issues exist, and it does not serve this House well to pretend they do not.
Chris Leslie
The Members who have engaged in this debate were asking the Minister to see whether there would be any movement, and one issue raised was the time frame for any potential negotiation on movement. I happen to think we should hold out for 60—that that should be the decision today—but I do want to ask the Minister: is he sure there is the potential for going to 60 for MOD firefighters and civilian firefighters without primary legislation? I am worried that, if we let this matter pass today, we might not be able to deal with it through regulations and secondary legislation, and that we will instead require primary legislation if we are to have the potential to get parity. Can the Minister confirm that we would need primary legislation for that?
Sajid Javid
I was going to come to that issue, because my hon. Friend the Member for Bedford (Richard Fuller) and the hon. Member for Hayes and Harlington, as well as the Opposition spokesperson, raised it. I will say a bit about the MOD process, but first let me repeat an important point: this is a broad-ranging Bill to deal with all public sector pensions, affecting approximately 12 million individuals, by addressing the issue of increasing life expectancy and seeking to find the necessary savings in a fair way from employees, employers and the taxpayer. It is framework legislation: it sets the general framework for individual schemes, but that is all it does. It is for the individual employer organisations and the employees to negotiate the terms of each scheme.
We deliberately set up the legislation to provide significant flexibility, so that if the MOD, and therefore the Government, decide at a later date that the retirement age needs to change, it would not require further legislation. The MOD can make the decision in discussion with stakeholders and others. The legislation will give not just the MOD but all public sector employee organisations flexibility to deal with the particular circumstances of their schemes.
Sajid Javid
The Government have been very clear that one of the purposes of the Bill is to deal with increasing life expectancy and longevity. That is why retirement ages are increasing for almost all public sector workers, and there is a link to the state pension age. The Government must address the issue; it was something the previous Government ducked, but it is vital for making the public finances more secure. That situation has not changed. What I am outlining today, with regard to the issue relating to MOD firefighters and police officers, is that there is flexibility within the MOD scheme for it to come up with a different arrangement. The MOD has agreed to look into that. It has not made any decisions, but I am sure that it will look very carefully indeed at the issue.
Chris Leslie
The Minister says that the Bill is flexible. May I direct him to page 23, schedule 1, where there is a definition of fire and rescue workers? It states:
“In this Act, ‘fire and rescue workers’ means persons employed by…a fire and rescue authority in England or Wales…the Scottish Fire and Rescue Service, or…the Northern Ireland Fire and Rescue Service Board.”
Currently, that reference does not include Ministry of Defence firefighters. Can the Minister tell us that it does not require primary legislation to amend schedule 1 in that way?
Sajid Javid
I thought I made myself clear but I will say it again: it would not require primary legislation if the MOD decided it was appropriate and right to make any changes to the retirement age.
Section 5 of the European Communities (Amendment) Act 1993
Chris Leslie Excerpts(11 years, 7 months ago)
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Greg Clark
The IMF is considering its view, and we will see what it has to say in the months ahead, when it issues its review. We have always been clear that, as we have advised all EU member states, keeping control of finances is an important precondition for growth. That is an important matter.
As I said, we have been parsimonious in not generating excess quantities of paper. Members will be aware—certainly my hon. Friend the Member for Stone (Mr Cash) will be—that we did not follow the advice that other countries followed and align our financial year to fit in with the norm in Europe. We think it right to stick with our financial year and make use of the documents presented.
With the Budget announcement having taken place on 20 March, shortly before Easter, I appreciate that the timetable was tight, but we made every effort to provide early copies of the convergence programme to the House and the other place in advance of this debate.
Chris Leslie (Nottingham East) (Lab/Co-op)
What was going on with the Order Paper before the debate? I think that the Leader of the House, or perhaps the Minister, tabled a motion not to have this debate, but to kick it up to a Delegated Legislation Committee. I understand that some hon. Members, including the hon. Member for Stone (Mr Cash), objected, and now we are not debating whether to have the debate upstairs. What was going on? Why did the Government try to shove this out of the line of sight?
Greg Clark
The hon. Gentleman is aware that I am always happy to debate with him, especially on the Floor of the House, which I very much prefer. He will know that at this time in the parliamentary Session, as we approach the end of the Parliament, the business managers—the Leader of the House is here—are particularly jealous of the Chamber’s time, including in respect of the sorts of debate we have had today. They had the foresight, however, to anticipate being fortunate enough to have some time today on the Floor of the House. It was right, therefore, that we agreed with the proposal, and here we are today.
As I said, we have economically re-versioned the Budget 2013 document to set out the Government’s assessment of the UK’s medium-term economic and budgetary position. As confirmed by the independent OBR, the UK economy is still recovering from the biggest financial crisis in generations, one of the deepest recessions suffered by any major economy and a decade of hollow growth built on unsustainable debt levels. In June 2010, the Government set out a comprehensive strategy to deal with the deficit, protect the economy and provide for the foundations of recovery. This economic plan combines monetary activism with fiscal responsibility and supply side reform.
The Government are making progress. We have restored fiscal credibility, thus enabling an activist monetarist policy and the automatic stabilisers to support the economy. The deficit has been cut by a third over three years and is projected to fall in every year of the forecast. The OBR has judged that the Government remain on track to meet the fiscal mandate one year early, while 1.25 million private sector jobs have been created. Employment is just below record levels and we have kept interest rates at near-record levels, helping families and businesses.
However, there is much more to do. It is important that we understand why the road to recovery has been more difficult than was first anticipated. Although Opposition Front Benchers profess an internationalist outlook, they sometimes debate economic policy as though Britain’s economy was closed off from the rest of the world and invulnerable to other countries.
Chris Leslie (Nottingham East) (Lab/Co-op)
That was a paean of praise from the Minister for the right hon. Member for Richmond (Yorks) (Mr Hague); it is a pity that there was not quite so much for the Chancellor of the Exchequer. One of the strange things about this debate is the strong sense of having been here before to debate this issue. Indeed, it was about this time last year that we did so—and, sadly for me, the year before that as well.
Chris Leslie
In my case, it is not 20 times. I have responded to these debates only since the general election.
The key to the debate is the Budget Red Book. I suspect that many Members are not in the Chamber this evening because they have looked at the screens advertising the debate and seen a reference to some obscure European legislation, but I draw all Members attention to page minus 2 at the very beginning of the Red Book. In tiny 9-point font, beneath the statement that the Red Book is printed on paper containing 75% recycled fibre content minimum, it states:
“The Budget Report is presented pursuant to section 2 of the Budget Responsibility and National Audit Act 2011 and…constitutes the Government’s assessment under section 5 of the European Communities (Amendment) Act 1993 that will form the basis of the Government’s submissions to the European Commission”.
If Members knew that we were debating whether the Chancellor’s assessment of the economy was a true and accurate reflection of what is going on in the UK economy, for the purposes of that Act of Parliament, they would be absolutely astonished.
We have obligations under the Maastricht treaty articles; that is essentially what we are talking about when we refer to the European Communities (Amendment) Act 1993. Article 103 states:
“For the purpose of this multilateral surveillance”—
I know that those words stick in the throats of some hon. Members—
“Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy”.
Mrs Anne Main (St Albans) (Con)
Is the hon. Gentleman implying that the Opposition Benches are empty because none of his right hon. or hon. Friends could be bothered to come and scrutinise this document?
Chris Leslie
These Benches are not massively more empty than those on the Government side of the House. She will have to accept that this can, at face value, appear to be quite an obscure issue. [Interruption.] There are not many people on her side of the House, but I do not want to get into a contest on that matter.
Kelvin Hopkins
I want to pay my hon. Friend a compliment by saying that Labour Members do not need to turn up because they have such confidence in our shadow Minister and they know that he will speak for us.
Chris Leslie
That is one way of looking at it.
The point that concerns me is that the Government have in recent days tried to shove this issue off the Floor of the House and sweep it upstairs to a Delegated Legislation Committee. The Minister has said that this is a busy time of year and that the Government do not want to waste the House’s time with these questions, but we are already faced with an opaque description of the legislation, so it is no wonder that they are trying to push it out of parliamentary time. It is, in fact, the kind of legislation that ought to be advertised more to hon. Members.
Mr Cash
I would no doubt have a lot in common with some of the remarks made by those who were critical of the Maastricht treaty. Will the hon. Gentleman be good enough to tell me whether he would like to leave the existing treaties, and to describe the basis on which this nonsense, this farrago, is now being conducted?
Chris Leslie
Well, this does feel like rather an anachronism, but we have legal obligations under those treaties. No doubt there will be revisions, and some of the reporting requirements ought to be considered afresh, but my principal concern is whether it is right for the House to endorse the Red Book as a true and accurate reflection of what is happening in the UK economy. In my view, the Government must be kidding if they are saying that the Red Book reflects the facts. It is more like a work of fiction. They have been spinning furiously as the key indicators have taken a turn for the worse, as my hon. Friend the Member for Luton North (Kelvin Hopkins) said. In fact, the Red Book is little more than a vanity exercise cloaked in an official publication. It revolves entirely around the Chancellor’s need to retro-justify his failing economic ideology.
I invite hon. Members to look seriously—and without cracking up—at page 1 of the Red Book, and to ask themselves genuinely and dispassionately whether it is a true reflection of what is happening in the UK economy. The first line states:
“The Government’s objective is to…build…a fairer society”.
Well, tell that to those who are struggling with the new bedroom tax while they watch the great and good millionaires of this country rake in a typical £100,000 tax cut, thanks to the reduction in the 50p rate of income tax for those earning more than £150,000. So much for a fairer society!
Here is another one:
“The Government’s plan…is based on…fiscal responsibility to deal with our debts with a credible debt reduction plan”.
That is in total contradiction with the first page of the Office for Budget Responsibility report, which states plainly that the deficit reduction plan has “stalled”. That is the word that the OBR uses. No one would think from reading the Budget Red Book that the Government had presided over an increase in the national debt of 38% during their three years in office.
Mark Reckless
Does the hon. Gentleman believe that the solution is to borrow more?
Chris Leslie
I am sorry to have to tell the hon. Gentleman that the Government are already borrowing more. We shall see the borrowing figures tomorrow, and we shall see what happens to their strategy. The deficit reduction plan has gone. It has vanished. It has totally disappeared. It is a dead plan. It is no more. It is deceased. It is incumbent on Government Members to realise that they need a different strategy for deficit reduction; they need one that will succeed.
I want to return to the first page of the Red Book, which we are asked to approve as a true reflection of the state of our economy. It states that
“the Government is committed to keeping costs down for families to help with the cost of living”.
Tell that to the typical household now being asked to pay an extra £891. People are worse off because of the measures taken since 2010—not to mention the shrinking real wages relative to rapid price rises. How about the following quote for masterly understatement? It states at the foot of the page that we are experiencing
“a more subdued and uneven recovery than expected”.
Our economy shrank in the last three months of 2012, and we will see whether we are recovering when we see the growth figures for the current quarter on Thursday. How on earth could that be viewed as a recovery? This is an exceptionally disingenuous document. Reading page 1 of the Red Book is enough to make any dispassionate observer double-take their grip on the tough realities of the world around them.
We should therefore dwell for a moment on the real-world evidence. A week is certainly a long time in the Chancellor’s political lifetime—what a week has just passed. The unemployment figures were exceptionally grim. The Bank of England’s latest release on trends in lending showed that, measured annually, the amount of lending to UK businesses from banks and building societies fell in the three months to February. The Bank of England said that lending to businesses fell by £5 billion during those three months and that the decline was broad based across all sectors. So much for funding for lending.
Way before we got to the Budget, we suggested that the Chancellor should take steps to reform the funding for lending programme, but he did not do so in the Budget. It should not take an intervention from the International Monetary Fund to prick up the Chancellor’s ears and make him realise that he needs to do something about funding for lending. Ministers will have to be far more adept and fleet of foot than that.
The Treasury Select Committee said last week that it was by no means clear that the cornerstone of the Budget—the Help to Buy housing scheme—would benefit first-time buyers and, as my hon. Friend the Member for Luton North alluded to earlier, the academic methodology underpinning the key paper written by the Chancellor’s favourite economic theorists—Carmen Reinhart and Kenneth Rogoff—was discredited when a graduate student found a fatal flaw in their excel spreadsheets that supposedly underpinned the whole extreme austerity course advocated by the Treasury.
Despite the usual diplomatic finesse employed by the IMF towards its affiliating member states, its chief economist Olivier Blanchard said that the Chancellor was “playing with fire”. A year ago, the IMF was forecasting growth of 2% this year, but it is now expecting growth of just 0.7%. It was a serious mistake for the Chancellor to ignore the IMF’s calls for a reassessment of fiscal policy in the Budget, and it is right to repeat its warnings. Even Christine Lagarde, not known for departing from the Chancellor’s opinions on these matters, said that the pace of fiscal consolidation
“has to be adjusted depending on the circumstances and given the weak growth that we have observed lately because of reduced demand addressed to the economy”
and that
“now might be the time to consider”
doing so.
Mr Nuttall
We are not talking about whether this document should be submitted to the IMF; we are talking about submitting it to the EU. If we compare our growth with that of the eurozone, the EU’s own body, EUROSTAT, is forecasting that growth in the eurozone will go down by 0.3% and that ours will go up by 0.9%.
Chris Leslie
To whomever we are asked to submit this document—to the IMF, the EU, the hon. Gentleman’s constituents or his mother-in-law—I would be embarrassed, if I were the hon. Gentleman, to stand behind it as a true reflection of the state of the UK economy. To cap it all, last week, we saw another humiliating blow to a Prime Minister and Chancellor who kept saying that our triple A credit rating was the No. 1 test of their economic and political credibility.
Mr John Redwood (Wokingham) (Con)
Given that the latest Government plans envisage borrowing £60 billion more in 2014-15 than in the original summer 2010 plan, how much more than that extra £60 billion borrowing would the hon. Gentleman recommend?
Chris Leslie
Unfortunately, we are not likely to have a general election until 2015. I would be grateful if hon. Members did whatever they could to bring that forward a little, but heaven knows what state the economy will be in—even by the time we get to 26 June, which I believe encompasses the spending review period. I am sure that yet further revisions of these figures, which keep changing like shifting sands before us, will be made. We simply do not know what a future Labour Government will inherit—hopefully in 2015. I will get back to the right hon. Gentleman nearer the time. One thing seems clear to me: we have to take some bold action to stimulate the economy, rather than adopt this laissez-faire, arms-folded, non-interventionist approach. Even the Financial Secretary used to disparage that, but he has now signed up wholly to it.
Greg Clark
Does the hon. Gentleman agree with the right hon. Member for Morley and Outwood (Ed Balls), who said:
“Long-term interest rates are the simplest measure of monetary and fiscal…credibility”?
Chris Leslie
Long-term interest rates reflect a number of factors. Government Members would like to think that low bond yields were a reflection of fiscal policy measures alone—[Interruption.] The Minister should hear me out. He likes to think that that is the one test. As I say, it used to be retention of the triple A credit rating, but that has gone, so something else has had to be found. Long-term bond yields, however, are also a reflection of who is purchasing them. I do not know whether the Minister can help us out by elaborating on who exactly is purchasing the Government bond yields, because the Bank of England seems to be doing an awful lot. One branch of the UK Government institutions is helping out the other branch of Government institutions—depressing, of course, that yield. The Minister should not be too proud of market expectations that things are going to be so bad for so long that our interest rates are at the ultra-low level. It is not a reflection of fiscal policy; it is a reflection of expectations of future economic performance and of the interventions in monetary policy by the Bank of England.
Kelvin Hopkins
Is it not simply the case that bond markets can get things terribly wrong as well? We know of the 1929 crash and the 2008 crash, for example. I have no doubt that some have great optimism about the future of the world and national economies, but they can get it wrong, too.
Chris Leslie
That is why some in the bond markets in the City and even the IMF and other economic commentators and business leaders are increasingly saying—as PIMCO did today in its intervention on these issues—that we have to do something about this. Demand in the economy is cripplingly bad; we have to do something to take a different course. The Chancellor’s plan is not just failing; it is adding to our problems with the public finances. We will see the state of the deficit reduction plan and what is happening with this trajectory when we see the figures tomorrow. We hear of blaming the snow, blaming the royal wedding, blaming all sorts of other players including the European Union; it is amazing how we never hear that it is the fault of those who currently occupy the Treasury.
Greg Clark
I have a genuine question for the hon. Gentleman again. Was the shadow Chancellor wrong when he said:
“Long-term interests are the simplest measure of monetary and fiscal policy credibility”?
When he said that, interest rates were at 4.75%. Was he wrong?
Chris Leslie
The Minister can ask me the same question as many times as he likes, but I will give him exactly the same answer. There are a number of reflections and metrics for judging economic performance, but in these particularly stagnant economic circumstances, I do not think that he should wear as a badge of honour those ultra-low bond yields because they actually reflect low and depressed expectations about the future performance of the economy. He knows that that is true. It is also a reason why not just Moody’s but Fitch have taken out the legs from beneath the UK’s triple A credit rating after three years of stagnation, rising unemployment and billions more borrowing to pay for economic failure. It is time that the Treasury woke up and realised that its plan is causing long-term damage not just to the public finances, but to British families and businesses as they pay the price. When even their biggest allies—the IMF and the credit rating agencies—abandon the Government, it is time to put political pride aside and finally act to kick-start the economy.
Most independent forecasts suggest that on Thursday the GDP figures will show small positive growth, but growth of just 0.3% would simply mean that the economy was back to where it was six months ago. After three years of stagnation, we need to see decisive evidence this week that a strong and sustained recovery is finally under way—otherwise the Chancellor will definitely be in real trouble. We cannot seriously be expected to ratify this Budget Red Book as our representation to the European Union, or anyone else, of how our economy is performing.
Are we supposed to ignore the double downgrading of the UK’s credit rating, first by Moody’s and then by Fitch? Are we supposed to skim over the new figures from the Office for National Statistics, which show that the average weekly pay packet was £464 in February and £480 in the same month last year? That is the worst set of data since the ONS started recording such facts. Are we supposed to turn a blind eye to the fact that youth unemployment rose by more than 20,000 last month? The total figure is now just under 1 million. Should we just forget about the risks of that lost generation?
The Red Book is a staggering work of deception wrapped in the heroic conceit of a Government who are trying to fool people into thinking that they are on track. They are losing control of the public finances because they have lost the plot when it comes to the relationship between economic growth, jobs, the economy, and the revenues that we need in order to get the deficit down. It would be far simpler for the House to reject the motion and return the Government to the drawing board to get their act together and work on an alternative plan that might actually give us the bold action that we need, rather than the stagnation that we are suffering.
Mr Cash
I agree with my hon. Friend. We must be realists. T. S. Eliot once said,
“human kind
Cannot bear very much reality”,
but Britain has got to wake up. It is crucial at this stage that we understand—in a constructive, not a negative, sense—that we have both a problem and an opportunity, but that opportunity will not last much longer, and we must not simply repeat the recitations and mantras about section 5 while not tackling the intrinsic problems.
These papers were, no doubt, prepared by worthy civil servants, but they may well not reflect the real situation. Let us look at the question of the level of debt, for instance. I mentioned that in an intervention on my right hon. Friend the Financial Secretary, and I gave him the percentage figures. However, under the previous Government—I now turn my attention to those on the Opposition Benches—I repeatedly said, along with my right hon. Friend the Member for Wokingham (Mr Redwood) and one or two other Members, that the debt that was accumulating under them was causing so much damage to our economy. Furthermore, as I said at the time of the last election in my manifesto—or, rather, in my personal message to my constituents—the stated debt levels, which is the key issue, were based on what could only be described as a lie.
Chris Leslie
What does the hon. Gentleman think about the fact that the national debt has risen by 38%—by over a third—in the past three years, while the current Front-Bench team has been in charge?
Mr Cash
Not only am I appalled by that, but I also recognise that the genesis of much of this can be traced back to the time of the previous Government. Furthermore, we now understand from the official figures published by the UK Statistics Authority that the level of debt—which at one time was, astonishingly, described as being “merely” £1 trillion—will go up to £1.5 trillion. However, under the previous Government the real level of debt—taking into account public pensions, Network Rail, nuclear decommissioning and several other factors, which we cannot ignore—was actually up at about £3.25 trillion, as I argued at the time, and if we include those factors it is now likely to be about £4 trillion.
That is the inheritance of the young people of this country. They have got to be brought into work as a result of growth, but the prescription from the Opposition Benches is more debt, not less, and more Europe, not less.
Regardless of how I vote this evening, I pay tribute to the fact that at least the coalition Government have begun to look at these questions. My complaint is that they have not done enough and they are going too slowly. If they do not get on with it, there will be a catastrophe. In fact, we are already living through the beginnings of a catastrophe.
There is another question to be asked about growth. We can only grow our economy by growing from the other countries with whom we trade. In a nutshell, we must engage in cuts, but we need the taxation from the growth of small and medium-sized businesses in order to provide the public services those on the Opposition Benches say we need to provide. All they do is call for ever more cuts, but they talk about growth but do not actually do anything about it.
The European approach of large, and greater, Government spending tends both to increase the rate of Government debt and to lower the GDP growth rate. As a result, growth in most European countries, and the possibility of getting Government debt under control, recedes. The rigidities imposed by a single currency—the euro—and the burden of EU regulation on EU economies are continuing to cause frictions and difficulties and will destroy the countries in the European monetary union.
If only people would listen at the time, when it matters, rather than afterwards and then try to cover things up. Only a few weeks ago, Moody’s downgraded our economic performance, and Fitch did so in the last couple of days. Portugal, Ireland, Greece, Spain, France and Italy are now all countries of perpetual economic concern. There is a black hole, but the call is for more and more Europe.
I referred to the remarks of Angela Merkel today. It is regrettable and unfortunate that she was quoted as saying that countries in the eurozone must accept that Europe “has the last word,” and need to work more closely together if the continent is to avoid going into decline. I am sorry to have to say this so specifically, but that is precisely because there is a centralised approach, which is driven by German requirements and goes back to Chancellor Kohl.
In the 1990s, I wrote a pamphlet called “British and German National Interest”, and we are seeing a repetition of that time. Chancellor Merkel said:
“We need to be prepared to break with the past in order to leap forward. I’m ready to do this.”
In fact, she is going back to the past—not the dark past we all witnessed so vividly, but the kind of past that assumes it is not actually a European Union, but in practice, a German Europe. We should ask people in Cyprus and Greece what the position is. She said:
“Germany will only act together with the others—hegemony is totally foreign to me.”
It may be foreign to what she wants, but the practical reality is that it is happening.
We are now being lectured by Madame Lagarde, who was a French economic Minister and is now head of the International Monetary Fund. She said:
“We violated all the rules because we wanted to close ranks and really rescue the euro zone.”
Those are the rules we are discussing. On top of the theft in Cyprus, everyone knows that those of us who argued the case have been proved right.
I am sorry to hear that Madame Lagarde appears to have criticised our Chancellor. It is some gratitude for all the work he did urging her to accept the presidency of the IMF, and leading the charge to make sure she got it.
Everyone wrings their hands, but what are the Government doing? We are being locked into the question of whether the debt is being sufficiently reduced, but the debt is escalating and the deficit remains unacceptably high. Problems in the eurozone have a real effect on the UK economy. I repeat that it is not just about the eurozone, or just about the European Union; it is about Britain, which is why we have to get our act together. I notice that the Chief Whip has just come into the Chamber, so I hope he will listen with care, because these debates will unravel.
Real GDP fell in every quarter of 2012 in the eurozone, and by 0.6% over the year as a whole. The IMF forecasts a further fall of 0.3% this year. What is happening is completely unacceptable. No wonder the UK Independence party is making such headway; it will continue to do so until there is real growth.
We have the opportunity. We can deliver. No doubt the commentariat will fail to report this debate, as it fails to report other debates when we deal with facts and not mere speculation, but that will not prevent us from continuing the fight. We have the means to achieve the results. Some of them will come from a change of position by the Government, going for more and more growth based on real policies for growth and disentangling ourselves from the shackles of the regulatory arrangements of the European Union, making sure that the EU does not dominate the free trade agreements that are being determined. We have to be able to trade on our own terms, just as we in this Westminster Parliament have to decide the future of British policy.
As the Prime Minister said in his five Bloomberg principles, our national democracy depends on our national Parliaments. European democracy depends on their national Parliaments. He was right about that. Let us do something about it. Let us make sure that we run our own economy based on our own assessment and that we do not remain shackled to the existing treaties. It is time to put an end to them.
Finance (No. 2) Bill
Chris Leslie Excerpts(11 years, 7 months ago)
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Jacob Rees-Mogg
I obviously do not know about the individual cases that come to the hon. Gentleman’s surgery, but with a benefits bill for this country of £220 billion a year, there really ought to be—
Jacob Rees-Mogg
It is rising, as the hon. Gentleman says. There is a huge amount of money in the benefits system. If it is not going to the right people, that will be rectified by the reforms being pushed through by my right hon. Friend the Secretary of State for Work and Pensions, which are some of the Government’s most ambitious and important changes.
Mr Gauke
Of course, that has been far outweighed by the steps that we have taken to reduce fuel duty. The net effect has been a substantial reduction in the amount of tax collected for every litre of petrol.
New clause 2 returns us to the big, fundamental economic argument that we have been having for some years on deficit reduction. I could deliver the standard speech that we give in such circumstances about how it is a strange way to deal with a debt crisis to try to increase borrowing. However, this is one of those rare occasions when the Opposition have put forward a policy and we have an opportunity to ask questions about it. I know that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) will be keen to enlighten the House on the policy she has set out in new clause 2, and if I may, I will ask a number of questions—[Interruption.] I am sorry; there seems to be some objection from the Labour party. New clause 2 is being proposed by the Labour party. I want to ask questions about the policy behind it, so let me ask those questions.
First—this is the point raised by my right hon. Friend the Member for Wokingham (Mr Redwood)—new clause 2 states that VAT will be reduced until “strong growth” is achieved. What is strong growth?
Mr Gauke
I would give way to the hon. Gentleman, but he was not here for the early part of the debate. He may not have read the new clause, but the policy depends on the definition of “strong growth” and the Labour party has not provided a definition.
Secondly, the cost of this measure will be £12 billion to £13 billion a year. How will that be paid for—an issue raised by my hon. Friend the Member for Peterborough (Mr Jackson)? Will it be through higher taxes, a reduction in spending or—as we believe—an increase in borrowing? What consideration has been given to the impact on the cost of borrowing? A 1% increase in Government bond yields would add around £8 billion to annual debt interest payments by 2017-18 and result in an increase of £12 billion in households’ mortgage interest payments—the equivalent of £1,000 for a household with an average mortgage in its first year. Has the Labour party considered the consequences of that discretionary fiscal stimulus?
What is Labour’s view on the profile of deficit reduction? We believe that over the whole deficit reduction period, 80% should be achieved through spending cuts and 20% through tax increases. The Darling plan had two thirds on spending cuts and one third on tax increases. What is the view of the Labour party, given that it has put in front of the Committee a proposal for a £12 billion or £13 billion tax cut? Does it suggest that the ratio should lean more towards public spending cuts rather than tax rises? What assessment has Labour made of the impact of different taxes on the economy? My right hon. Friend the Member for Wokingham mentioned the fact that VAT is, as many economists would argue, less harmful to growth than other taxes. Is that the view of the Labour party? Why has VAT been picked as a particular issue?
The Labour party does not come forward with policies often, but I am pleased that it has done so today so that Labour Members have the opportunity to tell the Committee exactly what their policy is. They can explain that policy, and if they would care to answer those questions the Committee will be able to judge whether it should support new clause 2. My advice to my right hon. and hon. Friends is that this is just more of the same from the Labour party. It is more borrowing and more debt, and it fails to get to grips with the fiscal situation and the mess in which the Labour party left this country and which we, the coalition Government, are addressing.
Finance (No. 2) Bill
Chris Leslie Excerpts(11 years, 7 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss new clause 5 —Mansion tax
‘The Chancellor shall review the possibility of bringing forward a mansion tax on properties worth over £2 million and publish a report, within six months of the passing of this Act, on how the revenue could be used to fund a tax cut for millions of people on middle and low incomes as part of a fair tax system.’.
Chris Leslie
This first group of new clauses to this year’s Finance (No. 2) Bill relates broadly to issues of housing policy. Sadly, new clause 6, which urged the Chancellor to focus on the availability of affordable housing particularly in the wake of the bedroom tax, has not been selected for debate. My hon. Friends will be delighted to know, however, that new clause 5 seeks the support of Parliament for a review of a mansion tax on properties worth over £2 million and the earmarking of revenues for a tax cut for low and middle-income households.
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
My hon. Friend has just referred to the bedroom tax, and we all know that this has huge implications for the future finance of our country. Does he think that those implications are reflected in the Bill?
The Chairman of Ways and Means
Order. Much as that issue might be in Members’ minds, we are unfortunately not going to discuss it. I allowed a little bit of sailing earlier in the opening comments, but we must now deal with what is on the Order Paper.
Chris Leslie
You are of course entirely correct, Mr Hoyle, as we are debating new clauses 1 and 5. New clause 1, however, talks about the Government’s approach to the housing market more broadly and, in the context of taxpayer support for the housing market, it would be remiss of any hon. Member not to recognise the volatility created by consequential changes in other areas of departmental policy, particularly those of the Department for Work and Pensions, as they affect the availability of housing supply. After all, in most of our constituencies and particularly the least well-off ones across the country, there is a sense of foreboding about the potential displacement of many constituents who are being told that they should look for other housing market options when it is, in fact, quite clear that there are no suitable social housing options to fit the circumstances of nine out of 10 of them. You are completely correct, Mr Hoyle, about the nature of new clause 1.
Jack Dromey (Birmingham, Erdington) (Lab)
On that point and before my hon. Friend moves on, does he agree that the impact of the totality of the welfare changes, including universal credit and the factoring in of housing associations’ bad debts, will have a very serious impact on housing supply—including with respect to the recent profoundly disturbing calculation by the G15 group of housing associations in London that as a consequence of the Government’s welfare reforms, they will build 1,200 fewer badly needed affordable homes next year?
The Chairman of Ways and Means
Order. We need to stick to where we are. I know that Members are being tempted, but much as we might like to go down that route, I know that we are not going to do so.
Chris Leslie
New clause 1 talks about the way in which the Government’s approach may target help on those who want to buy a second home. In tabling new clause, we were concerned that we should prioritise those who need their first home—a primary residence. That is an important part of our argument in new clause 1.
Chris Leslie
No one knows more about housing issues than my hon. Friend the Member for Birmingham, Erdington (Jack Dromey)—with, perhaps, the exception of my hon. Friend, the Member for Clwyd South (Susan Elan Jones), to whom I am happy to give way.
Susan Elan Jones
I am sure that I do not know more than the first-named hon. Friend.
Does my hon. Friend think that what could effectively become a holiday-home subsidy will end up having a disproportionate effect in rural communities? We know what has happened in north and west Wales in the past, but could not the same apply to the Lake District, Cornwall and other rural areas? Will my hon. Friend be asking the Minister whether any impact assessment has been carried out in relation to the potential cost of rural housing? This move is an absolute disgrace.
Chris Leslie
My hon. Friend ought to know by now that this particular Treasury does not go in for assessments based on evidence. In fact, we are lucky that there was a fag packet on which the Chancellor could draw up his plan.
My hon. Friend needs to recognise that the Budget was not designed to deal with the needs of the economy, the housing market or the rural communities to which she has referred. It was designed entirely to save the Chancellor’s skin, and to support his ideological approach and the extreme austerity agenda that he has been pursuing. Because he had been failing on the deficit and borrowing, he decided to design a housing market intervention that fell below the line—that added up in terms of national debt, but did not affect his borrowing figures. The convoluted scheme that he created may have a series of perverse consequences, because it was not designed to meet the needs of housing or of the communities that we represent. It was designed merely for the Chancellor’s own convenience, in the light of his disappearing and diminishing personal prospects.
We all know, or at least Labour Members know, that housing is the bedrock of a stable community, strong families and economic progress, and that the adequacy of housing availability is crucial to our economic recovery. There should be a cross-party consensus on the need to help families to get a foot on the housing ladder and helping people to fulfil their aspirations and provide a decent foundation for the future. However, despite the warm words about housing that we have heard for the past three years, the Government’s record is poor, and the housing investment measures in this Budget—like those in previous Budgets—fall well short of what is needed and what Labour Members would advocate. What hope can there be for hard-working families who are struggling to get on to the housing ladder, given the current mismatch between supply and demand? House building has fallen, rents are rising, home ownership is becoming harder rather than easier so that the goal for young families is becoming less and less achievable, and homelessness has risen.
Andy Sawford (Corby) (Lab/Co-op)
I agree with my hon. Friend’s assessment of the likelihood that the Government’s latest measures in the Bill will significantly improve people’s opportunities to buy their own homes or gain access to housing on the rental market. Are we right to take account of the Government’s track record over those three years when making such an assessment, and am I right in thinking that the Government have announced 300 housing measures which have caused the situation to become worse rather than better?
Chris Leslie
It could almost be said that there have been more announcements than new homes constructed under the present Administration. Let us consider a few of the schemes that they have announced.
My hon. Friend will recall the new homes bonus, which was part of the Government’s so-called localism agenda, because he and I have spent some time examining that particular set of policy options. The scheme, which the Government announced in 2010, was supposed to unleash growth and build at least 400,000 additional homes, but it has totally failed to deliver. The number of housing starts fell by 11% last year, to below 100,000—less than half the number required to meet housing need.
Andrew Gwynne (Denton and Reddish) (Lab)
How confident can we be that this new initiative will be any more successful than the others that my hon. Friend is beginning to outline? He will remember, as we do, the NewBuy scheme, which the Prime Minister promised would make 100,000 new properties available to people. In fact, only 1,500 people have secured new properties as a result of that initiative.
Chris Leslie
My hon. Friend has hit the nail on the head. Imagine announcing such a scheme, and then delivering only 1.5% of the goal that the Government set out so confidently at the inception of that project, which has clearly failed. We want to see the careful and detailed thought, piloting, workings and evidence that the Government have put into this latest venture.
Chris Leslie
I am sure that the hon. Gentleman is now going to assure us that all that careful and thorough work has been done.
Mr Jackson
The hon. Gentleman is being most generous in giving way. We would take his critique a little more seriously, had not his Government’s regional spatial strategy delivered the lowest number of homes since 1923, doubled the number of homeless families and built 117,000 homes on flood plains between 1997 and 2005. Is that not the reality of the Government he supported between 1997 and 2010?
Chris Leslie
Setting aside the fact that there is probably the lowest number of Conservative MPs here in the Chamber today since 1923, they do not have room to criticise any previous Government on these issues, let alone the last Labour Government. We believe that there is a crying need for housing, which is one of the crucial foundations for future economic prosperity. It is about time Government Members recognised that they have had three years in power, and have their own record to defend. They have to take some responsibility for the decisions they have been supporting.
I do not know whether my hon. Friends recall the infrastructure guarantee scheme, a key feature of the summer before last. It was part of the Government’s emergency legislation, and they rushed it through Parliament. It was supposed to enable guarantees to underpin £40 billion of investment in infrastructure and £10 billion-worth of new homes, including 15,000 new affordable homes. However, so far as I can see—I am sure the Minister will intervene if I am wrong—not a single tangible penny of support from that scheme has been allocated for house building. I am happy to give way to the Minister if he wants to correct me.
Chris Leslie
I am just waiting to see whether the Minister wants to intervene. [Interruption.] It seems that he does not, so I give way to my hon. Friend.
Andy Sawford
My hon. Friend questions the confidence we can have in voting on the measures in the Finance Bill, given the Government’s performance in the last three years, and rightly mentions their infrastructure guarantee scheme. According to my assessment, they have begun 15% of the 576 projects in the national infrastructure plan, so we have no reason to have any confidence in the measures in the Bill.
Chris Leslie
I know that the Minister pursues his duty to this House with great diligence and that, in responding to the debate, he will want to update us in detail on the number of extra houses that have been forthcoming as a result of the vital emergency legislation that the Government put through. It would be extremely helpful if he did so. However, it is clear to us that the overwhelming barrier for the housing market to overcome has been the 60% cut in the affordable housing budget made in the 2010 spending review, and of course, matters have been made worse by the subsequent lack of growth in the economy. It is therefore no wonder that the Chancellor felt the need to reboot his various schemes back in March. That is why we come now to the Government’s Help to Buy scheme, the detail of which I want to spend a little time considering.
Mr Stewart Jackson
I pay tribute to the Minister, who does indeed know what he is talking about, having been, like me, a member of the board of management of the New Local Government Network. If there is a Labour Government within the next year or so, will the hon. Gentleman abolish the affordable rent model and put funding directly back into social rent—yes or no?
Chris Leslie
I will come to some of those details because I think it important that we look at the contrasting policy options for housing support. My hon. Friend the Member for Birmingham, Erdington has been developing our plans for house building and housing supply in a number of different ways, and I will touch on those, if I may, after having looked at the Government’s approach: the Help to Buy scheme, which consists of two parts, the first being an equity loan element. The Government have said that they want to extend what was known as the First Buy scheme—there are so many names that it is sometimes difficult to keep track—whereby people would purchase new build homes up to a value of £600,000 and could borrow 20% of the value of the property interest free for five years in return for the Government taking a stake in the equity. The fee for that would increase annually, but only in line with inflation, so the Government are essentially committing, they say, up to £3.5 billion over the next three years to this shared equity loan scheme.
Sheila Gilmore (Edinburgh East) (Lab)
In many parts of the country, although perhaps not in London, the property value being suggested is extremely high. Instead of concentrating on people in the lower income bracket looking for property of lower value, the scheme will be open to people who arguably do not need help to get on to the housing ladder.
Chris Leslie
It comes down to whether the Government have designed the scheme adequately. Is it best to have a broad-brush approach, or should we be targeting help at those who need it most? The Opposition favour the latter.
Alison McGovern (Wirral South) (Lab)
My hon. Friend has made an important point about the action the Government have already taken. Does he agree that their action has failed to work because of their mismanagement of the macro-economic system? In a world where people see food prices going up and do not have enough money in their pocket for a weekly shop, the idea that we can have a housing market that works well is not at all realistic.
Chris Leslie
The economic background is absolutely key. If we had seen a continuation of the recovery that was beginning to get under way back in 2010, we might have been in a different position. But no, the Government pulled the rug from under the confidence felt by consumers or businesses and in the housing market, too. We have seen a series of consequences as a result. Let us face it: the main problem, particularly for first-time home buyers, is the supply of housing and its cost.
Jack Dromey
On that point, was it not folly for the Government to cut £4 billion from affordable housing investment in 2010, leading to a 68% collapse in affordable house building? Would it not be more prudent now to endorse the shadow Chancellor’s proposal that the 4G moneys should be spent on building 100,000 affordable homes as much the quickest way of getting the housing market moving and, in turn, of getting our economy moving?
Chris Leslie
It is absolutely true. We have to face facts. We have to put direct support into housing supply. These rather opaque and indirect attempts to manipulate the public accounts with complicated and convoluted guarantees and underwriting arrangements do not communicate to the wider public who might be consumers of housing—looking to buy their first home or to rent differently. The Government must be far more direct about this approach.
It is clear that the Government’s ideological aversion to supporting the construction of affordable housing still inhibits recovery of the broader housing market. That is why housing starts fell 11% over the last year to 98,000 and why the number of private and local authority home starts was down, and the number of housing association home starts, at just over 19,000, was the lowest for eight years. There are 136,000 fewer home owners than when the Government came to power, and of course the youngest are hardest hit. Apparently, the average age of a first-time buyer is now 37.
We have doubts and questions about whether this Help to Buy scheme will work. Have the Government thought it through sufficiently? There are plenty of organisations focusing on housing policy. The first-time buyers pressure group PricedOut said that the Government should assist construction of more houses where there are chronic shortages. That is absolutely true. However, there is a point about whether help should no longer be targeted at lower and middle-income families, with the cap of £60,000, and used to support first-time buyers. We need from Ministers a thorough analysis of what is happening, particularly how many higher rate, or additional rate taxpayers will be taking advantage of the new scheme. What analysis have they made of that?
Mr David Hanson (Delyn) (Lab)
May I add a further inconsistency to those that my hon. Friend has mentioned? Under the current scheme, a single person could buy a three-bedroom house with a taxpayer subsidy for the mortgage, yet at the same time a social tenant who is single and wants a three-bedroom house is being penalised.
Chris Leslie
Never let it be said that this Government have any consistency whatsoever, but perhaps that is where we should turn to the Liberal Democrats—or the Liberal Democrat as I will henceforth call the hon. Member for Bristol West (Stephen Williams).
There is another part of the Help to Buy scheme. We have talked about the equity loan aspect. The second part is the mortgage guarantee, supposedly designed to help individuals without a large deposit; they may have only 5% and are looking for a 95% mortgage from participating lenders. The Government say they will guarantee up to 15% of the mortgage in an attempt to encourage banks and building societies to offer loans to borrowers with small deposits.
Interestingly, the scheme is not starting in April; it will not start until January 2014. I hope Ministers can explain why they picked that date, because there is a potential risk of forestalling. We may have constituents who are wondering whether they should get on the housing ladder to help their family, or who are in the construction sector wanting to supply new homes. Is there not an incentive for many potential home purchasers to wait—to hold off and not enter the housing market until January next year? Paradoxically, further problems might emerge as a result of the scheme.
Mr John Redwood (Wokingham) (Con)
Does the shadow Minister agree that since the crash of 2008 there has been a chronic shortage of mortgage finance and of new homes being built? Do we not need some way around the problem that RBS and HBOS are so damaged that they cannot supply the normal amount of mortgage credit?
Chris Leslie
The Opposition are not opposed to schemes that are well targeted and well designed to increase affordability for people who want to buy their own home, and we want people to get that first step on the housing ladder, but the way in which the Government are going about these things is shocking.
The funding for lending scheme has shown some signs of altering mortgage affordability at the margins, but it was predominantly designed to boost lending to small and medium-sized enterprises, and in that respect it has not worked at all. In fact, yesterday the Bank of England started talking about doing what the Chancellor should have done in his Budget and properly getting a grip on funding for lending—splitting the scheme in two, to ensure that it provides not only housing support, but particularly SME support.
Alison McGovern
The right hon. Member for Wokingham (Mr Redwood) alluded to a much larger debate that we have had in this place, about banking and banking regulation, but does not that entirely miss the point—that actually the Budget, and this Finance Bill, should be about resetting the recovery from that crash: not about the failure that is still there in the banks, but about the economic management of the country, which this Bill demonstrates above all the Chancellor has got wrong?
Chris Leslie
I do not think it is because the Chancellor does not realise, or is ignorant about the policy options available to him; it is a deliberate choice not to pull those particular levers, and we need to debate that in a wider context.
However, for the purpose of completing some analysis of the Help to Buy scheme, the specific question that we have anxieties about is whether the underwrite scheme will provide unintended support for those wishing to buy second homes—in other words the taxpayer, the hard-pressed taxpayer, subsidising an element of activity that really should not be a priority for the taxpayer at this moment. If people want to take equity out of their property or remortgage, they may do so using traditional solutions provided in the market at large; we have nothing against home owners remortgaging in the traditional way. But the scheme seeks to extend taxpayer guarantees unnecessarily. Effectively, Ministers are saying that if people have a spare room in a social home, they must pay the bedroom tax, but if they want a spare home and can afford it, the Government will help them to buy one. No wonder people are calling this the spare home subsidy.
Mr Andrew Love (Edmonton) (Lab/Co-op)
When the Chancellor was asked to clarify whether help would be available to second home owners, he chose not to do so. Is it not incumbent on Ministers here today to tell the House very clearly whether the scheme can be used for the purchase of second homes?
Chris Leslie
It is absolutely incumbent on Ministers, but this is a Government who just cannot think things through properly. They have set off down the road with a particular design. We have been asking questions for weeks and weeks. My hon. Friends will remember that the Chief Secretary to the Treasury astonished the House when he still could not rule out that the scheme would be used for supporting second home purchase, and there might be a number of reasons for that. For example, if the scheme is supporting remortgages, and a household decides to remortgage, how can the Government have a covenant on how any equity withdrawn from that remortgage process will be used by that home purchaser? That is presumably the obstacle that Ministers are banging their heads against now, and they probably have to look at various covenants and all sorts of legal arrangements for those participating in the schemes.
There are other anomalies in the process. Perhaps the Minister would elaborate on this point: can foreign buyers be subsidised by the UK taxpayer for the purchase of second homes—not just other EU residents, but non-EU residents as well? What is the exclusion in the scheme? Will he clarify that?
Alison Seabeck (Plymouth, Moor View) (Lab)
I declare an interest in the interests of my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford), as usual. Does my hon. Friend have concerns that although ostensibly the scheme may say that there can be no foreign investment, there will be means and mechanisms for foreign investors to set up companies in the UK in order to cover their tracks? Does he have any confidence that the Government are looking at whether there are potential loopholes?
Chris Leslie
I live in hope that if not Ministers, the Minister’s officials will try to apply sticking plasters to bodge the thing together, but it is a real mess. Ministers need to go back to the drawing board and think more directly about the support that can be provided for affordable housing.
Mr Hanson
As I understand it, the scheme in question is administered by the Department for Communities and Local Government, so it might even be possible for a resident of, say, Chester to buy a second home in Wales under the scheme; for a resident of Berwick to buy a second home in Edinburgh; or for a resident of Liverpool to buy one in Belfast. Has that been thought through by the Government?
Chris Leslie
I doubt that very much. I know that will shock my hon. Friends, but I suspect the Government have not thought about that.
Susan Elan Jones
We hear a great deal about Mr Lynton Crosby and his influence on the Conservative party. He is probably rubbing his hands with glee today, thinking, “Goodness, they haven’t worked out the fact that this is a tax break for me when I buy my second home,” if he does not already have one.
Chris Leslie
It had not occurred to me that the scheme could be the entrée for Lynton Crosby into a permanent residence. Who knows whether he will take up the scheme, but I am sure he will be very inventive about the matter.
Mr Love
Normally, when Ministers are silent, one can trust the Treasury to clarify matters. In this case the Treasury has not clarified matters. I read in the newspapers that buy-to-let investors will be excluded, but in other newspapers there seems to be ambiguity about that. Can we not have a clear statement from Ministers this afternoon about who is in and who is out of the scheme?
Chris Leslie
In, out, in, out, shake it all about—who knows what is going on in the minds of Treasury Ministers? It is impossible to tell, sometimes, just by looking at them.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
Further to the intervention from my right hon. Friend the Member for Delyn (Mr Hanson), the scheme could have an important impact on the devolved Administrations. Perhaps in the course of the afternoon the Minister could get a message from the civil servants to help him on that. I understood that although the Help to Buy scheme applied only to England, the mortgage guarantee scheme applied certainly throughout Great Britain, and probably throughout the entire UK. That needs to be clarified. Constituents have already asked me about the scheme and whether they would be able to apply for it.
Chris Leslie
The Minister’s pen will run out of ink as a result of the number of specific questions about the scheme that he will have to reply to, but he is diligent and I know he will address them all. I would be grateful if he could confirm that he has thought through the consequences of the design of the scheme for the devolved Administrations. [Interruption.] His gaze has not lifted for the past 15 minutes or so.
I do not wish to take up too much more time, but there are other anomalies. For example, I think the Government have said that home owners will be able to remortgage, but they will not be able to remortgage with their own bank or building society; they have to go elsewhere. Ministers need to think that through a little more carefully. If there is a genuine case for remortgaging, are they, in effect, going to create a whole set of exit fees for those consumers to have to bear and a set of new application fees? What is wrong, in the circumstances of remortgaging, with someone continuing the relationship with their existing bank or building society?
We have a number of concerns about the Help to Buy scheme. Let us leave the last word on the matter to the Office for Budget Responsibility. What was its assessment when it looked at the scheme? What view did it take about the impact that it would have on the housing market? The OBR revised down its forecasts for property transactions, despite the two new schemes that have been announced. It says, I think on page 88 of its report, that
“we have reduced our forecast relative to December to a level which is more consistent with other outside forecasters.”
There we have it. For all the announcements, the spin and the press releases about the scheme, the Treasury could not convince the OBR, which is only just down the corridor from where Ministers reside.
Alison McGovern
Is not that particularly disappointing given that the Government have not exactly met the OBR’s forecasts to date?
Chris Leslie
The OBR is still bedding in. It has had a difficult time because on every autumn statement and Budget it has had to downgrade and revise its forecasts, upgrading the forecast for the deficit along the way, so one has to feel slightly sorry for it. There were some signs that its chairman was keen to chastise the Prime Minister and the Chancellor for overstating what was happening to public finances, so we wish it well for the future.
New clause 5 concerns the introduction of a 10p starting rate of income tax, funded by a mansion tax on properties worth more than £2 million, a policy that used to be advocated by the Liberal Democrat—
Chris Leslie
Apparently, it is still advocated by the Liberal Democrat, but Liberal Democrats tend to have a habit of voting against it whenever the opportunity presents itself. Those on low incomes have had their tax credits cut, their child benefit has been affected, and their wages and living standards have fallen, but millionaires on average benefit from a £100,000 tax cut. Surely it is time to help lower and middle-income households with an extra level of tax support, directed from revenues raised from a mansion tax on properties worth more than £2 million.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
As the hon. Gentleman will be aware, we had a Labour Opposition day debate on this issue before the Easter recess, following which the shadow Secretary of State for Wales said that productive agricultural land would not be included in estates for the purposes of the Labour party’s mansion tax proposal. Is that the case? Will farms be excluded or included in Labour’s proposed mansion tax?
Chris Leslie
We hoped that the Liberal Democrats’ plan relating to property values of £2 million was a well-worked-through basis on which we could build and develop a policy. We even tabled a suggestion that the OBR should have some options for how this mansion tax would work in detail. There are bound to be issues on the margins that need to be resolved, and I accept we should definitely be talking about those, but the principle could be established. The Bill has 50 or 60 clauses relating to what are known as enveloped dwellings. The Government do not dare call it a mansion tax because Conservatives do not like it, but they have introduced a scheme to enforce a certain number of stamp duty requirements where an annual charge can be placed on properties worth more than £2 million, but only if they are owned by a company in a corporate tax wrapper. It is therefore entirely feasible and plausible to consider whether that scheme could be extended into a mansion tax proper, and the Government have well-worked-through plans on the books, on which they have been consulting, which could be the basis for a mansion tax. This is not something that has not been thought through by the Government.
The Opposition believe that any revenues from this need to be given back to lower and middle-income households through a 10p starting rate of tax. When the economy is flatlining and tax rates are rising in so many other ways, particularly VAT, we must do more to help those 25 million basic rate taxpayers. It is incredibly important that we do that, and we will be giving this Liberal Democrat, and any others who happen to be in the building, the opportunity to express their views on it when we finish this debate. I commend new clauses 1 and 5 to the Committee.
Alison Seabeck
In speaking to new clause 1, I wish to pursue issues that have been touched on by my hon. Friend the Member for Nottingham East (Chris Leslie) and other Opposition Members and to highlight my concern that the Help to Buy scheme might well become a second home subsidy, rather than a scheme, as was intended, to help many first and second-time buyers on to the housing ladder.
In housing, as in so many other areas of policy, the Government have been found badly wanting. I remember the chutzpah the right hon. Member for Welwyn Hatfield (Grant Shapps) displayed on entering government, saying repeatedly that he would outperform the previous Labour Government when it came to house building and getting first-time buyers into the market. As Housing Minister, he failed rather magnificently. He seemed to ignore the fact that Labour built 210,000 new homes before the market crashed. We started to see an increase in the number of homes being built in the run-up to the 2010 general election as a direct result of measures taken by the Labour Government. Indeed, some of the homes that this Government have taken credit for building in 2011 are in fact the hangover from Labour’s new-build programme. We are now seeing a slump in house building.
Stephen Williams
Thank you, Mr Hoyle. Your advice is always given with good heart and accepted freely.
New clause 5 highlights the Labour party’s conversion to the principle of a mansion tax. I said that the new clause was an innovation. Unfortunately, I am a veteran of Finance Bills. I have obviously insulted my Whips Office on several occasions in the past and keep being put on to Finance Bills as a punishment. I remember from last year’s Bill that, time after time, Opposition new clauses and amendments called for studies of the impact of Government policy, while the Opposition proposed no new policies of their own. Now, finally, after three years, they have suggested a new policy, albeit one pinched from my party, but they are still asking the Treasury to do a study of it—even though it is they, not the Government, who proposed it—because the Labour party cannot be bothered to explain how this new policy that it has suddenly converted itself to will actually work.
The Opposition have not provided any clues as to how their approach might work, even though they have had plenty of opportunities to do so. The hon. Member for Corby (Andy Sawford) referred to the Opposition day debate five weeks ago, and the Labour party has since had plenty of opportunities to flesh out how its version of the mansion tax would work in practice. I had hoped that Labour Members would explain it to us today, but they have not.
New clause 5 does not provide many clues. Let me give those on the Opposition Front Bench a piece of advice: if they want to ask somebody else to assess the impact of their own policy, they really ought to give them a bit more detail to work on. I am sure that the Minister will confirm that those who work at the Treasury are very clever people. Among them are a lot of economists and accountants with good qualifications and excellent degrees from top universities, but the Labour party should not think that it can present them with an almost blank piece of paper, which new clause 5 is, and then expect them to be able to explain within a few months how its policy will work without their having been given the barest of details.
Chris Leslie
This is the thing with the Liberal Democrats—the hon. Gentleman is taking the biscuit. He is whipping himself up into a sense of righteous anger about his own policy, which we want to put on to the statute book. He is picking holes in a policy that he supposedly supported, but which he now cannot bring himself to vote for. Talk about a “push me, pull you” approach from the Liberal Democrats.
Stephen Williams
I assure the hon. Gentleman that I have righteous enthusiasm for the policy, because it is a Liberal Democrat policy that I have enthusiastically supported for the past three and a half years. How many weeks has he been an enthusiastic proponent of the mansion tax—10, 12, nine? How many weeks has the Labour party believed in this policy? When did he experience his conversion and accept the wisdom of the Secretary of State for Business, Innovation and Skills, who first proposed this policy several months before the 2010 general election? I know that the hon. Gentleman was not a Member of Parliament at that time, but I assure him that his colleagues who were in government rubbished the policy during the general election and the coalition negotiations. For the first three years of this coalition Parliament, Labour did not support it, but now—lo and behold—it does. When was he converted?
Chris Leslie
I am intrigued by the hon. Gentleman’s line of argument. He is attacking us for agreeing with him. We might not have agreed with him several years ago, but now we feel that a mansion tax is necessary to help with a tax break for lower and middle-income families. Is it his argument that we are wrong for supporting a mansion tax? Is that really what he is saying?
Stephen Williams
My argument is straightforward: I do not know what the Labour party’s variant of the mansion tax would be. Moreover, the Labour party does not seem to know, either; otherwise, why on earth would it frame new clause 5 in a way that asks the Treasury to explain how it might work? We are in an extraordinary position. I know what my party’s policy is and am about to tell the hon. Gentleman exactly how a mansion tax would work, but I had hoped to hear from him a little more detail on how his version would work, so that the clever people at the Treasury could produce the study that he wants.
Stephen Williams
The hon. Gentleman is essentially asking me a variant of the question asked by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). He mentions agricultural buildings. Clearly, a mansion tax is a residential property tax: a tax on the building that the landowner—the farmer, the rich individual or whoever—lives in. It would not include barns, pigsties and the other agricultural buildings to which he referred, even if they have a high value. This would simply be a tax on residential property occupied by a person, not farm animals or anyone else: only the farmhouse itself, or the estate house, would fall into the ambit of a mansion tax.
Coming directly to the problem with new clause 5, the poor clever people in the Treasury simply do not have enough detail to go on to produce this study within six months of the passage of the Bill. This is the opportunity for Labour Front Benchers to answer these questions. They can intervene as many times as they like. [Interruption.] If they are listening, of course. This is an opportunity for them to tell us how the Treasury is going to conduct this study. It really does need some more detail. Is Labour’s variant on the mansion tax a tax on the whole of the £2 million, or is it a tax on the excess of the £2 million? That is completely unclear from any of the speeches made by shadow Ministers, or from the motion. What is the base of the tax?
Chris Leslie
We based our proposal on the Liberal Democrat analysis that a mansion tax could be on the excess of £2 million of value, raising, I think the hon. Gentleman said, £2 billion. That was the basis on which we assume he has some deeper calculations, and I hope he can produce them and share them with the Committee, because it seems a sensible proposal.
Stephen Williams
That is very helpful, because that is the first time we have heard it. It is nice, too, to have an acknowledgement that the Opposition have based whatever they have said so far on statements from my party. I am grateful for that acknowledgement. They have been giving the impression that it is their policy, rather than a magpie policy stolen from the Liberal Democrat policy nest.
Chris Leslie
Given that I have helped to clarify that for the hon. Gentleman, will he now do the right thing and support his own policy in the Division Lobby today? It is very simple.
Stephen Williams
I always strive to do the right things; I am sure all hon. Members do. In the Opposition day debate five or six weeks ago, the Government amendment was so beautifully crafted by the people in the Liberal Democrat Whips Office and the Conservative Whips Office that I was able to vote for it. It said that the Liberal Democrats in the coalition support the principle of a mansion tax, but acknowledged the fact that the Conservatives in the coalition do not. When I voted for that motion, therefore, I was indeed voting to endorse the Liberal Democrat policy of a mansion tax.
Stephen Williams
I am happy to reveal now that I will not be supporting new clause 5 in the Division Lobby. That should not surprise the hon. Gentleman. I will not be supporting it, because it is not about the principle of introducing a mansion tax. It asks for a study. It asks the Treasury to do some work. These are busy people, with important work to do, and I do not want to waste their time. We do not want them to waste their time finessing badly thought-through Labour party proposals.
Chris Leslie
On a point of order, Mr Hoyle. Is it not the case that only Government Members can table amendments to a Finance Bill that would increase a charge or a tax, and therefore, under the rules of the House, these sorts of reviews are the only device the Opposition have to suggest such a tax change?
Stephen Williams
Of course, that is broadly correct, but I repeat that if the shadow Minister wishes new clause 5 to be implemented, he needs to provide more detail, so that the House can consider whether it is worthy of support. I do not think it worthy of support, because it is so full of holes. It would waste the time of the mandarins in the Treasury to ask them to come forward with a study for which they do not have the right brief. We have not been told at what rate the Labour party wants to set the mansion tax. Here is another opportunity for the Opposition to help the Treasury. Would the rate be 1%, 2%, 2.5%, 3%?
Stephen Williams
The shadow Minister says that it would raise £2 billion. [Hon. Members: “That’s your answer.”] Well, it is an answer, but it is not what is in the new clause. Why does the new clause not say, “Can we have a study from the Treasury on the best way to raise £2 billion?” It would be in order, would it not, Mr Hoyle, to put down a new clause asking the Treasury, “What is the best way to raise £2 billion?” The Labour party wants to raise £2 billion, but wants someone else to tell it how to do it.
Chris Leslie
I confess. Perhaps we could have mentioned the £2 billion. Will the hon. Gentleman forgive us to the point of at least abstaining on the new clause? Perhaps that is a compromise we can offer.
Stephen Williams
Abstention on certain issues is sometimes unfairly pooh-poohed by all parties. I have done it on certain issues. Indeed, abstention on a Bill that has a range of measures, some of which one likes and some of which one does not, is an entirely honourable thing to do, and Members from all parties will have done it. Although we would like to think that the Labour party has had plenty of time to craft a motion that might appeal to Liberal Democrats, I am afraid that in new clause 5 the Opposition have failed. They have again not managed to tell us how they think a mansion tax would work.
Sajid Javid
What the Minister will accept is that this Government have done more than any other in recent times to help those who aspire to purchase their own home. The Budget announced financial support of £5.4 billion for housing, which builds on the £11 billion of support already committed during the spending review period. The Government are also taking significant action through our build to rent and affordable homes guarantees programme.
Alongside those measures, the Government are reforming the planning system to ensure that reforms will increase housing supply. Planning constraints have depressed the supply of new homes. The Budget announced that the Government will take further steps to make the vital planning reforms that are needed to ensure that we have a regime that is simple to access, supports growth and is responsive to housing need. As hon. Members will see, this Government have a comprehensive strategy for housing, we have taken significant action, and those measures will give a much needed boost to both the demand and the supply side of housing.
I shall now discuss the new clauses. New clause 1 proposes that the Government provide a report to Parliament, three months after the passing of the Bill, to ensure that the tax measures do not benefit those who are purchasing a second home. The Government have already taken steps, through the tax system, on the issue of second homes. We have changed the discounts on council tax for second homes, through the Local Government Finance Act 2012. From 1 April 2013, billing authorities in England will be able to charge up to 100% council tax, instead of between 50% and 90%, on properties that they consider to be second homes. That corrects an imbalance permitted by the previous Government, which allowed second home owners to pay less than those with a single property.
The report suggested is wholly unnecessary, but in today’s debate issues have been raised about the Help to Buy scheme, particularly whether it will support those who wish to purchase a second home. We have already made it very clear that second homes will not be eligible for the Help to Buy equity loan scheme. The scheme builds on the existing successful First Buy scheme, and is able to use existing processes. In the new scheme the Government, through the Homes and Communities Agency, have a more direct relationship with the purchaser, and require a legal declaration by the purchaser’s solicitor that the property will be the purchaser’s only and main residence. The Chancellor has also been very clear that the intention of the Help to Buy mortgage guarantee scheme is to help people buy their first home, or to move up the property ladder as their family grows. But the mortgage guarantee scheme represents a major new intervention, and we must ensure that we get it right.
Chris Leslie
May I clarify the announcement that I think the Minister is making? Is he saying that there will be a requirement, as a covenant within the mortgage deed arrangements, to exclude the use of any equity from remortgages and so on for second home purposes? That, essentially, is what he has announced.
Sajid Javid
What I am saying is that, at the Budget, we set out a scheme outline. Now we need to work, with lenders and other stakeholders, on the detail. We want to ensure that we avoid any unexpected adverse consequences of the scheme, such as attempts to use it to purchase second homes. We want to look at this carefully, and we want to ensure that we discuss the details with industry. We have already started this process, and we will report back to Parliament in due course. Therefore the report suggested by new clause 1 is wholly unnecessary.
Sajid Javid
I do think that it is relevant because the issue came up during the debate, but I take your guidance, Mr Amess.
The Government are committed to making the aspiration of home ownership a reality for as many households as possible. The housing measures introduced in this Budget will tackle long-term problems in the housing market, giving a much needed boost to housing supply and supporting those who want to get on or move up the housing ladder. Introducing a mansion tax would create real fairness issues by hitting asset rich but potentially income-poor households. It would serve to create only complexity and uncertainty. The Government have already made huge strides towards a fairer society and a stronger economy, and new clause 5 will not further that. I ask hon. Members not to press the new clauses.
Chris Leslie
Given the constrained time available under the Government’s programme motion and the need to move on to other issues, I do not wish to press new clause 1 to a vote, but it is important that we continue to press Ministers for some firmer answers on their Help to Buy scheme, which gives the impression of having been written on the back of an envelope without much thought and without looking in sufficient detail at some of the questions that have arisen in the course of the last few hours, whether with regard to devolved Administrations or second home purchases. Therefore, it is necessary to consider this further during the Bill’s passage.
However, it is important to test the view of the House on new clause 5, particularly given the speech of the hon. Member for Bristol West (Stephen Williams), who, in an acrobatic display of contortions that tests even the most adept of Liberal Democrats, managed to find a way to oppose a policy that he has supposedly advocated for a long time. Even when we agreed that the policy was the same, raising £2 billion on mansions worth over £2 million and using that money for a tax cut for low and middle-income households, he could not bring himself to abstain on the issue but will vote against the new clause. Therefore, we must test the view of the Committee.
Stephen Williams
New clause 5 calls for a study to be done by the Treasury; it is not about the principle of the policy. The Labour party gets £13 million of public money, Short money, to spend on policy development. Why does it not use some of that money to do its own studies?
Chris Leslie
When the Liberal Democrats are in a hole they really should stop digging. Is the reason for the hon. Gentleman voting against his own policy that he does not want us to look into the very details that he could not answer when challenged on his policy? Of course, if we are to implement a mansion tax we want to make sure that we get it right. We do not want the unthought-through approach taken by the Treasury. We want to make sure that we have taxes that are fair and will be sustainable for the population as a whole. Therefore, it is important that we test the principle of a mansion tax. Lower and middle-income households need that extra help and it is important that we put this question to the test. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 5
Mansion tax
‘The Chancellor shall review the possibility of bringing forward a mansion tax on properties worth over £2 million and publish a report, within six months of the passing of this Act, on how the revenue could be used to fund a tax cut for millions of people on middle and low incomes as part of a fair tax system.’.—(Chris Leslie.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Chris Leslie
I beg to move amendment 2, page 118, line 22, at end add—
‘(14) The Chancellor of the Exchequer shall review the possibility of incorporating a bank payroll tax within the bank levy and publish a report, within six months of the passing of this Act, on how additional revenue raised would be invested to create new jobs and tackle unemployment.’.
The Temporary Chairman (Mr David Amess): With this it will be convenient to discuss clauses 200 to 202 stand part.
Chris Leslie
We now turn to the issue of bank taxation. Amendment 2 seeks to commission from the Chancellor a review of the possibility of incorporating a bank payroll tax within the bank levy and the publishing of a report, within six months of the passing of the Finance Act, on how additional revenue raised would be invested—in particular, to create new jobs and tackle unemployment.
Our approach to bank taxation cannot be looked at in isolation from the economic consequences caused by the banking crisis or from the deficit left for the taxpayer as a result of the failures of the UK banking system. Despite signs in 2012 that the recovery was under way, the extreme-austerity path pursued by the Chancellor has led to stagnation and falling living standards, as well as to growth of only 0.8%, compared with the 5.3% that was promised at the 2010 spending review, and to downgraded forecasts for this year and next year. On top of that, wage levels are flatlining at a time of inflation, resulting in real-terms wage cuts for millions of people, and millions more are struggling to find work in the first place. The typical family is worse off by £891 a year as a result of the cumulative effect of the decisions taken since 2010.
Andrew Gwynne
Was my hon. Friend as amazed as I was at the corporation tax figures produced by Her Majesty’s Revenue and Customs? We were told—indeed, the Chancellor informed the House—that the corporation tax cut would be offset by the Government and that there would be no benefit to the banks.
Chris Leslie
This is the curious thing about the Government’s approach to the bank levy. They have consistently said, “Don’t worry, we’ll set the rate”—let us bear in mind that the levy is a charge on the balance sheets and a proportion of a certain set of liabilities—and said that it was designed to yield £2.5 billion, so it has taken some doing for the Treasury to have managed to net only £1.6 billion in the past year and to get the bank levy so wrong. If it had been my hon. Friend’s constituents who were due to pay a certain level of tax through PAYE or national insurance, does he imagine that the taxman or Treasury would have been so lax and said, “Oh, don’t worry, we’ll let you off that massive liability for the time being”? That is essentially what the Minister and his colleagues in the Treasury have been doing and saying to the banks.
Andrew Gwynne
My hon. Friend is absolutely right. Had it been my constituents who owed HMRC any sum of money, HMRC would have been down on them like a ton of bricks, whether they were businesses or individuals. Is not that the inherent unfairness? The Government say that the banks will not prosper from these changes, but clearly that is not the case.
Chris Leslie
I am afraid that the situation is even worse than my hon. Friend thinks. It is not only the past financial year in which the Minister and his colleagues took their eye off the ball on the bank levy: they did so in the financial year before that, too. In 2011-12, the combined shortfall from the bank levy, netting in £1.8 billion or so and added to the corporation tax cut, was £800 million less than Ministers promised. It is not good enough to say, “Oh well, this is an aberration, and it is something that we can tweak and correct.” Ministers are not going back as far as they should and correcting that shortfall in the steps they are taking in the Budget. It is just not good enough. They have not thought through the design of the bank levy carefully enough.
It is not as though Ministers were not warned. I am sorry that the Exchequer Secretary is not in his place, as I warned him in a debate in July 2010—it seems like only yesterday, but it was nearly three years ago—when I said, “The bank levy is too weak. It will not work and it will not have those yields.” It does not give me any satisfaction to say, “I told you so”, but I did tell them so, and Ministers cannot therefore claim that it was something that happened by chance.
Jonathan Edwards
I have much sympathy with what the hon. Gentleman is saying, but rather than introducing a new tax, what consideration has he given to just increasing the levy?
Chris Leslie
That is an option, and we certainly need to go back to the drawing board and make sure that we design the bank levy in a way that actually works. The proposition we have made in the amendment is to repeat the bank bonus tax that worked very successfully in 2009. That could be incorporated into the bank levy process—that is one option—to ensure that we get a fair share for the taxpayer, who has suffered as a consequence of the requirement to bail out the banks.
The Financial Secretary to the Treasury (Greg Clark)
Will the hon. Gentleman clarify whether his policy is for a one-off payroll tax or a permanent one?
Chris Leslie
This is where we need to look at the interplay with the bank levy. Clearly the levy should be a permanent way of ensuring that we net the right level of resource for the Treasury in recompense for the deficit that the banks created. It is possible to have a bank bonus tax that is more sustainable, but I am open to discussion with the Treasury about how that might work. Even if we netted less than the £3.5 billion that the first bank bonus tax brought in, it would still be considerably more on top of the bank levy, which clearly needs to be topped up. It is important that we look at that—
Greg Clark
Given that the hon. Gentleman clearly does not know whether it would be permanent or temporary, can he at least give an assurance to the Committee that he will not commit any spending to be funded by that levy that goes beyond any particular year?
Chris Leslie
I can tell the Minister that in this financial year it would be necessary for us to repeat that bank bonus tax. We will set out our tax and spending proposals when we write the manifesto for the general election. Heaven knows what kind of mess we will have to untangle after a further two years. It would be invidious to make decisions at this point in the cycle when the Minister will not tell us what is in the spending review in just two months’ time. We will make an assessment in two years’ time. I can certainly tell him that, from our point of view—this is a serious policy distinction—a bank bonus tax would be necessary now, particularly to help fund a compulsory jobs guarantee for young people. That is a necessity, given the unemployment figures we saw earlier today.
Charlie Elphicke (Dover) (Con)
Can the hon. Gentleman tell the Committee exactly how much extra he wants his proposal to raise?
Chris Leslie
We feel that £2 billion could be raised this year from a repetition of the bank bonus tax. That would be an important contribution from those who are doing particularly well. I do not know whether the hon. Gentleman moves in those circles and whether he has seen, as though nothing much has changed in the world, how high bonuses continue to be. Yes, changes from the European Union and elsewhere are being forced on to the bonus culture, but bonuses are still excessively generous to the very lucky few. There are a number of reasons why the bank bonus tax would be good not just for the taxpayer, but in changing the culture in the sector itself. The tax raised £3.5 billion when it was last tried in 2009.
Greg Clark
At what rate would the bonus tax be to raise that amount of money this year?
Chris Leslie
I was anticipating that question from the Minister. This is the Minister who has tweaked and changed the rate, I think, five or six times in various Finance Bills, all to fit the £2.5 billion figure that he has totally failed to address. We need to go back to the drawing board on the bank levy and find a way of calculating it so that it properly yields the sums that we envisage. Of course, the bank levy has to be thought through, so that we get that resource in. It is totally unacceptable to have lost nearly £2 billion for the taxpayer in the past two financial years. Just think what that £2 billion could have achieved in that period. This is not small money. There is the classic chancellorial phrase, “A billion here, a billion there and very soon it starts to add up to real money”, but this is significant resource. It is to the great shame of Ministers that they have allowed that money to slip away from them.
Charlie Elphicke
I thank the hon. Gentleman for giving way again; he is being generous with his time. I just want to understand one thing. If, say, he raised £2 billion in the way he proposes, what would he say to the person who finds it harder to get finance for the borrowing that they need, because of the regulatory requirements on banks and because he had taken a whole load of money out of the banking system, reducing the ability of the banks to lend money?
Chris Leslie
Why should a constraint on the bonus pool have a constraint on the lending capacity of banks? The hon. Gentleman seems to be suggesting—this is the classic Conservative attitude to banking—that the one inviolate part of a bank’s balance sheet is remuneration, or “compensation” as they sometimes like to call it: “Do what you like to the banks, but for goodness’ sake don’t affect that bonus pool and don’t change that compensation pool.” Well, I am sorry, but we take a totally different point of view. In fact, if there is one area of bank finance that needs a culture change, and which proves that stronger capital adequacy is not anathema to bank lending, it is management remuneration. It is too bloated and needs to change.
Geraint Davies
My hon. Friend has been thinking creatively about how banks can make a contribution to getting people back to work. In light of the previous debate, has any consideration been given to the idea of banks being guided into investing in social housing, which could then become part of their assets? Rather than just taking money from banks, which then complain they do not have any money left, their assets could be interwoven with job creation, asset generation and a lowering of the housing benefit bill. We all know that the 17% rise in housing benefit is due to the private sector and a lack of public housing.
Chris Leslie
There is a debate to be had—possibly a separate one—about how we can make a certain kind of socially useful asset class more attractive to private investment. If we as a society want to boost housing investment, we need to attract investors to make those decisions. That would certainly be a more sophisticated way of devising public policy, instead of the dreamed-up approaches in the Help to Buy scheme and the NewBuy scheme, which, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said, delivered only 1.5% of the expected additional housing.
Mark Lazarowicz
It is useful of my hon. Friend to remind us of the coincidence of Budget day, which meant misery for many ordinary people, and millions of pounds of bonuses announced by that bank. That indicates another reason why the bank bonus tax is so important: we have to do right by the public, who cannot understand how, in spite of all that has happened, some bankers get multi-million-pound bonuses at a time when most other people are having to tighten their belts in a big way.
Chris Leslie
As I was saying, Barclays has talked about confronting some of the necessary culture changes. It commissioned the Salz report after its involvement in the LIBOR scandal and the fines it received as a result, yet still that oil tanker of bonuses continued to float on, even in that particularly difficult year.
Mike Thornton (Eastleigh) (LD)
I sympathise, obviously, with the point about the overpayment of bonuses. I have three quick questions. First, how does the hon. Gentleman propose to prevent the banks from passing on the cost to their customers? Secondly, at what level of bonus would the tax start? I hope it would not affect ordinary retail staff earning their £50 bonus. And thirdly —no two will do!
Chris Leslie
Well, that is still more than we normally get in one intervention. You are very generous in the Chair, Mr Amess. I do not think there was any evidence of the bonus tax being passed on to customers before, because regulation can ensure constraints on how the remuneration pool works. The Bank of England itself, through the Financial Policy Committee, is now sending the strong message that banks should stop prioritising that bonus pool and level of compensation. The world has changed, and the banks have to recognise that their behaviour also has to change.
We want specifically to target the highest-paid individuals in the banks, not the clerks or ordinary staff. The tax would be aimed at large, discretionary bonuses above £25,000, which continue to be paid out even in the state-owned banking sector. RBS and NatWest paid out bonuses worth £607 million in 2012, despite making a £5 billion loss. Of course, it was the Prime Minister who promised to ensure that any state-owned bank did not pay out a bonus of more than £2,000.
Chris Leslie
I am sure that the hon. Gentleman remembers that promise from his great leader.
Charlie Elphicke
The hon. Gentleman is right: we all want to see pay restraint on the part of banks and the banking system. However, that is a separate argument from the issue of imposing taxation. If he took £2 billion out of the banking system at this time, it would mean less finance or pricier finance, which would be bad for the economy and bad for the recovery.
Chris Leslie
We are repeating the intervention and the response I gave earlier. I just disagree with the hon. Gentleman. I do not think it is an inalienable right of bankers to continue to receive multi-million pound bonuses. The world has changed, as even many Government Members recognise. Defending the indefensible will not do him any good.
Huw Irranca-Davies (Ogmore) (Lab)
May I suggest an alternative hypothesis to my hon. Friend? The runaway bonus inflation that we are seeing once again suggests that the top earners are almost anticipating a bonus tax, in which case we may as well give it to them and fund jobs for the young unemployed.
Chris Leslie
That is the other crucial part. We are often criticised by the Government, who ask, “Where are your policies? What are you proposing to do about the economic situation?” but here is a pretty good suggestion for them. Let us learn from their mistake of scrapping the new deal and the future jobs fund, which my hon. Friends will remember, and do something to help to get young people in particular back to work. There is a separate issue with the long-term unemployed. We have talked separately about changes to the highest rate of pension relief, which could help to fund something for the long-term unemployed, but we could use the bank bonus tax to help to get young people back into work. It is essential that we get people back into the habit of working and paying taxes, and if they turn down those job opportunities, they should forfeit benefits as a result. The proposal has to be part of a tough policy, to ensure that we always focus on work as the best antidote to an inflated welfare budget, but to get our economy moving again too.
Alison Seabeck
Picking up on the point made from the Government Benches about some of our measures taking money out of the economy, is my hon. Friend concerned that the local economy in Plymouth, for example, is losing £16 million because of the Government’s benefit changes? Does he not see some contradiction in that?
Chris Leslie
The study commissioned by the Financial Times which showed the massive impact of the extreme austerity being pursued by the Government will bring home to many communities where some of the poorest people live the fact that that money and those resources are being taken out of their local economies.
Greg Clark
I am sorry to press the hon. Gentleman on this point, but can he answer a conundrum for me? He has helpfully said that he wants to raise £2 billion this year through his payroll tax. The Centre for Economics and Business Research estimates that this year’s bonus pool would be £1.6 billion in total. How will he raise £2 billion from that?
Chris Leslie
I do not recognise that figure. [Interruption.] The Minister is making various projections about the bonus pool, but even if the changes meant that we did not manage in years to come to yield what we now feel we can yield—he could equally make the argument that said, “Well, the European Union is making changes to limit bonuses,” which would obviously mean changes to salaries and elsewhere—what we are proposing would add considerably to the bank levy revenues that he has managed to generate. As we have set out in the amendment before the Committee, we need to incorporate a repeat of the bank payroll tax. It is important to recognise that, although I am happy for the Treasury to commission further research on the issue. If the Government are interested in this agenda and are starting to move in that direction, that might be useful.
Mark Garnier (Wyre Forest) (Con)
I am slightly confused about one thing. Is the hon. Gentleman trying to reduce profligacy and excesses in bankers’ bonuses or is he trying to raise revenue? The problem is that if he gets rid of bonuses or drives them down—a great many of us, and certainly the Parliamentary Commission on Banking Standards, have said that we do not like this at all—he will not get the payroll taxes, namely national insurance and income tax, on those bonuses, so the revenue will go down. I am not too sure what position he is trying to get to.
Chris Leslie
Of course that argument could be made about any demerit activity or level of taxation. People have been making that argument about cigarette taxes over the years, saying “Well, if people give up smoking, will the Treasury not lose a lot of money from it?” I do not want to divert too much into the wider principle, but I would say that a very considerable tax cut has been given to bankers by reducing the 50p rate of income tax to 45p—a cut that is providing a very significant bonus to those individuals in this year. The hon. Gentleman need not worry too much about these poor maligned executives in the banking system. I know that things must be very difficult for them—they may even have to defer the purchase of their yachts for that little bit longer—but we must start capturing and getting a grip on this issue in a way that the bank levy has not worked to achieve so far.
Mark Lazarowicz
On my hon. Friend’s last point, given that many of the banks are substantially owned by the public sector, what does not go in bonuses to the top bankers might come back to the taxpayer in other ways. On the question of the European dimension, we often hear that a bankers’ bonus tax could not be introduced only in the UK because all the top bankers would flee to Luxembourg, France, Germany or wherever. Is that not a good reason why a Europe-wide policy should be considered—precisely because there would be less opportunity for people to get away from UK taxation, which is sometimes used as an objection to a bankers’ bonus tax?
Chris Leslie
I know that Members of the European Parliament have debated some of these issues earlier this week; indeed, they have this week instituted a cap on the bonus level. We will need to reassess behaviour under that new arrangement, but I reiterate that we are confident that the revenue could be used for the purpose of helping the young unemployed.
Chris Leslie
I want the Government to do the same, and I challenge the hon. Gentleman to support us.
Mr Newmark
That will never happen.
I apologise for missing the Minister’s opening remarks, but I was so excited by the shadow Minister’s remarks that I wanted to intervene. I understand that mathematics is not a strong point when it comes to Labour party policy. We have heard from the Minister that bonuses have come down from approximately £11 billion to £1.6 billion. He is proposing a 130% tax on people who receive bonuses, in respect of the current statistics. We have heard from my hon. Friend the Member for Wyre Forest (Mark Garnier) that the shadow Minister has not thought about the implications for the reduction in take-home from achieving the changes he wants to bankers’ bonuses, which will reduce the money coming in for the Exchequer, which I suspect means that his numbers will not add up. The question I really want to put to him, however, is whether his proposed reduction in bonuses relates purely to cash. If not, is he saying that if employees are given shares, which might have a vesting period of more than five years, the vest for that period will be taxed? Is it about cash, or is it about cash plus shares?
Chris Leslie
I get the sense that the hon. Gentleman is starting an accountancy line, perhaps thinking how best to advise these bankers of ways around that nasty Labour Government’s bankers’ bonus tax. I am sure that whether it be in Bitcoins, gold or shares, bankers will be ingenious in how they pay and reward themselves. We have to get a grip of it, though, because however much they lavish rewards on themselves, the Exchequer needs to keep pace with the arrangement. I accept that this is a fluid situation, with policy and banker remuneration changing at the European level, but we must capture this particular issue and not adopt the lackadaisical attitude that the Treasury has adopted so far.
Bill Esterson
A number of figures have been bandied around in the debate, and it is difficult to know exactly which ones are right. Surely that is why we need the review that the amendment proposes. Such a review will, using the resources available to the Treasury, show how the scheme would work. That is surely the best way of answering the questions. We are hearing too many different arguments and different figures—even from the Members who have spoken over the last few minutes.
Chris Leslie
My hon. Friend is correct. However, even if we assume that, as the Minister will no doubt say when I give way to him in a moment, cash bonuses have been changing and the revenue yield will not be the same as it was in 2009, the fact remains that in 2009 we brought in £3.5 billion, and we calculate that this year we could bring in £2 billion. I have not seen any figures to the contrary. As for the Minister’s predictions of what may happen to bonus arrangements in the future, we can come to that in time.
Greg Clark
I thank the hon. Gentleman for giving way; he said earlier that he would do so.
The hon. Gentleman said that he had based his assumption on calculations. The authoritative source on these matters is the CBI, which has published figures consistently over time. It says that the bonus pool was £6.5 billion in 2010 and is £1.6 billion in 2013. Will he share with the Committee the calculations on which he has based his assumption about the bonus pool, and the source that he used? If he cannot do that, I hope he will desist, both in this debate and in future, from making any spending commitments that rely on a source that is fanciful.
Chris Leslie
I would be happy to enter into correspondence with the Minister about the matter. However, we feel that, according to a conservative estimate —I use the term, on this occasion, in a relatively pleasant way—£2 billion could be netted for the Exchequer, as opposed to the £3.5 billion that was netted in 2009.
Our amendment would require the Chancellor to
“review the possibility of incorporating a bank payroll tax within the bank levy”.
I am delighted that the Treasury has conceded that it wishes to engage in such a review. I am delighted that there has been a bit of movement in that regard. I would quite like to ask where the Liberal Democrats are on the issue, but then I would quite like to ask where the Liberal Democrats are generally—although I shall not dwell on that.
Greg Clark
I would like the hon. Gentleman to be more precise about the figures. He said that last time the payroll tax raised £3.4 billion—
Greg Clark
The hon. Gentleman says that it was £3.5 billion. I am sure he will confirm that he has read the analysis published last year by Her Majesty’s Revenue and Customs, which clearly states that £3.4 billion is a gross receipts figure and that the net yield was £2.3 billion. He will agree with that, I am sure.
Chris Leslie
No. The figures given in the HMRC study were estimates—and, incidentally, it was not a study by the Office for Budget Responsibility. For “HMRC”, read “Ministers”. They may well pooh-pooh the payroll levy and the bank bonus tax, but we feel that there is ample evidence to demonstrate how it operated before and how it could and should operate again. If only Ministers would adopt a more “can do” attitude, rather than trying to deflect attention from the massive embarrassment of having promised to raise £2.5 billion from a bank levy and having brought in only £1.6 billion in the last financial year. Although we said year after year that the levy would not be strong enough, they turned a blind eye, and indeed they have turned a blind eye to their banker friends for far too long.
The Government have provided tax cuts amounting to £19 million in the last week by reducing the 50p rate to 45p. A massive number of bank executives are earning more than £1 million this year. A cursory study of the annual reports and accounts of some of the banks concerned—Opposition Members may wish to listen to this rather than talking among themselves—reveals that this year’s bonus results created a staggering number of millionaires. In the Royal Bank of Scotland, 93 bankers were given bonuses of more than £1 million. Given the tax cut, they will benefit to the tune of more than £6 million in the current financial year. Barclays originally reported that it had 428 millionaires, given bonuses. I have been told that only a third are UK-based, but that would still mean that 140 Barclays executives are benefiting from nearly £23 million in tax cuts granted by the Minister because of the reduction in the top band of income tax. Seventy-eight millionaires at HSBC have received a combined tax cut of £3.3 million. Nineteen individuals at Santander are receiving a giveaway of more than £800,000. Twenty-five millionaires at Lloyds are receiving from the Treasury a combined tax giveaway in this financial year of £1.3 million. So they are doing very well, thank you very much, from this Government.
Mike Thornton
The hon. Gentleman is discussing banks paying this tax. Why limit it to banks? Many other organisations, such as hedge funds and insurance companies, pay very large bonuses. I understand that at one point, we perhaps needed to punish them; by why not tax extra anyone that has a bonus of £25,000 or above?
Chris Leslie
Perhaps the hon. Gentleman will have a chapter in the pamphlet that the hon. Member for Bristol West (Stephen Williams) is writing; we would all be interested to read it. [Interruption.] From a sedentary position, I am offered a signed copy of that pamphlet. We are all interested in political memorabilia, and it would certainly be an historic document.
We wanted to retain the 50p top rate of income tax for this year. It should not have been cut, and we think that doing so is unfair. I know—well, I think I know—that in their heart of hearts, the Liberal Democrats do not really agree with the cut, which will of course apply to those earning £150,000 or more. We have to recognise the special responsibility that banks and banking executives have to wider society, given the massive cost to the taxpayer of the banking crisis and the resulting deficit, the consequences of which many of our constituents are still suffering. We still have not got justice for what happened in 2008, which is one reason why we think it important to take this step now.
Mr Newmark
Does the hon. Gentleman distinguish at all between those financial institutions over which the Government have some sense of control—a sense of public ownership—and which the taxpayer had to bail out, and those that did not need taxpayer support? Following that logic, if he really wants to have complete control of compensation and bonuses, does he therefore want to nationalise RBS?
Chris Leslie
No—that is a preposterous suggestion. The hon. Gentleman also needs to recognise that all banks have benefited from the implied guarantee of the taxpayer, even if they did not need to be bailed out. He knows very well that the whole banking sector has benefited for a long time, and continues to benefit, from the market expectation that, should a retail bank get into difficulty or become insolvent, the taxpayer will come to its rescue. That is an implied subsidy, for which the banks ought to compensate the taxpayer. That is part of the argument I am happy to make.
Andrew Gwynne
My hon. Friend is incisively highlighting that the Government have effectively given the banks a tax cut, because of the levy’s failure to bring in the resources they initially said it would. Moreover, bankers themselves are still receiving these eye-watering bonuses, while at the same time the Government are giving them a tax cut—the tax cut for millionaires. Is that not absolutely why we need this bank bonus tax to sit alongside the bank levy, so that we can reinvest that revenue in a jobs programme? Have we not shown that a bank bonus tax works?
Chris Leslie
Exactly, and never let Government Members claim again that we do not have a positive approach that would get young people off the dole and back into employment. This is the route that needs to be taken, and the choice presented to the public which they can see most starkly, particularly on a day when unemployment is rising.
Chris Leslie
I will not give way to the hon. Gentleman, as he has only recently come into the Chamber, but we will see—[Interruption.] Oh, go on then, as he is one of my favourites.
Neil Carmichael
I am grateful to the shadow Minister for giving way; I thought there was a compliment coming along there, too. Not all banks have a bonus system; Handelsbanken is a good example. If we are to have such a separation between banks, with all the difficulties that that would bring about, what would the shadow Minister say to the suggestion that his proposal is a huge complication that will cause more difficulties than it will solve?
Chris Leslie
I would like nothing more than for our banking sector to move to a more enlightened and responsible approach to remuneration. I would not want to see a bloated and unfair bonus arrangement continuing in perpetuity simply as a result of a function of the tax system. For the time being, we need to start to send a signal on behalf of public policy makers that the current arrangements, which have not changed sufficiently since before the financial crash or during it, continue to be difficult. The banks often say that they want catharsis and that they want to move on, and I do not want to spend the rest of my life in banking legislation, for goodness’ sake, but we are still not there and the bonus levy is part of that process.
I do not want to talk for much longer, but I want to challenge the Minister specifically on the bank levy arrangements as we are debating stand part for clauses 200 to 202. We have had six different bank levy rates and they have failed to raise the right amount. We have talked about this time and time again, and I do not want to keep coming back in our debates on the autumn statement next year or on the 2014 Budget to a similar discussion on retrospectively tweaking the bank levy. I want to hear from the Minister when he replies that he can guarantee that in this financial year £2.5 billion will be netted in by the bank levy. If he cannot guarantee that, he must admit that we must reconsider the policy, which is haemorrhaging money when it should be boosting the Exchequer far more significantly.
As I said before, parliamentary rules prevent the Opposition from tabling amendments that would tweak the bank levy upwards. There is a convention of the House that only Governments can table amendments to a Finance Bill that would increase a charge on individuals or companies. The process is incredibly frustrating, as we need to ensure that we get into the detail of how the bank levy should work and what the rates should be. For the time being, we feel that tabling amendment 2 so that we can consider a review of how a bank bonus tax could help the young unemployed, in particular, and of how to incorporate it into a bank levy that nets the amount it should is the right way forward. I commend the amendment to my hon. Friends.
Geraint Davies
I make my comments in light of the fact that today’s unemployment figures showed an increase of 42% in the number of people on jobseeker’s allowance in my constituency of Swansea West. That comes in the aftermath of the financial tsunami of sub-prime debt that hit our shores in 2008, which was largely a result of the banking world taking unhealthy risks in the knowledge that the state would ultimately stand behind it. On the upside, people can take enormous gambles and make tremendous bonuses in the knowledge that if it all goes wrong, the taxpayer will cough up. The net impact of all that is that we are now doddering along on the bottom of the sea of growth and people do not have opportunities.
The strategic challenges for the Government are how to ensure that money is focused on job creation and that the banking community pays its fair share. We know that from this April, the top rate of tax was reduced by 5 points—from 50p to 45p. I realise that the Prime Minister gets up on his hind legs and says, “Oh, but we will raise more from the 45p rate than was going to be raised from the 50p rate,” but we all know that the reason for that is that people with large amounts of money can move their income between tax years. Bankers and others will simply move money to a different tax year when the rate was 45p instead of 50p and avoid the tax. If the 50p rate had been sustained, we would have generated a lot more money, particularly from the banking community. My hon. Friend the Member for Nottingham East (Chris Leslie) did a great job of highlighting the multi-million pound giveaway to the richest in our communities from the reduction. Our modest proposal would deal with people who are being shielded by the taxpayer from proper competition.
Mark Garnier
The hon. Gentleman speaks from the heart about the 50p tax rate and I can understand why Labour Members do so, because during 13 years they spent 12 years and 11 months thinking deeply about introducing it.
Mark Garnier
It would have been wonderful if it had been brought it in earlier because it would have shown more resolve from the Labour party.
Will the hon. Gentleman enlighten the Committee about what is behind the proposal? Is the intention of the levy to reduce the risk of perverse incentives through what can be an obscene bonus system, or is it to generate revenue? One or the other, which is it?
Greg Clark
I am grateful to you, Ms Primarolo, for allowing me to get a word in edgeways in this debate. It has been a most illuminating debate. We have discovered that it is the policy of the Opposition to raise £2 billion from a bank bonus tax when the pool of bank bonuses this year is forecast to be £1.6 billion. The Opposition Front-Bench team was commended for proposing an imaginative measure. It certainly is imaginative. Indeed, it is the stuff of fantasy that more could be raised in revenue through a tax than is contained in the tax base to which it applies.
The Opposition have done this before, as I shall say later, and this is a familiar debate. We had this debate in 2011 and in 2012, and now the Opposition have tabled a more or less identical amendment on a policy that was introduced in the dying days of the last Labour Government for one year only—a payroll tax on banks. When the then Chancellor introduced it in December 2009, he insisted that it would be a one-off tax. Indeed, it was not even for a full year, but from December 2009 to April 2010. But in the Finance Bill Committee of the whole House almost exactly a year ago, the hon. Member for Pontypridd (Owen Smith) revealed:
“If Labour had won the election, it may have changed its view and continued the bank bonus tax.”
On reflection, he said,
“I think a Labour Government would have continued it”.—[Official Report, 18 April 2012; Vol. 543, c. 391.]
The annual reappearance of this temporary Labour tax should remind us all that whenever Labour proposes a temporary tax, it is best to assume that it is for life—
Greg Clark
The hon. Gentleman spoke for 45 minutes and I have about seven or eight minutes. I shall make some progress and try to give him an opportunity later.
The bonus tax raised a net amount of £2.3 billion for the Exchequer, and that was supposed to be that. Amazingly, the Labour party had no other plans to make the banks make any further contribution to the costs they imposed on taxpayers. I agree with the hon. Member for East Antrim (Sammy Wilson) on that point. After that £2.3 billion, it appeared that the banks had discharged their responsibility to the taxpayers. To be fair and to acknowledge the consistency of the Labour Government, they showed no indication during their 13 years in office that they wanted to extract a contribution from the banks, even when the Centre for Economics and Business Research estimated that bonuses amounted to £11.5 billion in 2007.
As we know, the Labour party was “intensely relaxed” about people getting filthy rich. We have taken a different view. We believed from the outset that it was right for banks to contribute more to the taxpayer than other companies which did not pose a risk to the Exchequer and to the taxpayer. We agree with the point about fairness, and that is why the Government introduced a permanent levy—not a one-off—on the balance sheets of banks in the first Finance Bill of the new Government.
As we intended that it should be permanent, rather than—as Labour preferred—for a single year, it was important to design it in a way that would raise money every year. The trouble with a bonus tax, as the former Chancellor eloquently put it, was that
“frankly, the very people you are after here are very good at getting out of these things and...will find all sorts of imaginative ways of avoiding it.”
That was why it could work only for a single year.
Greg Clark
I will come on to that point, and the hon. Gentleman will be satisfied with my answer, as I hope he will acknowledge.
Balance sheets, unlike bonuses, cannot be hidden. They are more stable than bonus pools and so offer a far better way to collect a levy to benefit the public. Moreover, balance sheets are a better reflection of the risks, to the banking sector and to taxpayers, than remuneration, as set out by the International Monetary Fund in its 2010 report to the G20. That is why France and Germany quickly joined us in applying bank levies. They have subsequently been joined by Austria, Belgium, the Netherlands, Portugal and others. It is fair to say that those countries have not chosen to charge as much as we have. Relative to the size of our financial sector, our levy raises five times that raised by the French levy and two and a half times that raised by the German levy, but not one of these countries has thought fit to introduce a permanent bonus tax.
A permanent bonus tax would, of course, have been a catastrophically unreliable source of revenue, which is why I am very concerned that the spending commitments proposed by the hon. Member for Nottingham East (Chris Leslie) seem to be based on it. When the Labour tax was imposed, the Centre for Economics and Business Research estimated that the total pool of City bonuses was £6.7 billion. As I said earlier, it estimated that last year bonuses were £1.6 billion—less than a quarter of the 2010 level. With regard to the proposals from Europe, there might be some expectation that the levels will fall further.
A balance sheet tax is obviously a more stable, sustainable and sensible revenue base. However, to address the points made by the hon. Member for Nottingham East, balance sheets are not entirely invariable, which is why we have introduced a second element to the policy. We have specified that the bank levy should raise at least £2.5 billion a year, which is why we have clauses 200 and 201. The clauses increase the bank levy from 0.088% to 0.142% from 5 January 2014. The reason for these increases is simple: the forecast published by the independent Office for Budget Responsibility in December implied that without amendment receipts for future years would fall short of the £2.5 billion required and to which we are committed.
We announced in the autumn statement, as soon as these forecasts were published, an increase in the rate, which the Bill implements, to correct the shortfall. The March 2013 forecasts made by the OBR show that the levy is now forecast to raise more than £2.5 billion this year, and in all subsequent years. When the bank levy was first set, in Budget 2010, it took account of the planned reductions to corporation tax that were announced at the same time. Since then, as hon. Members know, the Government have been able to make further cuts to corporation tax. We have taken the view that this should not be passed on to the banks. Accordingly, clause 201 increases the bank levy to recover the benefit that would have been received from the cut in corporation tax.
To answer the point made by the hon. Member for Ogmore (Huw Irranca-Davies), the effect of these changes would be to cause the bank levy to yield not £2.5 billion in future, but £2.7 billion this year, and £2.9 billion for every year into the future. This extra revenue more than makes up for the shortfall in revenues experienced during the first two years.
Let me say something about clause 202, the other measure in the Bill relating to the bank levy. The clause removes an anomaly that would have been exploited, whereby banks could have claimed both a tax credit and a deduction for the same foreign bank levy. The view of Her Majesty’s Revenue and Customs is that the existing corporate tax rules prevent such a deduction, but the case law is old and we saw fit to put the matter beyond doubt.
I fear the Opposition have made a mistake in preferring a payroll tax to a bank levy. As countries across the world demonstrate, a bank levy is a better reflection of systemic risk: it is permanent, it raises more money and it is sustainable, not being undermined by avoidance. If the Opposition persist in basing their spending plans on such a flimsy source of revenue as the bonus tax, which actually exceeds what is paid in bonuses this year, then I fear that they have not learned the lesson that they surely must: jeopardising our public finances would take this country back to the edge of ruin from which this Government have hauled it back. If the hon. Member for Nottingham East had any embarrassment or rigour, he would withdraw this ridiculous amendment. I commend clauses 200, 201 and 202.
Chris Leslie
The Minister’s smile could not be stifled by the ridiculousness of his last comments. This is déjà vu all over again. We have heard it before from this Minister time after time, year after year. “Our bank levy,” he said, and the Prime Minister has said from the Dispatch Box, “will always raise £2.5 billion.” Last year, however, it was £1.6 billion; this year it is £1.8 billion. The amount of money lost is staggering. We will, therefore, want to test the view of the Committee. The Minister has to get a grip on this issue. He has been haemorrhaging money, and the £2 billion that has been lost should have been put to the better purpose of helping young people get off the dole and back into work. That is what we on the Labour Benches believe.
Question put, That the amendment be made.
Finance (No. 2) Bill
Chris Leslie Excerpts(11 years, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
Borrowing is down by a third from the position it was in when we came into office—that is the reality of the situation. We have to remember that if we had the policies advocated by the previous Government, borrowing in this Parliament would be £200 billion higher than it is going to be.
Chris Leslie (Nottingham East) (Lab/Co-op)
I do not know whether the Minister did not get the memo, but the Office for Budget Responsibility confirmed that, compared with the Government’s predictions for the 2010 spending review, borrowing is predicted to be £245 billion more. The Minister needs to get a grip on the fact that borrowing is getting higher. I dare him to say that the deficit is being reduced in this financial year as compared with the previous financial year, because that is just not happening.
Mr Gauke
The hon. Gentleman is right to say that borrowing levels are higher than predicted by the OBR three years ago, but that is not the same thing as saying that borrowing is higher now than it was. The fact is that at the last Budget the OBR forecast that the deficit was going to be lower this year than it was last year.
Mr Gauke
The reality is that, had we pursued the policies the Opposition advocated at the last general election, let alone now, the deficit would be much, much higher. In fact, the Opposition are not standing behind any of the deficit-reduction policies they advocated at the last general election. For example, I think they support what we are doing on the fuel duty—it was one of the few measures the previous Government had in order to reduce the deficit.
Chris Leslie
I thank the Minister for giving way so generously, but I just want him to answer my question. He is not claiming that the deficit is still being reduced, is he? It is not falling this year compared with the last financial year, is it?
Mr Gauke
My hon. Friend is absolutely right. We want an international tax system that ensures that economic activity is taxed where it occurs. That involves working internationally, and he is right to highlight the Prime Minister’s ambitions while we have the presidency of the G8, which will feed through to the G20 and the work that the OECD is already doing, which we support. It is right to have an international tax system that reflects the reality of how multinational businesses work.
Clauses 203 to 212 introduce the UK’s first general anti-abuse rule—GAAR—which will provide a significant new deterrent to abusive avoidance schemes and strengthen HMRC’s means of tackling them. On top of that, we are taking action to close a further 15 tax avoidance loopholes, which will increase tax revenues by almost £1 billion up to 2017-18, as well as protect future revenues. The Chancellor gave a clear warning in the 2012 Budget that the Government would take action on aggressive stamp duty avoidance. The Bill follows up on that warning by legislating against those who continue to avoid tax on property transactions. All these measures will stop people exploiting legislation to gain tax advantages that were never intended, and they will also encourage fairness.
Chris Leslie
While the Minister is on the subject of companies that might not pay their fair share of corporation tax, will he confirm that the banks received a substantial corporation tax cut in the past financial year and the one before that, yet he has done nothing to correct the situation?
Mr Gauke
No, I cannot confirm that, because it is not correct. The reality is that the reductions in corporation tax falling to banks have been more than offset by increases in the bank levy. We have sought on every occasion to offset the decreases in corporation tax through increases in the levy.
Chris Leslie
I had a feeling the Minister would say that the corporation tax reduction had been offset by the bank levy. However, although the Prime Minister promised that the levy would raise £2.5 billion, it raised only £1.8 billion in 2011-12—[Interruption.] Perhaps the hon. Gentleman is getting an answer to this point from the Economic Secretary. In the past financial year, the levy raised only £1.6 billion, so there is a massive shortfall compared with the amount that the Prime Minister said it would raise. How on earth does that offset the corporation tax cut for the banks?
Mr Gauke
We were clear that our objective was that the bank levy would collect £2.5 billion, on a permanent basis, which is more than the bank payroll tax ever collected. When the amount has fallen below our expectations, we have adjusted the levy, and the independent Office for Budget Responsibility anticipates that the bank levy will raise £2.5 billion this year. We have made adjustments largely because the banking sector has continued to be afflicted by economic difficulties throughout the world, as a consequence of the crash, so fragile global conditions have played a part. I am not going to be preached to by the Opposition on the taxation of banks. We have introduced a bank levy; the Opposition had 13 years in which to do something about that, but failed to do so.
Chris Leslie (Nottingham East) (Lab/Co-op)
The Minister’s job was clearly to drill down into the technical details, rather than focus on the big picture of the Budget and the Finance Bill. [Interruption.] There is heckling already. It would have been nice to see a bit of life from the Minister during the debate. How to draw the sting from a Finance Bill? Send for the Exchequer Secretary. It is true that he is less provocative than the Chief Secretary to the Treasury; I will give him that.
It is true that the Government wanted to kill off any interest in the Bill and put it on the back burner. Towards the end the Minister tried to arouse the enthusiasm of his colleagues on the Back Benches for the Bill by saying that it was about building a fairer society and energising Britain, but it is not a Bill for building a fairer society or energising business. It is not a Bill for the economy. It is not about what is best for the country at all. It is a Bill totally designed around what the Chancellor thinks is best for him. As the weight of evidence mounts that his plan is failing, he flails around desperately to justify his strategy, casting around constantly to blame everyone and everything else for the fact that everything is going so badly wrong.
The Bill gives us a glimpse of just how desperate things must be getting inside the Treasury. For the Treasury team, it is all about the politics, but what about the economics? Let us be clear. There is no positive impact on economic growth from the Bill. The Government’s own Office for Budget Responsibility on page 46 of its report on the Budget states that it will have
“no impact on the level of GDP at the end of the forecast horizon.”
The OBR also says that
“these measures reduce GDP growth”
in 2013. After all that effort by the Chancellor, culminating in the Budget and this weighty Finance Bill, what is the impact on economic growth in this calendar year? It is negative.
It is no wonder that the Treasury’s plans and the OBR forecasts are on a slippery slope, constantly and continuously downgrading their projections for the economy while upgrading the size of the deficit. Those grandiose plans and supposedly tough decisions that the Chancellor set out three years ago have seen economic growth of just 0.8%, compared with the 5.3% that they forecast and promised at the time. All the while, our international competitors are moving forward, leaving us behind. Only two other G20 countries have grown more slowly than the UK since the 2010 spending review—Japan and Italy.
Chris Leslie
Let us not forget the double-dip recession, together with the shrinking economy in the last quarter for which figures are available.
I give way on the double-dip recession.
David Rutley
I thank the hon. Gentleman for giving way. I am pleased to see that he has departed from the vaudeville act that we normally see from the shadow Chancellor, and instead adopted the posture of Eeyore. Has he failed to notice that the IMF has projected that the growth in the UK for this year and next will be greater than that in both France and Germany?
Chris Leslie
I am sorry if I am upsetting the hon. Gentleman by having to emphasise some of the things that are going wrong in the Government’s plan, but somebody has to wake up the Back Benchers after the scintillating comments that were made from the Government Front Bench. If the hon. Gentleman thinks he has the capability to stand up and defend his Government’s record on economic growth, we would all be impressed. He must surely accept that it has been a massive and total failure and a disappointment which has not only hurt all our constituents, but has made the public finances far worse than the Government were predicting.
The Government said that they wanted to rebalance the UK economy, but look at the latest trade statistics, which showed our trade deficit increasing by £1 billion between January and February, with the balance of payments deficit for our country now at £36 billion. Despite the depreciation of sterling, our exports are shrinking, and despite the problems in the eurozone, our exports to other non-eurozone countries, such as the United States, are getting worse as well, and all that from the Chancellor who two years ago promised he would deliver
“a Britain carried aloft by the march of the makers.”
Mark Field
The hon. Gentleman will appreciate that the global situation, particularly among the eurozone countries, makes it incredibly difficult for us to achieve the export-led growth that we would all have liked over the past three years. Will he give credit to the Government for the fact that more than 1 million private sector jobs have been created over the past three years? That should be welcomed and should counter some of the pessimism emanating from his speech.
Chris Leslie
If I can try to be optimistic, I hope that there will be a sustained increase in employment, but I am getting worried. The latest figures showed that unemployment is rising again. We must look at the underlying situation reflected in the productivity gap and the capacity problem in the economy, which the Treasury is worsening. The Minister spent a large part of his speech trumpeting the reductions in corporation tax that the Treasury have put into the Bill as the big solution to those problems. Of course we want the UK to be seen as a good place for investment, but the Treasury has not produced any analysis of how those further cuts in corporation tax will feed through into economic growth. We hope they will, but it is time we saw some clear proof that inward investment and business growth are flowing from that approach, and that we are not just stacking up corporate surpluses which are locked away because businesses fear that they will not be able to access bank credit.
Geraint Davies
My hon. Friend will know that the debt to GDP ratio will have grown from 55% in 2010 to 85% in 2015, and that the way to sort that out is by confronting the debt and/or confronting the GDP—namely, growth. Does he accept that even though 1 million more people are in jobs, overall production has not gone up, so their average productivity has gone down? Does he agree that it is time to invest in infrastructure, super-connectivity and skills, and to make Britain more productive and make it grow?
Chris Leslie
My hon. Friend makes a good point. It is not a good sign that it is taking more and more people to produce the same amount of output. In the long run that is not a sustainable strategy for our economy. Ministers need to look more seriously at that issue. The problem is not just the fact that the Bill neglects economic growth.
Tim Loughton
I am slightly puzzled that the shadow Minister cannot see the link between the reductions in corporation tax and attracting businesses to this country. He should get out more. Is he not aware of a number of companies which have relocated from the Republic of Ireland, for example? Bank of America has relocated £50 billion worth of its trading business to the City of London. Firms in my constituency are bringing business back from Denmark to this country because the corporation tax rates are much more beneficial for them. That sends out a clear message that this is the place to do business.
Chris Leslie
I am afraid that the former Minister’s suggestions are not borne out by the evidence. Ultimately, corporation tax benefits a company only if it is turning a profit. I am yet to see action being taken in the Bill to help businesses now, particularly those struggling to get back into the black. Those are the steps that are needed to help the businesses that are finding the current economic conditions very difficult indeed.
It is not just the failure on growth; the Bill does not contribute to deficit reduction either. The deficit is already set to be £245 billion larger than the Government planned. The OBR reacted to the Budget and the Finance Bill with some stark predictions. In fact, it stated on the first page of its Budget analysis that the deficit reduction plan has now stalled. The £121 billion deficit recorded in 2011 will turn out to be the same for 2012, and the OBR predicts that it will be the same for this financial year. I challenged the Minister earlier to stand up and say that the deficit is still falling. He tried to claim that the OBR figures pointed in that direction. Well, they point in that direction by less than one tenth of 1%—a fig leaf of £100 million. The claim that the Government still have a deficit reduction strategy is not credible. The deficit reduction strategy is gone.
The Deputy Prime Minister and the Chancellor of the Exchequer both promised that they would balance the books by 2015, so what has happened to that promise? Their explanations for the failure become more and more desperate. They blamed the snow, the royal wedding, Europe, the banks and the unemployed. The blame has been laid at everyone’s door except where is belongs—No. 11 Downing street. The time has come for Ministers to take some responsibility for their failings.
The OBR also predicts—these are pretty shocking figures—that real wage levels will fall by 2.4% over the course of this Parliament. Wages are forecast to fall most steeply this year, relative to prices. The cost of living it increasing, but it is getting harder and harder for people to keep pace.
Where are the measures in the Bill to create a fairer society? The Budget and the Bill are deeply unfair for millions of hard-working families who will be, as my hon. Friend the Member for Corby (Andy Sawford) said, on average £891 worse off this year because of the changes introduced since 2010. In fact, the Institute for Fiscal Studies statistics show that a lone-parent household in work will lose £1,206 this financial year, a couple with children where both parents are earners will lose £1,869 and—this is the most staggering statistic—a couple with children where only one parent is an earner will lose, typically, £3,995 this year as a result of the changes the Government have announced since 2010.
Tim Loughton
On that point about families in which one parent is an earner, will the hon. Gentleman therefore commit his party to supporting a transferable tax allowance for married couples, which, as well as sending out a strong message, would specifically help those couples where one person goes out to earn and the other looks after the children?
Chris Leslie
I understand that the hon. Gentleman will be tabling amendments on that issue and look forward to seeing how he will frame them. I know that Ministers are looking forward to seeing those amendments, because they will spark a useful debate within the Government ranks. Personally, I do not think that is the best strategy. I think that it would be better to look at the damage his hon. Friends have been doing to the tax credits system. It is women and families, in particular, who are paying the price for the Chancellor’s economic mistakes. In fact, the Government have cut support for parents by reducing statutory maternity and paternity pay so that by 2015 it will be worth £180 less than it would have been had it been uprated in line with inflation. I think that the hon. Gentleman needs to look at that point. The Prime Minister once promised—I know that this is something the hon. Gentleman feels keenly—that he would lead the most family-friendly Government ever, but it is ordinary families across the country who are paying the price for the Government’s failed economic strategy.
The Finance Bill will make Britain less fair. We are definitely not all in this together. For example, let us look at the Government’s “shares for rights” scheme, set out in clause 54, which I know we will be considering again in the Chamber. The Government’s view of a fairer society is one in which businesses are allowed to force new employees to give up their rights at work, including the right not to be sacked unfairly and the right to redundancy pay, something so unpopular that even former Conservative Ministers voted against it in the House of Lords. It is not even as if the business community is asking for that power. Of the 184 businesses that responded to the official consultation, only three said that they wanted to use the scheme. Ministers are totally out of touch with employees and employers on that issue.
Whatever rosy picture the Minister tries to paint, the public can tell that living standards are falling, not rising. The Government just do not seem to understand how extreme austerity has hit consumer confidence, how it is sapping business confidence and how precipitous cuts and tax rises have had the opposite of their intended effect. Let us take the study published only last week by the Financial Times showing that they are harming the prospects of recovery for some of our most fragile local economies, especially in poorer areas of the country, by removing £19 billion of spending power from their residents. It is the regions of the UK most in need of regeneration and private sector investment that are feeling the heaviest impact.
Andy Sawford
My hon. Friend is making an incredibly important point about the uneven effects of the Government’s policies. In some parts of the country people have been able to return to work, according to the much-vaunted statistics on unemployment in recent months, but across East Northamptonshire 126 more people this year are on employment and support allowance because of the Government’s failure to get our economy growing overall and their particular failure to help those communities that have suffered most in recent years.
Chris Leslie
Where is the regional economic strategy from the Government? Where is their attempt to revitalise those parts of the country that have suffered most of all? I am sorry if I sound a little like Eeyore to Government Members, but somebody has to say, as my hon. Friends have been saying, that Government policies are just going to harm those parts of the country that are in desperate need of regeneration and will make the situation worse for them. My hon. Friend makes that point well.
Geraint Davies
Does my hon. Friend accept that one of the Government’s biggest failures has been not to resuscitate consumer demand, which would stimulate growth? It is the poorest in our communities who spend the highest proportion of their income, because they cannot afford to save. By hitting the poorest the hardest the Government are hitting growth overall and making a more unbalanced economy and a more divided society.
Chris Leslie
It is the politics of shooting oneself in the foot. The difficulty is that the Chancellor does not even understand that his strategy is making his task far harder in the long run. It is not just the fact that people on lower and middle incomes are suffering as a result; it is the unfairness when they compare it with what the Government are doing for those parts of the economy and of society that they favour. The banks are still getting away with not paying their fair share. A tiny corner of the country is doing very well out of the Chancellor. The banks, whose actions created the deficit, are not contributing their fair share towards repairing it. In fact, astonishingly, they are benefiting from the Chancellor’s generosity. This Bill fails to get a grip on the contribution the banks ought to be making. It is still too weak on the very institutions that had to be bailed out by the taxpayer because of their perilous self-indulgence. We have debated in the past, and we will do so again, the fact that Ministers have failed lamentably when it comes to tackling bonuses. In opposition, the Prime Minister promised:
“Where the taxpayer owns a large stake in a bank, we are saying that no employee shall be paid a bonus of over £2,000”.
My hon. Friends probably remember that comment. However, when I express my dismay about the Bill’s weakness, I am not just talking about the lack of a bank bonuses tax. The Government said that the bank levy, as a charge on bank balance sheets, was their answer to clawing back some of the costs for the taxpayer.
The Prime Minister said in 2011 that once the levy was “fully up and running” it would raise £2.5 billion each year—in fact, he said that it would raise £9 billion over the spending review period. We now see that the Government have totally failed to live up to their promise and that the banks have swerved to avoid the bank levy; they have not paid anything like the amount mentioned. In fact, the Chancellor has raised nearly £2 billion less from the banks since the Prime Minister made that promise just two years ago. Those are not my figures, but the latest figures from the Office for Budget Responsibility and HMRC.
The Government repeatedly claim—the Minister did it again today—that the bank levy will raise £2.5 billion a year and that the cuts in corporation tax will not benefit the banks; the Minister said that those corporation tax cuts would be offset by increases in the levy. However, the OBR figures, published alongside the Budget, estimate that in the financial year that has just ended, 2012-13, the bank levy will raise just £1.6 billion—a massive shortfall. We have then to deduct a further £200 million because of the generous corporation tax cut. All in all, the banks have paid £1.1 billion less than Ministers promised. That is even worse than in the previous financial year of 2011-12, when the combined shortfall was £800 million less than the Minister promised.
What on earth is going on? Why cannot the Minister get a grip of the issue? The bank levy strategy is haemorrhaging money when it should be boosting the Exchequer far more significantly. I ask my hon. Friends to think of what that nearly £2 billion could have achieved in the past two years. This is the third or fourth attempt by the Government to get the issue right, but each time they have failed to raise what they promised. The Minister has to go back to the drawing board now and come up with a policy that will actually work, rather than something designed to pass a press release test.
The Chancellor is making bad decisions because he is getting deeper into difficulty, proving time and again that saving his own skin comes before getting the judgment right. It did not take long for the world to see, for example, that the Government had not properly thought through their flagship Help to Buy scheme after it was announced in the Budget. That was hailed as the boost that we needed for housing, but focusing only on demand without any corresponding action to supply more affordable homes is only a half-policy partially thought through.
I hope that the scheme succeeds, but why on earth cannot the Government ensure that funds are not siphoned off for second-home purchases? By contorting the scheme so that it does not count against the deficit figures, do they not realise that they have added complexity that might hinder take-up? After all, the Government promised that 100,000 people would have used last year’s NewBuy scheme by now, but only 1,500 people have become involved so far.
Chris Leslie
We will undoubtedly be able to judge the success of these issues, but there are some deeper flaws in the design of the Help to Buy scheme; we will debate that issue in more detail this week. It all reeks of a policy that has not been thought through properly—designed in haste and yet again not having the intended effect.
Understanding what the Government have put into the Finance Bill requires an understanding of what they have not put in. This was the Budget and the Finance Bill that were supposed to learn the lessons of the 2012 omnishambles Budget and Finance Bill—the pasty tax, the granny tax and the caravan tax. Here is the product of all the Government’s care and vigilance this year; I am sure that the Minister’s officials will be proud of him. The Government have painstakingly avoided anything that will have a positive and significant impact on growth, meticulously evaded any measures that might stimulate job creation and sidestepped anything that might repair the mess that they are making of the public finances.
In fact, the only real aspiration in the Bill is to get through it without any more U-turns. But by avoiding the bold action that we need to stimulate the economy, the Government have created a Bill bereft of the major reforms we need. So many measures are conspicuous by their absence. The Government have cut public investment, and now they are cutting back on policies, too.
I had hoped that the Chief Secretary to the Treasury would be here today; normally, he would open the debate on the Finance Bill. I do not know whether his not being here is a deliberate strategy or whether he has a decent reason; the shadow Chief Secretary has a decent reason for not being here, but that could not apply to the Chief Secretary.
We had hoped, before the Budget, that the Liberal Democrats would stick to one pledge—their pledge to support a mansion tax. We even tabled a one-line motion for Lib Dems to vote for, but they did not want to offend the Conservatives. But they should not worry because we will give them another chance to support their own policy later in the week—a mansion tax on properties worth over £2 million to deliver a tax cut for lower and middle-income households. We favour a 10p starting rate of income tax as the best way to do that and we think that should be in the Bill.
Why have the Government not legislated for their child care voucher extension, which has been pencilled in vaguely for some time after the general election? Where is the national insurance help for small businesses that we have been calling for and which the Chancellor should be acting on sooner? Why is that not in the Bill? It is not good enough for such provisions to be in black and white in a Budget book; it needs to be in the Bill. There have been so many promises in the media, but they have not been seen through in the Finance Bill.
The Finance Bill could be the moment when the Government change their mind on the bedroom tax, and it should be the legislation that repeals their lovely gift of an average £100,000 tax cut for Britain’s lucky millionaires through the cut to the 50p tax rate. As I have said before, it seems that with this Government there is one rule for the rich, but only one room for the poor.
Where do the Government get such a gratuitously unfair sense of priorities? The language used to validate a cruel, harsh, selfish approach is breathtaking—they insist on the caricature of the “spare room subsidy” and bristle at the term “bedroom tax” because they know that the public can see the policy for the disaster it is proving to be. The Chief Secretary to the Treasury, who is not here, wrote in The Sun on Easter weekend that he wanted to tackle the “bedroom blockers”—that from a Liberal Democrat Chief Secretary who could and should have blocked the bedroom tax in the first place.
Mark Field
Like me, the hon. Gentleman represents an inner-city seat. He will know from his own mailbag that the biggest housing issue is overcrowding. I find that in my constituency, and I cannot believe for one moment that the hon. Gentleman does not get similar letters from constituents. That is what is behind the so-called “bedroom tax”. We are trying to ensure that more vital social housing resource is made available to those in genuine need.
Chris Leslie
The Government are not putting any of those resources into building affordable social housing. Kicking people out of their homes will not help people in that way. We have already seen evidence that nine out of 10 of those affected by the bedroom tax have no option of going anywhere else at all. The Government have totally neglected the supply of affordable housing. They have not prioritised that.
Then we come to the grotesque spectacle of a Chancellor of the Exchequer demeaning his office—using the case of a multiple child killer to argue for his changes to the welfare system. We knew that Conservatives relish any opportunity to do down social insurance protections and that the Government’s policies are actually pushing more people into welfare—not helping them out, but pushing up the welfare bill to record levels. However, we did not know the depths to which the Chancellor would stoop. The nasty party is back.
The Chancellor certainly grabbed the headlines, but I say to Government Members that what he said diminished his standing in the eyes of millions who rely on benefits—those in work relying on tax credits as well as people looking for work, pensioners and the disabled. Those millions have absolutely nothing in common with Michael Philpott whatever and were all sickened by the evil behind those crimes. In his speech at the beginning of the month, the Chancellor had the audacity to castigate his critics for their “shrill, headline-seeking nonsense”—he said that without a hint of irony. He suggested that those who dared to criticise his plans
“always complain, with depressingly predictable outrage”
and are just another bunch of “vested interests”.
Let us just think about that accusation—“vested interests”. Putting to one side for a moment the fact that the Chancellor knows a thing or two about defending positions of privilege, is he really saying that those who care about defending the well-being of some of the most vulnerable in society are “vested interests”? Well, for the record, yes—we are interested in, and deeply concerned about, the impact that the bedroom tax, the withdrawal of council tax benefits and the changes to disability benefits will have. However, the more important question is why the Chancellor is not interested. Why does he think it makes sense to tell 660,000 people, most of whom have a disability, that they need to give up a spare room but leave nine out of 10 with no option of moving anywhere smaller? Why does he think that some of the poorest and most vulnerable can cope with significantly higher council tax bills as a result of the withdrawal of council tax benefit, the arrears from which could end up costing a fortune to collect? Why does he think it makes sense to penalise working people by cutting their tax credits at a time when we should be making work pay?
The Chancellor is not concerned because for him this is a political game. He is not serious about helping those on welfare; for him, and for the Conservatives’ new spin supremo, Lynton Crosby, this is all about ideology and tactics.
Geraint Davies
My hon. Friend will be aware that housing benefit costs have doubled in the past 10 years, but is he also aware that 70% of that increase is due to private sector rents because rents have been inflating and we have not been building enough houses? Does he accept that if we built more houses we could lower average rents, sort out housing benefit and give people stable communities and more chance of getting a job as well?
Chris Leslie
Looking at the situation in the round, that is exactly the sort of welfare reform that we need. If we are going to get to the root of these problems, we must have serious reforms to our welfare system, and we need a Government who are serious about delivering them.
The Chancellor and his Ministers are not serious about solving these issues; all they want to do is to stoke up fear and prejudice, blame the unemployed and the welfare system, and deflect attention from their own woeful failures to repair public finances. Serious welfare reform has to be a continuous process to fit the modern circumstances of society. Reform is never just a “job done”, nor should it aim only at being headline-grabbing. We should crack down harder on fraud but also on tax evasion, we should better reflect the contributory principle, and above all, we should focus relentlessly on getting people back into work so that they are making a productive contribution while also paying taxes again to bring in those much needed revenues.
A Work programme where only 2% of participants find themselves in sustained employment is a humiliation for these Ministers. They should never have scrapped the new deal, and if they were genuine reformers they would immediately set out a compulsory jobs guarantee, using the repeat of the banker bonus tax to fund a minimum-wage job placement for all young people unemployed for a year, and using the money saved from reducing the pension tax relief for the richest 1% to fund a job for all adults who are long-term unemployed for two years or more. No excuses: if they turn down those decent and properly paid job opportunities, they should forfeit unemployment benefits. Languishing on the dole for the long term must end, but we need to treat those looking for work with respect and give them a decent and real job opportunity, not cast them aside.
Andy Sawford
My hon. Friend rightly highlights the importance of helping the long-term unemployed back to work and the new deal’s success relative to the Government’s Work programme, which is a contradiction in terms. Does he recognise that in my constituency, which, according to independent surveys, is the most difficult place in the country for young people to find work, we need approaches such as the future jobs fund, which the Government scrapped as one of their first acts of vandalism on coming into office? We need those programmes, which we have proposed.
Chris Leslie
This is the answer to Ministers who were saying earlier from a sedentary position, “Where are your policies?” The difference between the parties is that they do not understand that jobs, at the heart of welfare reform, are the way to get revenues flowing into the economy. If they neglect economic growth and do not recognise that growth has an effect on the wider prosperity of society as well as on public finances, they will never repair the deficit as they claimed they would, and they will never have the fairer society that the Minister had the cheek to mention when concluding his speech. Ministers talk about fairness: tell that to the families who are losing £891 this year—households who are in work—when at the same time they see these Ministers giving away £145 million in the Budget to hedge fund managers by abolishing stamp duty reserve tax on some unit trust investments; tell that to those who are forking out 20% VAT and losing hundreds of pounds through higher taxes while the banks are let off the hook; and tell that to our constituents who we see, all too frequently, left with only £60 per week to live on while Ministers lavish on millionaires an average £100,000 tax cut in this financial year by scrapping the 50p top rate.
The Chancellor either does not understand fairness or does not care that he is creating unfairness. The Finance Bill will make the rich richer but do nothing to help the vast majority to secure a better standard of living. Worse still, the Bill will harm the prospects for our economy this year. Just at the moment we need measures to stimulate growth, the Government have produced this misguided Bill. They give a little away with one hand but take away so much more with the other. Their tax rises and cuts more than offset what they have promised in several years’ time on child care or changes to the personal allowance. Taking a penny off a pint of beer does not go very far when they have added 5p a pint through higher VAT.
Why is this such an inappropriate Bill? It is because the Chancellor does not prioritise the British economy or the prosperity of the British people. His No. 1 priority is himself: his own political reputation. It is all about reviving his own fortunes and trying to shore up his ideological credentials. This Budget and this Finance Bill were not about anyone else’s job but the Chancellor’s. That explains the fudging of the public accounts to make it look as though the deficit was falling when it is plainly as high as the year before. It explains the Chancellor’s refusal to budge from a failing strategy in case he had to admit his mistakes and swallow his pride, it explains the ever-widening net of blame for why things have fallen so off course, and it explains why the country’s fortunes have been downgraded while he carries on regardless. It is time that the Chancellor’s reputation was not the be-all and end-all of Treasury policy. It is time that we put the boost that our economy needs at the heart of everything we do. This Bill is bereft of the bold steps we need to kick-start Britain’s economy. I urge my hon. Friends to oppose it because Britain deserves better.
Chris Leslie
Let me make it absolutely clear that we should have a Government who are arguing for a financial transaction tax. We need to ensure that we get New York, in particular, on board, but we now have evidence of what will happen in the European Union, and there is no doubt that there is a very strong case for such a tax.
Frank Dobson
Yes, indeed. I have been advocating such a tax for some time, and I shall continue to do so.
I have asked Treasury Ministers several times how much money would be raised for the taxpayer by a 0.01% tax on financial transactions, but the great Treasury mandarins have always said that they have not worked out the figure. If that is the case, how can they possibly conclude that the money that would have to be paid out would damage the finance industry? If they do not know how much such a tax would raise, how can they know how much the industry would have to pay out?
We continue to find ourselves in the absurd situation in which the banks and their friends, and the big accountancy firms and their friends, are advising the Government on the taxation system that should be applied to them. We do not—as far as I know, anyway—have criminals advising the Home Office on criminal law, and I do not think that an industry with such a disreputable record should be advising the British Government on how it should be dealt with.
David Rutley
In 2014. [Interruption.] We have to take a stepped approach to rectify the changes Labour put through. The allowance is important and will be welcomed, and the other measures we are taking on the supply side, such as the reduction in corporation tax, will all help to create a platform for economic growth.
amendment of the law
Chris Leslie Excerpts(11 years, 8 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
Before I start, hon. Members will be pleased to join me in congratulating my hon. Friend the Member for Leeds West (Rachel Reeves) on the arrival of her new baby daughter Anna at 6 o’clock this morning—which might explain why she is not replying to this evening’s debate.
There can be no doubt that last week’s Budget certainly lived down to the low expectations that were billed for it. This was a Budget for lower wages and downgraded credit ratings; a Budget for lower confidence but higher debt; a Budget for poorer productivity, low growth or no growth at all in the economy. The Chancellor has been forced by his own failure to extinguish his deficit reduction plan, but keeps on whistling in the wind to convince his Back Benchers—perhaps even to convince himself—that he is sticking with it. This Government—or at least the largest part of this Government—were elected promising painful decisions in the short term, but said it would all be worth it in the end. As my right hon. Friends the Members for Neath (Mr Hain) and for Oldham West and Royton (Mr Meacher) said, although there has been pain for some—especially the most vulnerable in society—three years on, Britain has not advanced one jot.
The economy has flatlined, the country’s debts are mounting and now even the Office for Budget Responsibility says that deficit reduction has “stalled”. So much for the Chancellor’s plan A. After three years of austerity, stagnation and ever higher national debt, where has it left Britain? The triple A credit rating has been humiliatingly downgraded. The OBR says that this Budget will reduce, not increase, the prospects for growth this year, and all the time the Chancellor’s borrowing plans are being revised upwards, now reaching an astronomical £245 billion higher than forecast.
When the Chief Secretary to the Treasury replies, he will pretend that this is a Budget to build an aspiration nation, but it is just more of the same failed plan from a desperation Chancellor, presiding over a stagnation nation. As a result of his failure, the UK economy has grown by just 0.7%, compared with the 5.3% forecast at the time of the 2010 spending review. Now the failed plan of this failing Chancellor stands squarely in the path of progress, holding back the economy, making the situation far worse and digging us even deeper into the mire. As my right hon. Friend the Member for Edinburgh South West (Mr Darling) said, Britain now faces the real prospect of a lost decade of economic decline, with confidence sapped and businesses retreating from investment in the productivity we need to keep pace with our competitors.
Yet after four days of debate on this Budget, those on the Government Benches are still in denial, while mystery surrounds some of the details of the Treasury’s accounts and the measures announced. As my hon. Friends the Members for Aberdeen South (Dame Anne Begg) and for East Lothian (Fiona O’Donnell) said, we know that the Government plan a bedroom tax on some of the least well-off in the country, starting next week, which contrasts with their plans to offer subsidised mortgages, potentially to those who want to buy a second or third property for themselves—the spare-homes subsidy, as Ministers might like to characterise it. Under this Government, it seems that there is one rule for the rich, but only one room for the poor. Despite all the other competing priorities for tax and deficit reduction, the Chancellor has failed to propose any change to the obscene timing of the millionaires’ tax cut—a cut in income tax for the richest 1%, which will we vote against this evening.
When the Chief Secretary stands to speak, I am sure he will trumpet the changes to the personal allowance—it is what the Liberals believe they have achieved in their short period of collaboration. Before the right hon. Gentleman gets too excited with his achievement, let us take a look at it for a moment. The changes to direct taxes and benefits, including cuts to tax credits and child benefit, mean that the typical family will be £600 a year worse off by the next election—and that is before we include the hike in VAT to 20%, the cuts to maternity pay or the education maintenance allowance, or the Office for Budget Responsibility forecast of lower wages by the time of the next election. Those tax rises and cuts more than offset what the Government are promising in several years’ time on child care or changes to the personal allowance. Even the 1p taken off a pint of beer sinks without trace compared with the 5p the right hon. Gentleman has added through VAT.
When the right hon. Gentleman gets to his feet, perhaps he will explain to the House what sort of an achievement he thinks it is for him and his Liberal Democrat colleagues to prop up the failed plan of this failing Chancellor, which lightens the load for the typical millionaire by £100,000 while making life tougher for ordinary families up and down the country. Perhaps he will explain why there is no return yet of the 10p starting rate of tax to help millions of low and middle-income families, as we had hoped, and no sign of a mansion tax to pay for it, as the right hon. Gentleman’s Liberal colleagues had promised. [Interruption.] Will he tell hon. Members why there is no bank bonus tax to fund a jobs guarantee for young people out of work? [Interruption.] I will happily give way to the Chancellor if he wants to intervene on this particular point. [Interruption.] I was simply asking some questions.
As well as missing out on the chance to repeat the bank bonus tax, the Chancellor has gone soft on the bank levy. The banks paid £900 million less this year than the Chancellor said they would, on top of the £700 million less than they should have paid in the bank levy in the year before. Never mind the Chancellor; I would like to ask the Chief Secretary to explain his own support and that of his Liberal colleagues for the squalid plan to give away company shares to workers who sign away their employment rights, which even several former Tory Ministers, including Lord Lawson, could not stomach—and again, we will vote against that this evening.
Above all else, perhaps the right hon. Gentleman will set out for us just how far he is prepared to support the failing Chancellor in pretending that things are getting better on borrowing when quite plainly they are not.
We all know that the Chancellor has crafted his reputational raison d’étre around reducing the national debt, yet it has risen by 38% on his watch. We know that his woeful performance, placing the UK in the relegation zone of G20 nations on economic growth, has unsurprisingly torn his deficit reduction promises to shreds. We know, too, that the Office for Budget Responsibility says that borrowing this year will be the same as last year and the same next year—“stalled” is the word it uses. Frankly, there is no improvement. There is no longer a deficit reduction plan; it has failed; it is no more.
Let us for a moment just pause and reflect on the Chancellor’s overriding political desperation to prove that the deficit is still falling. This incredibly coincidental, manufactured figure of £100 million is the sum total of deficit reduction he has sweated buckets to achieve from last year to this. This is not a deficit reduction of 1%; it is not even one tenth of 1%. At that rate, it will take more than 1,000 years to clear the deficit and balance the books. That is not a deficit reduction plan; it is a millennium goal. A deficit reduction from £121 billion to £120.9 billion is something that should embarrass the right hon. Gentleman, not delight him. That is not getting the deficit down; it is just rounding it down.
The Chancellor’s embarrassment demands that the whole of the Budget should revolve around that one desperate political fig leaf. Everything has been sacrificed in the failing Chancellor’s drive to spare his blushes. There has been the last-minute dash for £11 billion of in-year cuts in health, education, transport and local services in recent weeks—all in time for midnight next Sunday—including the axing of at least 800 nursing posts from the NHS so far this month. There has been the invention of what the Chancellor called “exceptional inter-period flexibility” to push at least £1.6 billion of this year’s spending into next year’s accounts. There has been the reclassification of the UK’s contribution to the European Investment Bank in the accounts, which helpfully takes £1.3 billion out of the spending totals for this year. The whole House knows that if the normal accounting conventions had remained unchanged, Government borrowing would be up, not down, as sure as night follows day.
Tonight, the only deficit deniers sit on the Government Benches. I believe that these distortions and manipulations are so serious that they merit not just the usual Treasury Committee inquiry into the Budget, but a review of it by the National Audit Office, and a Public Accounts Committee inquiry into the extraordinary so-called “Budget exchange” practices.
This is a Budget that serve only to hold Britain back. The few positive measures that it includes will not come into force for a year or more. Its many negative consequences—lower growth, lower investment, lower productivity and lower pay—will delay, or will deny Britain, the recovery that we need. The accounting devices that it deploys simply serve to shift today’s spending into tomorrow’s deficit, while the deficit reduction plan itself has now stalled.
This is a Budget which delays the growth and recovery that our economy requires, and which puts off the stimulus that our economy demands. It is a Budget not for aspiration, but of procrastination. Far from building the goal of one nation that we all share, it will result only in the stagnation that we all fear.
Danny Alexander
Will the hon. Gentleman give me a moment? I am going to say something about him. He made some serious points about borrowing powers. As he knows, they are being considered in the light of the Silk commission recommendations.
Many Government Members celebrated both the reaching of the £10,000 income tax personal allowance and the reductions in fuel duty, which one or two Opposition Members also welcomed. I will not single out every contribution, but my hon. Friends the Members for Halesowen and Rowley Regis (James Morris) and for Mid Dorset and North Poole (Annette Brooke) spoke passionately about those subjects. They also mentioned housing, including the important role played by affordable housing in the Budget.
Danny Alexander
Will the hon. Gentleman just let me finish the point?
The hon. Members for Huddersfield (Mr Sheerman) and for Stalybridge and Hyde (Jonathan Reynolds) made passionate speeches about manufacturing. The hon. Member for Coventry South (Mr Cunningham) celebrated the presidency of George Bush, which was somewhat surprising. My hon. Friend the Member for Colchester (Sir Bob Russell) called for a tax on television rights relating to football matches, which is not a suggestion that I shall be following up immediately.
Now I will give way to the shadow Financial Secretary.
Chris Leslie
The Chief Secretary mentioned housing. May I ask him about the new homes subsidy? In yesterday’s Daily Telegraph, he was quoted as saying:
“I do not want to get into all the details.”
Has he decided tonight to rule out making that scheme available for second or third homes?
Danny Alexander
We have made it clear throughout that there is no intention that this scheme should work to the benefit of second-home owners, but as I said yesterday and as the Chancellor has said repeatedly, we will consult on the detail of the scheme to make sure it benefits those whom it needs to benefit.
There is a very serious problem in this country: many people, especially young couples, can afford the monthly repayments on their mortgage but cannot afford the large deposits that are now required by mortgage—
Danny Alexander
Sit down; I am going to press on. The help to buy scheme, in its several manifestations, is designed to provide support.
We heard no apology whatsoever from Opposition Front Benchers for the mess they got this country into when in government. That is what we were looking for from the shadow Secretary of State for Local Government and the shadow Financial Secretary.
There were contributions from a number of distinguished members of the—
Danny Alexander
I say, as I said directly to the Scotch whisky industry, that this Government are giving considerable support to it as it seeks to broaden its reach into export markets across the world. The work of UKTI, in particular, is of great assistance to that industry.
We are building a stronger economy and a fairer society, and we are also helping people who want to get on in life. If you want to get on in life, last week’s was a Budget that will support you. It was a Budget that will give thousands of people the opportunity to step on to the housing ladder or step up the housing ladder. Our £5.4 billion housing package will boost home ownership and kick-start the building of new homes. The intention of the help to buy scheme is to provide help to people who want to get their first home or move home but cannot afford the deposit that today’s mortgages now require. This is a complex policy area, and we are working with the industry to find a practical and sensible way of taking the scheme forward without blunting its radicalism or its reach. I am sure we will achieve that.
Danny Alexander
I am going to press on, as there is no time left.
There are many other ways the Government are helping people to get on in life. Our tax-free child care measures, for example, will ensure that from autumn 2015 vouchers supporting 20% of child care costs will be available to families when both parents or a single parent is working, neither parent is earning more than £150,000 a year and the parents are not already receiving a more generous level of support through the tax credit system.
The Government are helping people to get on in life and plan for their financial futures. Thanks to the excellent work of my the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), we have already brought in auto-enrolment, which will help bring 9 million people into a workplace pension scheme, and we are also radically simplifying the state pension system and bringing that simplification forward through the single tier.
Of course, there is a lot of work to do in the longer term to strengthen our economy, but we must start by cleaning up the mess made by the Labour party. We believe that we are putting the right measures in place to bring the deficit down and to speed up growth. The Budget is another step towards building a stronger economy and a fairer society to help those people who want to get on, and I commend it to the House.
Question put.
Cyprus
Chris Leslie Excerpts(11 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Chris Leslie (Nottingham East) (Lab/Co-op)
The terms of the Cypriot bank bail-out are extremely concerning, and the market reaction today may be only the beginning of the fallout. While it is, of course, important for the Cypriot banks to be put on a secure footing, it is extremely dangerous to wider economic confidence for the fundamental trust of retail depositors to be undermined in such a way. This was a very risky decision, and we would expect the British Government to caution against such a sequestering of the funds of ordinary bank customers.
The so-called bail-in of banks in jeopardy does not always need to punish savers and depositors in this way. It is essential that the trust and confidence of ordinary bank customers across the European Union is immediately restored, with guarantees that no future bail-in arrangements will operate in this way. Surely one of the lessons from recent history is that rock-solid guarantees for depositors are a prerequisite to stability and recovery. EU Finance Ministers would not have countenanced a move such as this in larger members of the EU, yet somehow it is acceptable for smaller ones. It is never a good message to send to the public in any country that they would have been better off keeping their life savings under a mattress than in a bank.
It is particularly concerning that international institutions with UK input, including the EU and the International Monetary Fund, have adopted this precarious strategy, so I have to ask the Minister some specific questions. First, were the UK Government made aware of this proposal beforehand and, if so, when? Was the Chancellor consulted and, if so, what view was expressed? The UK may not be able to attend the meetings of the Eurogroup of Finance Ministers in a non-voting, observer capacity, but any informal decisions taken there still need referring to ECOFIN, so would it not be sensible, in future, to secure a right for observers, including the UK, to attend such crucial decision-making meetings, given the ramifications of eurozone decisions for the whole of the EU?
The Opposition welcome the decision to compensate UK armed forces personnel stationed in Cyprus who are affected, but can the Minister set out the estimated cost to the Exchequer of that policy? Are British consular officials providing assistance to other affected UK nationals? What is the Government’s estimate of the number of UK nationals affected by this decision in Cyprus? What will happen if the Cypriot Government and Parliament do not actually go along with this proposal? They are obviously between a rock and a hard place, as the further two days of impromptu bank holidays go to show, but surely such public brinkmanship by the EU and the IMF just creates even more uncertainty. What is the extent of British banking exposure and British business exposure to the Cypriot banks? How much does the Treasury estimate that UK investors will lose under this arrangement?
Many EU citizens expected that their deposits were guaranteed up to €100,000, or £85,000, under the deposit guarantee scheme directive, but we now learn that there was a caveat excluding special taxes such as this one. Should consumers be aware of any other aspects of the small print in the deposit guarantee scheme? Does this whole episode not show that we should clarify our own banking bail-in rules in this country as soon as possible, rather than, as Ministers are saying in the Banking Reform Bill process, waiting for the European Union to draw up the bail-in directive in several years’ time? Waiting years for the EU to tell us how a bail-in arrangement might operate suddenly looks like an unwise course to take. Surely we should get these issues sorted out here at home as soon as possible. This is not a matter where the UK Government can just sit on the sidelines, because issues that could fundamentally affect our own stability, growth and prosperity are involved, and we expect Ministers to take firm steps within the EU to reduce these risks now.
Greg Clark
I am grateful for the hon. Gentleman’s points and questions. Let me say at the outset that we will have the chance to discuss these things in more detail, but the situation is very fluid; we understand that tonight there will be a meeting of the Eurogroup members—a video conference—to discuss some aspects of it, and the Cypriot Parliament is meeting tomorrow, so I think it would be unwise to assume that the information that has come out over the weekend will necessarily represent the shape of things to come. However, I will make sure that the hon. Gentleman and, indeed, all hon. Members are kept abreast of things.
The hon. Gentleman’s point about fundamental trust needing to be established in the banking system goes to the heart of the matter. It is crucial that that applies not just in this country, but across the eurozone. It is one of the reasons why we have been supportive of the efforts being made by the eurozone to stabilise the financial system there, including by the introduction of a single supervisory mechanism. Cyprus, as I think he would acknowledge, is in a particularly acute situation, as a very large proportion of its GDP is exposed to international financial transactions and its domestic fiscal situation also leaves a lot to be desired. I think all hon. Members would recognise that the importance of maintaining fiscal discipline as well as adequate supervision of the banking system is exemplified by what has happened.
In terms of the negotiations so far and the parties to them, the hon. Gentleman should know and is, I think, aware that the discussions are among the members of the eurozone, who bear financial responsibility for bailing out Cyprus, and the Cypriot Government. They have negotiated with each other and the plan can be approved only if the Cypriot Parliament endorses it. The UK understands and has intelligence about what went on in those discussions, but was not part of them and had no influence and no votes. Ultimately, this is a matter for the Cypriots and the eurozone.
The cost of the protection that my right hon. Friends have offered to UK serving servicemen and women will depend on the final state of the arrangements, which, as I say, are not certain at this stage. I mentioned in my statement that about 3,000 UK military personnel and their support staff are employed, which gives us a limited ability to estimate the context.
On the question of the supervision of UK banks and any potential exposure, the Bank of England, as the hon. Gentleman would expect, maintains close involvement and is supervising all the banks that might have any exposure to the Cypriot authorities. The hon. Gentleman is quite right that it is necessary at both a European and domestic level to agree a means of bailing in the contributions of holders of capital so that the banks can be resolved without the types of problems we are seeing in Cyprus. We have been very clear that we want to see that and the Irish presidency is making good progress with the recovery and resolution directive. We have said that if that progress does not proceed at the pace we hope and expect to see, we can use the banking Bill to make the necessary amendments.
Oral Answers to Questions
Chris Leslie Excerpts(11 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
My hon. Friend is right that our credibility as a nation is tested every day when we seek to borrow money to pay for the deficit that the Opposition racked up. We can borrow at historically low rates, which means low rates for people’s mortgages and low rates for people’s small business loans. Of course, if we lost that credibility by pursuing the Opposition’s policies, interest rates would rocket, people would be put out of their homes and businesses would go bust. That is exactly what we will avoid.
Chris Leslie (Nottingham East) (Lab/Co-op)
I am sorry; we cannot let the Chancellor wriggle out that easily. Does he remember writing his pre-manifesto paper, “A New Economic Model: Eight Benchmarks for Britain”, just before the last general election? In it, he said that
“for the first time, the British people will have eight clear and transparent benchmarks—Benchmarks for Britain—against which they can judge the success or failure of their Chancellor and their government over the next Parliament. We will be accountable.”
Will he remind the House of his first benchmark test?
Mr Osborne
Our benchmark was to restore the fiscal credibility of this country and that credibility has earned us record low interest rates. The hon. Gentleman talks about wriggling out of things we did in the late period of the last decade, but he ran the leadership election campaign for the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown)—he was the campaign manager—and he should apologise for that disastrous premiership and the chancellorship that preceded it, which put this country in this mess in the first place.
Chris Leslie
We are all deeply moved by the Chancellor’s remorse and contrition, but let me remind him of his first benchmark test:
“We will safeguard Britain’s credit rating”.
He has failed on the other benchmark tests, too: he said that he would ensure greater availability of credit to small and medium-sized enterprises; he has failed on economic growth; he is failing on borrowing and the deficit; and he is failing on living standards. After three years of failure, when will it dawn on the Chancellor that his strategy is not working?
Mr Osborne
We have cut the deficit by a quarter, a million new jobs are being created in the private sector and there is record employment in our economy, as well as record female employment. We are rebalancing the British economy after all the problems of the past. The hon. Gentleman talks about remorse and contrition, but until we hear some remorse and contrition from those on the Labour Front Bench about the economic mistakes they made, no one will pay the slightest attention to what they, and in particular the shadow Chancellor, have to say.