Credit Rating Agencies

Chuka Umunna Excerpts

Friday 13th May 2011 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

I thank you, Mr Deputy Speaker, and the House for giving me the opportunity to debate this very important issue today, but before I do so, I should like to say to my constituents that I have been a Member for a year this week, and I have loved every week. It has been a great pleasure to serve the people of my constituency, and I will continue to work my socks off for them so long as I have the privilege of sitting in the House.

This debate comes at a crucial moment. The world is seeking to address the failings of the financial system in the wake of the 2008 crash. Much of that work is being driven by the G20 and the Basel Committee on Banking Supervision. Of course, credit ratings are hardwired into the new rules that are being implemented now. The sovereign debt crisis that is occurring in the eurozone reminds us of the sheer power of credit rating agencies. Of course, a number of recent studies have posed serious questions about the operation of the credit rating agency market in the wake of the 2008 crash, and I wish to explore some of those issues in the short time available this afternoon.

I should add that the European Commission will shortly publish its proposals to improve the regulation of the agencies. I hope that this debate will perhaps not only inform the national debate on the issue but give us more clarity on the Government’s position. Just three firms—Moody’s, Standard & Poor’s, and Fitch—control some 95% of the credit rating market. They rate a range of debt instruments, and their ratings are embedded in investment plans, price triggers and the new capital requirements that are being implemented.

A downgrade by one of the big three agencies can make or break an entire economy, as recent events in the eurozone have shown. Just last month, Greece’s Prime Minister accused them of

“seeking to shape our destiny and determine the future of our children.”

Some people might say that that is unsurprising, given Greece’s position at the moment and the difficulties that it has faced, but Greece is not the only country that has complained. The US Assistant Treasury Secretary, Mary Miller, also weighed in last month following the downgrade by Standard & Poor’s of its outlook for US sovereign debt.

The credit rating agencies thus exercise huge power, despite the deep failings exposed during and after the financial crash. Investigations into the financial and economic crisis that have been conducted since then have shown that the agencies played a large part in causing and then exacerbating the financial crisis. The US Senate sub-committee on investigations last month reported that

“perhaps more than any other single event, the sudden mass downgrades of residential mortgage-backed securities and collateralized debt obligations were the trigger for the financial crisis.”

The report of the US Government’s financial crisis inquiry committee stated that

“the failures of credit rating agencies were essential cogs in the wheel of financial destruction. The three credit rating agencies were key enablers of the financial meltdown.”

Here, the Financial Services Authority in Lord Turner’s review of 2009 said much the same when it concluded that

“the credit ratings-based system played an important part in the origins of the crisis”.

These are not isolated claims. Studies published by the Financial Stability Board, the Bank of England and the European Commission’s de Larosière group reach a similar conclusion. The key points are these. In the years preceding the financial crisis, the credit rating agencies fuelled a dangerous liquidity boom by underestimating the credit default risks of sub-prime mortgages and complex structured products. When the bubble burst, sudden downgrades to the ratings embedded in the investment plans, mandates and capital reserve requirements automatically triggered a liquidity crisis which, in effect, made a bad situation much worse.

Multiple major studies have concluded that the big credit rating agencies were key contributors to a financial crash that cost this country well over £1 trillion. It is therefore incumbent on us to ensure that the flaws in the credit ratings business are dealt with as a matter of urgency. One such flaw, which must be addressed, is the fundamental conflict of interest that arises through the so-called issuer-pays model. Under this model the issuer of a security can shop around for a rating, creating a race to the bottom in the integrity of ratings. Competition for this lucrative business puts pressure on rating agency staff to downplay risk and to collude with issuers, particularly when rating elaborate packages of structured debt. The result, seen in the sudden mass downgrades at the start of the financial crisis, is a dangerous ratings inflation.

This process was a common observation of all the investigations that I mentioned. The de Larosière report, for example, said

“the conflicts of interest in CRAs made matters worse. The issuer-pays model, as it has developed, has had particularly damaging effects in the area of structured finance.”

The US Senate report concurred, saying:

“The conflict of interest inherent in an issuer-pay setup is clear: rating agencies are incentivized to offer the highest ratings, as opposed to offering the most accurate ratings, in order to attract business.”

These findings are supported by evidence from within the rating agencies themselves. In internal correspondence published by US congressional investigations, staff joked that a deal

“could be structured by cows and we would rate it”,

and discussed “adjusting”, “spinning” and “massaging” ratings methodologies in order to preserve market share. I have read many of the documents and e-mails myself.

A 2008 survey of finance professionals by the CFA—chartered financial analyst—Institute found that 11% of respondents had witnessed agencies altering ratings under pressure or influence from outside parties, so any serious regulation of the system needs to target the inherent conflict of interest in the issuer-pays system.

This brings me to the recent moves by the European Commission. Recent EU legislation has taken some important steps in the right direction. It makes it mandatory for all credit rating agencies operating in the EU to register with the new European Securities and Markets Authority, which will monitor their methods and potential conflicts of interest. It also gives that authority powers to investigate agencies and, in the event of infractions, suspend agencies’ licences. For me, the question is: does this do enough? I am not sure that it does, because it does not fundamentally challenge the issuer-pays model that has been shown to incentivise ratings inflation.

I mentioned earlier that the European Commission is due to publish a series of new proposals, and the options that it floated in its consultation in November, which finished in January, included the creation of a European credit rating agency, support for investor-owned agencies, an independent clearing board to allocate ratings business, a network of small and medium agencies, and an obligation on institutional investors to obtain their own rating before purchasing a product. The Commission has said that it is about to table new legislation in this area. Does that accord with the Treasury’s understanding? I would be grateful if the Minister could tell me when that legislation is expected to be published.

The UK’s tripartite authorities produced a response to the Commission’s options in January 2011, which largely rejected the suggestions that had been placed on the table, placing great confidence in the pre-existing EU regime. Their response also called for a “more narrowly focused” approach to further reform. Most contentiously, their response said that there was

“no hard evidence that conflicts of interest in the ‘issuer-pays’ model lead to ratings inflation”.

It has to be said that that is very difficult to reconcile with the findings of the various investigations into the role of the issuer-pays model in the causes of the financial crisis, which I have just mentioned. I ask those interested in this to read the reports that I have mentioned and decide whether the tripartite response is appropriate.

It is clear to me that tackling the conflicts of interest is central to reforming the system. I know that Treasury Ministers, perhaps the Chief Secretary to the Treasury excepted, have not historically been the biggest fans of the EU, but I urge the Government to be bold and adopt an open-minded approach to the Commission’s proposals when they come out.

As the Financial Times has pointed out, a publicly owned but independent credit rating agency

“would go some way to mitigate”

the risks of the issuer-pays system. A variation on that idea, a European credit rating foundation funded by the financial industry, recently received the backing of the European Parliament’s Economic and Monetary Affairs Committee, which has called on the Commission to conduct a

“detailed impact and viability assessment”.

In the US, the Senate has already approved an amendment establishing a clearing body for credit ratings.

Finally, I draw the attention of the House to the Bank of England’s financial stability paper of March 2011, which explored the feasibility of moving from an issuer-pays to an investor-pays model. That concluded that, despite the obstacles, the challenges to such a radical change

“may…not be insurmountable”.

Ministers, particularly from the Treasury, with whom I tend to have much discussion on the Treasury Committee, of which I am a member, enjoy reminding me that much of what I have just mentioned happened on the watch of the last Labour Government, and I have admitted and said many times in the House that we did not get the regulation of banks completely right on our watch, although I do not remember there being a huge clamour for a massive clampdown from the Opposition at the time. What people out in the real world want to know from the Minister this afternoon is not how awful he thinks my lot were, but what the Government will do.

The 1997 Asian crash and the 2001 Enron collapse both exposed flaws in the way the agencies operate, yet their power remained unchecked and their failings went unaddressed then. We are all well aware of what followed in 2008, and we cannot afford a repeat of that mistake in 2011 and beyond. The status quo is not an option. Ultimately, the pensions, savings, jobs, homes and livelihoods of our constituents depend on a credit rating system built on integrity and accuracy. We owe it to them to ensure that that is precisely what the system is.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

May I first congratulate the hon. Member for Streatham (Mr Umunna) on securing the debate in this, the anniversary week of his election to Parliament? I am pleased to have the opportunity to explain and discuss the Government’s policy on credit rating agencies—an issue that has generated a fair amount of interest, including outside the United Kingdom. It might be helpful if I start by outlining the Government’s current position and set out the steps that have been taken here and in Europe to address the shortcomings in this area, but before doing so I would like to make two observations.

First, the financial crisis has clearly highlighted the fact that reform of CRAs is essential, as the hon. Gentleman has argued, both in the way they are supervised and regulated and in the way they conduct themselves and explain their decisions to the market. That has already led to significant regulatory changes. CRAs must now register to be recognised in the EU and comply with rigorous procedures and controls in using their ratings. The European Commission has identified further measures to address over-reliance on CRA ratings and to improve competition and CRA accountability.

However, although reform is necessary, CRAs play an essential role in international markets. They provide the market with a neutral assessment of credit worthiness, a service that is valued by investors and crucial to the functioning of the international financial system. Reform should therefore aim to improve ratings quality and the way ratings information is used by investors, but it should not unduly undermine what is an essential service to international capital markets.

Recent market events have highlighted concerns about the role of CRAs, which is why we fully support international efforts to improve their regulation, to introduce greater transparency and competition and to reduce reliance on credit ratings, while acknowledging the complexity of the issues and the important role played by CRAs. The UK authorities have been, and will continue to be, active in both the EU and the G20 processes, including discussions on possible further measures that the Commission is considering in this area.

With regard to what has been achieved to date, the hon. Gentleman is obviously aware that the first European credit rating agency regulation—CRA1—came into force in December 2009. It ensures that CRAs demonstrate that they manage potential conflicts of interest adequately and improve processes relating to the issuing and monitoring of ratings. It requires more robust internal control functions, greater transparency of methodologies and processes, due diligence procedures and the disclosure of performance. It provides a minimum standard of CRAs' systems and controls, ensuring that ratings in the EU are of a high quality.

As the hon. Gentleman will also be aware, that regulation has recently been amended to place rating agencies under European supervision. To be recognised for regulatory purposes, CRAs must go through a registration process, ensuring that they meet the standards of the new CRA regulation. From June, the newly established European Securities and Markets Authority will have the power to ensure that CRAs comply with the regulation. Other jurisdictions, including the US, are adopting similar regimes to ensure a consistent international standard. Those requirements of the European legislation apply to all asset classes and are aimed, in particular, at addressing the problems associated with structured products, an area where, as demonstrated during the crisis, CRAs have evidently failed to provide reliable ratings in some countries. CRAs are also banned from providing advisory services and are required to demonstrate that they have sufficiently analysed the underlying data in producing ratings for structured products. Overall, we consider that those measures will help to improve the quality and reliability of ratings.

[Mr Umunna]

Will the Minister give way?

[Mr Gauke]

I will give way, although I suspect that I am about to answer one of the hon. Gentleman’s questions.

[Mr Umunna]

I have a further point and a question about what the Minister has just said. I should have mentioned that I have met the senior management of the rating agencies, both here and in New York, and it is fair to say that they do not necessarily welcome such massive reliance being placed on them; they did not necessarily ask for responsibility on such a scale. What have the Government been doing at G20 level about these issues?

On a subsidiary point, the Financial Stability Board will obviously take an interest in this issue. Will the Minister tell me, or write to me to let me know, the members of the Financial Stability Board’s council? I understand that Lord Turner is a member, but it is a bit of a shadowy organisation and there have been some questions, not necessarily about its integrity, but about who is involved, because obviously it has a role to play in this area, too.

[Mr Gauke]

I will certainly write to the hon. Gentleman in response to that query.

The UK Government have been very much engaged at G20 level and at a European level on the issue. In the context of European engagement, the next stage, which the hon. Gentleman mentioned in his speech, is the further work that remains to be done. The European Commission released a consultation document in November 2010 on additional measures that might be adopted on credit ratings. The main proposals related to reducing over-reliance on ratings and the additional measures related to increasing regulation on sovereign ratings; enhancing competition, such as establishing a public CRA, as the hon. Gentleman suggested; potentially increasing CRAs’ exposure to civil liability; and addressing the conflicts embedded in the “issuer pays” business model.

The Government, together with the Bank of England and the FSA, have published a joint response to that consultation, setting out in detail our view of the Commission’s proposals, and I am very happy to provide the hon. Gentleman with a copy. In summary, we support measures to reduce reliance on CRA ratings—a point that he made in his intervention when he said that many of the problems relate to the level of reliance on such ratings. We also support measures to increase transparency and disclosure, and to stimulate competition by lowering barriers to entry. We believe, however, that measures to impose civil liability or to establish a public CRA to issue ratings, particularly sovereign ratings, would be counter-productive and lead to unintended consequences.

The hon. Gentleman raised the issue of a public CRA, but the potential conflicts of interests in any such arrangement—particularly in the context of sovereign debt—would undermine credibility. Alternatively, although I am not sure whether the two arguments are mutually exclusive, there is the danger that a public body would crowd out other credit rating agencies and reduce competition, and neither of us would be keen to welcome that. To answer the hon. Gentleman’s question, however, the Commission will publish its legislative proposals in September.

The recent sovereign debt crises have raised concerns about the role of CRAs in sovereign borrowing. The Government believe that, above all, it is crucial to ensure the impartiality of all ratings, including sovereign ratings, and that means improving transparency by CRAs to facilitate investor understanding, rather than regulating sovereign ratings in a way that compromises their credibility.

Internationally, there has also been a welcome initiative with the Financial Stability Board, considering measures to reduce the over-reliance on CRA ratings. That initiative is investigating what alternatives to CRA ratings can be used in regulatory requirements, in investor mandates and contracts and in central bank operations. Ways to encourage due diligence by market participants themselves are also being explored.

As I said earlier, the Government fully recognise the concern about CRAs. The coalition Government saw from the financial crisis that greater regulation was required to ensure high-quality ratings and a more judgment-based use of ratings by the market. The current sovereign debt crisis further highlights the need for CRAs to communicate consistently and effectively their analysis to the market, and for investors to understand what ratings represent.

That is why the coalition Government are supporting a reform package in Europe which focuses on the root cause of the problems associated with CRAs, while being cognisant of and safeguarding the essential role that CRAs play in the international financial system. We believe that, in addition to the substantial progress already made by CRA1 and CRA2, further reducing mechanistic reliance on CRAs, increasing transparency and reducing barriers to entrant CRAs would be effective ways of achieving that goal.

Question put and agreed to.

Oral Answers to Questions

Chuka Umunna Excerpts

Tuesday 10th May 2011 Commons Chamber

[Mr Osborne]

It is incredibly important to try to increase the number of women who set up their own businesses. The Government have undertaken a number of specific initiatives, driven from No. 10 Downing street, and I will ensure that my hon. Friend is closely involved in them.

[Mr Chuka Umunna (Streatham) (Lab)]

Yesterday, in a welcome move, the British banking industry abandoned its legal fight with the Financial Services Authority over the mis-selling of payment protection insurance. Does the Chancellor agree that this scandal, as a result of which millions of people in this country were fleeced by the banking sector on a large scale, was an absolute disgrace and that the banks involved should settle the claims that arise, immediately and without further delay?

Finance (No. 3) Bill

Chuka Umunna Excerpts

Tuesday 3rd May 2011 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

Has my hon. Friend noticed the projections for the increase in household debt under this Government? The Office for Budget Responsibility is projecting that it will increase by more than £500 billion this year and over the next five years, and it is also saying that the reason for this is not only inflation but the comprehensive spending review and the Budget.

[The Chairman]

Order. We must keep questions to the subject of the amendment that we are dealing with.

Amendment of the Law

Chuka Umunna Excerpts

Thursday 24th March 2011 Commons Chamber

[The Secretary of State for Business, Innovation and Skills (Vince Cable)]

I want to talk about how we progress from the painful but very necessary deficit cuts to achieving growth that is balanced and sustainable. However, I shall start by addressing the shadow Chancellor’s attack. His starting point seems to be that the past is another country, and that 2010 was year zero. I am afraid, however, that all his rather bumptious self-confidence cannot conceal his massive legacy: the biggest deficit in the G20, an overweight and damaged banking system, and an economy that was hopelessly unbalanced.

The right hon. Gentleman’s criticism is built around the downgrading of the growth forecast, but before we get any more of this “Growth is down! Growth is down!”, let us remember what happened to growth in the last two years of the Labour Government—it was down to minus 4%. By the last quarter of the Labour Government, GDP was back where it was in 2006. Indeed, if we look at growth on a per capita basis—that is, living standards—we find that five years of Labour Government produced a decline in per capita incomes in Britain. The only time in history that this had happened previously was shortly after the first world war, so we do not need any lessons on growth. As the Chancellor pointed out yesterday, the European Union and the IMF has Britain’s projected growth comparing favourably with that of France—the shadow Chancellor’s favourite country—Italy, Spain, the eurozone and the whole of the European Union of 27. Our projection is better than any of those.

[Mr Chuka Umunna (Streatham) (Lab)]

This morning at the Treasury Committee, the former chief economist in the Cabinet Office, Jonathan Portes, remarked that—as my hon. Friend the Member for Bassetlaw (John Mann) has also pointed out—“The Plan for Growth” that the Business Secretary has published does not show the average growth from 2000 to 2010. Why is that? Presumably the Business Secretary knows the numbers, so does he agree that the performance was not terribly bad, which is precisely what Jonathan Portes said?

--- Later in debate ---

[Vince Cable]

I cannot see how it can be ideological to have a public sector that, by the end of this Parliament, will have a share of GDP comparable to what it was when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) became Prime Minister. Whatever criticisms the Opposition might want to make, ideology has absolutely nothing to do with this.

The comments of the international organisations are reflected in those of the business community. The former head of the CBI has often been quoted on this, because he was critical of the Government. He had some strong criticisms, which we have taken to heart. However, it is worth remembering how he started the speech that is now so frequently quoted. He said:

“This coalition Government has been single-minded—some might even say ruthless—in its approach to spending cuts…That policy is strongly supported by business, on the grounds that sound public finances are an essential foundation for a sound economy.”

I want to deal more specifically with the suggestion that we are cutting too much too soon. The shadow Chancellor has quoted me on this, and he is quite right. I said on “Newsnight”, and I will continue to say, that there is a serious economic debate that we must constantly have on striking the right balance between not choking off recovery and not risking a financial crisis. That is the calculation that we are having to make. Our approach has been vindicated by the evidence, and the evidence is the response of the financial markets. The bond yields, which are important not just as an indicator but because they set the cost of capital for business and investment, are 3.5% for 10-year bonds, which is close to the rates in France, Germany, the Netherlands and Sweden, compared with 5.2% in Spain, 7.5% in Portugal, 9% in Ireland and 12% in Greece. That is a fair comparison with what they were a year ago when the Labour party was in power. Since then, the differential has widened by 1.5% in respect of Spain, 3.5% for Portugal and 5% for Greece and Ireland. In real terms, the cost of capital—long-term capital in this country—is now zero. The reason why that matters was summarised many years ago by John Maynard Keynes. Labour Members may revere his memory, as do some of us. During the crisis of the 1930s, Keynes wrote to Roosevelt:

“The turn of the tide in Great Britain is largely attributable to the reduction in the long-term rate of interest.”

That is the basis on which we have to take account of interest rates.

[Mr Umunna]

Of course Keynes also said that if the facts changed, he changed his mind. Does the Business Secretary agree with the Energy Secretary who said that the Government should not be “lashed to the mast” of their economic policy? On 29 November, the Chancellor said that he would stick to his fiscal mandate to allow the Monetary Policy Committee maximum flexibility to loosen monetary policy. If inflation remains as per the central prediction at the moment, I see no real prospect of the MPC being able to loosen monetary policy further. That means that if growth is sluggish, the Government will surely have to look to a contingency plan. That seems to be what the Energy Secretary was suggesting. Does the right hon. Gentleman agree?

[Vince Cable]

I am not sure that what Keynes said was a matter of changing his mind in response to a change in fact. He was stating one of the basic principles of Keynesian economics—that the cost of capital has to be kept low.

--- Later in debate ---

[Mr Chuka Umunna (Streatham) (Lab)]

Before I make my substantive point, let me make two observations, on growth and employment and on business confidence.

I do not think there is any disagreement between the two sides of the House on the need to reduce our debts. The controversial issue is the time frame within which we should do that. If we want to reduce the deficit, we will obviously need to produce growth and jobs, because people who are out of work do not pay income tax and we have to pay benefit. I believe that the cost of every 100,000 people out of work is about £500 million in benefit payments. According to the latest figures, 4,000 people in my constituency are claiming jobseeker’s allowance. I hope that we can get them back to work very soon.

The Office for Budget Responsibility’s downgrading of the growth forecast has been widely reported, but its revision of its autumn estimate of the number of jobseeker’s allowance claimants has not been commented on. The OBR revised upwards its forecast of the number of JSA claimants in this year and the following four years. For this year, unemployment has been revised upwards, and the number of people claiming JSA has been revised up by 50,000 compared with the autumn forecast. For next year, the forecast has been revised up by 120,000, and for 2013 it has been revised up by 130,000.

[Angela Smith]

Does my hon. Friend agree that such statistics say nothing about the tragedy that unemployment visits on the lives of individuals, and especially on the lives of our young people and on their prospects for the future?

[Mr Umunna]

I absolutely agree. As a former employment lawyer, I am well aware of the huge impact that loss of work has on individuals and their families.

We are entitled to ask why the unemployment forecasts have been revised upwards. That has happened because of sluggish growth, and the OBR’s autumn forecast clearly states that the sluggish growth has been caused in no small part by the extreme fiscal consolidation embarked on by the Government. Therefore, there are more people out of work, claiming benefit and not paying income tax due to the policies of this Government. The OBR has said that.

The Chancellor’s strategy on business confidence and investment is clear. As the Government hack off chunks of the public sector—causing, of course, mass public sector job losses—he says that the private sector will automatically step in to fill the gap, and he foresees private sector growth fuelled by a boom in exports and business investment. Business confidence is key, and since this Government took office confidence has fallen. The latest Institute of Chartered Accountants in England and Wales and Grant Thornton UK business confidence monitor shows a continuing downward trend in business confidence in this country for the fourth consecutive quarter. I sincerely hope that that confidence returns, because the people in the communities I represent in Streatham and parts of Clapham, Balham, Tulse Hill and Brixton will be among those who suffer.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

Does my hon. Friend share the concerns that were raised with me yesterday and today by many green businesses that this Budget could have been an opportunity for growth specifically in the green sector, yet the ability of the green investment bank to lend has been delayed until 2015—if it will be able to lend at all? The Government talked yesterday about the green deal, but there are no details about what incentives to many householders across the country might be.

[Mr Umunna]

I agree, and my hon. Friend’s comments bring me neatly to the topic of the Business Secretary’s document, “The Plan for Growth.”

Aside from the two observations that I wanted to make, I want in particular to comment on the document’s proposal to scrap the planned extension of the right to request flexible working to parents of 17-year-olds. That has been cited as a way to ease the burdens of employment regulation on business. “The Plan for Growth” says the administrative burden of extending that flexible working will cost about £500,000. That figure is taken from the Government’s own impact assessment of the measure, published in October last year.

Although “The Plan for Growth” mentions the £500,000 figure, it does not tell the whole story. The assessment agrees that there are additional procedural costs to business in extending the right to request flexible working, which it quantifies as £1.3 million, including the administrative costs I have just mentioned. In addition, there is a £975,000 cost in making adjustments to working patterns. However, that is far outweighed by the savings to business, which are listed in the Government’s impact assessment: £1.1 million from higher productivity, £1.2 million from lower labour turnover and £63,000 from reduced absenteeism, totalling £2.4 million in the first year. Overall, the “net present value” of introducing the measure—the benefit to business—would be £41.2 million. Again that is not my figure, but the Government’s. Therefore, on pure cost grounds, I do not understand how that decision makes any sense.

It is a shame that the Minister for Employment Relations, Consumer and Postal Affairs is not here, because he signed off the impact assessment with the following statement:

“I have read the Impact Assessment and I am satisfied that…it represents a fair and reasonable view of the expected costs, benefits and impact of the policy, and…the benefits justify the costs”.

Never mind the costs of the measure, because there are some things in society that we do not price up and put a market value on—one is the time we spend with our family. That is presumably why the Prime Minister said on 22 January 2010 that he intended to head up the

“most family friendly Government we’ve ever had”

and why, in the lead-up to the general election, the Deputy Prime Minister said:

“We are not casual about the pressure that many parents feel”.

The impact assessment is clear, because under the heading “key non-monetised benefits”, it says that the measure will improve health and well-being, help employees achieve a better work-life balance and help improve family life. For me and my constituents, that is incredibly important, because we face a problem whereby a minority of our young people are engaging in serious violence. A number of stabbings and shootings are taking place in my constituency almost every month. There are many reasons for that, and there is no one magic solution to resolving these issues, but I am clear that we need to help adults spend more time with their families. Extending the right to request flexible working to parents of 17-year-olds—teenagers in that key group—is essential to helping them provide the guidance that many young people need in my community.

[Vince Cable]

rose—

[Mr Umunna]

I will give way shortly.

I have come to the Chamber from this morning’s Treasury Committee sitting, where I asked Jonathan Portes, who until February was chief economist at the Cabinet Office, about this issue. I asked him whether abolishing the right to request flexible working for the parents of 17-year-olds would make a big difference in increasing GDP or growth. He made it very clear that scrapping the extension will “do nothing for growth”. I then asked HSBC’s chief economist whether he would be revising his GDP figures as a result of the scrapping of the measure, and he told me that he would not.

This measure seems to be a gimmick, which tends to suggest that the Government think that watering down employee rights is a substitute for a properly thought out growth strategy. All the figures I have just presented and all the arguments I have just made for the introduction of the extension, which was planned for April, are in the Government’s own impact assessment of the measure. Will the Government think again about it? I grant that they do not and will not accept our arguments to revise their plan for fiscal consolidation, but I suggest that it would be very wise for them to think again on this small measure.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I call Gavin Williamson, who has until 5.42 pm—about three minutes. I am sorry about that.

Oral Answers to Questions

Chuka Umunna Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Mr Osborne]

Of course, the Governor of the Bank of England is one of many people who have pointed out that there was no credible plan when we came into office and that we have put a credible plan into place.

[Mr Chuka Umunna (Streatham) (Lab)]

The Chancellor and other Ministers have cited investor confidence as the reason why they cannot revise their original plan for fiscal consolidation, but Jonathan Portes, the immediate former chief economist at the Cabinet Office, said:

“This is not a justification, economic or otherwise, for”

not changing policy. He said that

“it relies on an odd view of market psychology, one that says markets have more confidence in governments that never adjust policy, even when it is sensible, from an economic perspective, to change course.”

Why is he wrong?

[Mr Osborne]

Our country’s credit rating was on negative watch when we came to office and as a country we did not have a credible plan to reduce the budget deficit. Since that plan has been put in place we have been able to see the effects because our market interest rates and our spreads over bunds have come down. We have interest rates that are closer to Germany’s despite, as I have said, having a budget deficit left to us that was higher than either Greece’s or Portugal’s.

Fuel Prices and the Cost of Living

Chuka Umunna Excerpts

Wednesday 16th March 2011 Commons Chamber

[Mr Robin Walker (Worcester) (Con)]

I will be brief, as I know many other Members want to speak in this short debate.

I am glad that the Opposition have chosen the subject of fuel prices, as it is an issue that affects all our constituents and MPs of all parties have already urged the Government to take action. I have signed cross-party early-day motions 1252 and 1241, which call for progress on a fair fuel stabiliser. Along with colleagues of all parties, I have also supported the Federation of Small Businesses in its campaigns. There is a great deal of ground for cross-party consensus on this issue. We all recognise that the cost of living is rising and that fuel prices play an important part in it. We all recognise that the soaring costs of petrol and diesel have knock-on effects on the price of everything—from food and clothing and the cost of getting to work to the cost of educating children.

[Mr Chuka Umunna (Streatham) (Lab)]

The hon. Gentleman is right to refer to the rising cost of living. The big difference between now and a few months ago is, in many ways, the rate of inflation. The Governor of the Bank of England has been clear that he has no way of further loosening monetary policy right now. The talk before Christmas was about such further loosening, perhaps with a further round of quantitative easing. That is clearly no longer an option, which means that the only option is to alter fiscal policy, yet we have heard not a single word from the Minister to suggest that there will be any change in fiscal policy. Does the hon. Gentleman believe that the Government are right to sit on their hands when they are in a position to act to relieve the burden on people like my constituents?

[Mr Walker]

I thank the hon. Gentleman for that long intervention, but we are likely to hear what action the Government are planning in the Budget next week, which I would not want to pre-empt at this stage, so I shall continue with my argument.

There would be no disagreement about the underlying premise of today’s motion—that fuel prices drive up the cost of living. We can legitimately debate the action that Governments are able to take. Like many other Members, I believe the Government should take action on fuel prices by introducing a fair fuel stabiliser and by looking at whether they can put off any increase in fuel duty suggested under the last Government’s escalator policy. It is vital to take into account the real impact on the cost of living but, perhaps even more importantly, the cost to the economy of the rising price of petrol at the pumps.

In fact, having read the detailed response of the Office for Budget Responsibility to the Government’s initial suggestion of a fair fuel stabiliser, I believe that it strongly makes the case for intervention in the fuel price. What the OBR showed was that, contrary to the belief that Government revenues rise as a result of higher fuel prices, the depressing effect on the economy, output and therefore tax receipts, along with the impact on inflation, mean that in the long term, Government net revenues are hurt by higher prices. While that might make more challenging the worthy aim of coming up with a revenue-neutral stabiliser, it clearly shows that success in limiting fuel price rises will bring long-term dividends to Government in terms of tax receipts and lower inflation. The real lesson of the OBR’s report is that the Government need to act on fuel prices, through the fuel duty, to avoid a substantial loss of revenue through economic growth. I am confident that that lesson will be taken into account when we receive next week’s Budget—a Budget for growth in the UK.

I know that the Government have already promised action in remote and rural areas, which I welcome, but I represent an urban constituency that has also been badly affected by rising prices, so I want to remind the Government of the need for action everywhere. As a county town, Worcester’s economy is affected by high fuel prices in rural areas, but our city suffers from higher prices than many other urban areas around it.

My constituents have often pointed out that there is a substantial differential of around 5p a litre between prices in Worcester and prices in Gloucester or Birmingham, just a short drive away. Driving as regularly as I do between Westminster and Worcester in my small diesel car, I feel this price differential very directly and often find it is as cheap to fill up at a motorway service station as it would be in my own constituency. The website petrolprices.com quotes prices as high as £1.45 a litre of diesel in Worcester today compared with an average of £1.39 in Gloucester just 28 miles away or £1.38 in Birmingham. I therefore urge Ministers to look into the differential pricing around the country, whereby some areas, whether urban or rural, pay much more for their fuel, and to assess what can be done to address the problem.

I certainly accept that people in rural areas have greater need for their cars, but I urge Ministers to accept that action on fuel prices across the board will benefit the whole economy. We have seen in previous fuel crises that when fuel prices spike, economic growth slows down, both globally and domestically.

I therefore support taking action on the cost of fuel, but I do not support this Opposition motion, which I believe is poorly targeted and opportunistic. It hits the wrong target in focusing on the impact of VAT and only touching lightly on the far more significant issue of fuel duty. Perhaps that is because the Labour party did so much to encourage the escalation of fuel duty when it was in power. As the Government amendment points out, the Labour Government planned for six consecutive fuel duty rises up to 2014 on top of the 12 increases they made when they were in power. It is fair to say that those increases, like the introduction of the fuel duty escalator under the Conservatives, were made in a different environment from today’s, when the uncertainty in the middle east is adding to the upward pressure on prices. There has been no indication, however, that Labour has shifted from its ideological attachment to ever-higher duties on fuel, which rose from 36p to nearly 58p when they were in government, with Labour Members boasting that they left the duty intact at 65% of the cost of fuel at the end of their term.

It is cynical and opportunistic for a party whose last Chancellor laid the groundwork for the increase in VAT to be lashing out at its implementation, and it is beyond the bounds of belief that Labour Members should want to earmark all the proceeds of a bank levy they failed to make on to a rebate they know they could not have given—even if they had been in power. It is even more astonishing, when they have already suggested other plans to spend this levy many times over through opposing changes to child benefit, that they suggest funding more capital spending and reversing changes to tax credits. The Opposition motion has no credibility on this very important issue.

I urge the Government to act on fuel prices, but I urge them to do so through a fair fuel stabiliser on which there is a broad political consensus, and through looking at the broader case for changes in fuel duty to reflect the economic circumstances of today.

Oral Answers to Questions

Chuka Umunna Excerpts

Tuesday 8th February 2011 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

It is extremely important that the Government are seen to act on the recommendations of the Independent Banking Commission, when they come out, in the national interest rather than in the interest of any particular sector. Does the Chancellor think that it is wise for the Minister, the noble Lord Green, an immediate former chair of the British Bankers Association, to sit on the Cabinet Committee that makes decisions on such matters? He joined that Committee last month, just two months after leaving the chairmanship of HSBC, a bank for which he worked for more than 25 years and which will be profoundly affected by the decisions that the Committee makes.

[Mr Osborne]

First, I am glad that the hon. Gentleman welcomes the creation of the Independent Banking Commission. I hope that all hon. Members have an open mind about the recommendations that it will make, and that they agree that we should not close off any options until we have heard from John Vickers. He is doing an excellent job, and we await his final report later this year. The hon. Gentleman is ungenerous in his remarks about Lord Green, who brings enormous experience to the job of Trade Minister. I would just point out that he has replaced Lord Davies, who was appointed by the Labour Government at a time when he was chief executive of Standard Chartered, so it is not as though bringing top bank chiefs into the Government is an innovation.

Air Passenger Duty

Chuka Umunna Excerpts

Thursday 20th January 2011 Commons Chamber

[Ms Abbott]

The hon. Gentleman has made his point very well indeed. Many of those people, particularly the older ones, have contributed to this country. Some of the generation who came to this country after the war helped to rebuild its public sector, and they have worked all their lives. As I have said, the sums of money involved might seem relatively minor to a Treasury official, but they represent a huge imposition on those people who love this country and who are almost invariably British citizens but who also have a great love for the country of their birth. One thing that makes this seem all the more unfair to those people is that air passenger duty is not charged on private aircraft. If this were really an environmental measure, one would expect it to be charged on private aircraft. I will come back to that point later.

It is my contention that air passenger duty is having a negative effect on British business. I have evidence that British business travellers are flying to the continent, then flying to the Caribbean from there, because it is cheaper to do so. Business travellers contribute £70 million to the British economy—money that is slowly being lost due to airport passenger duty charges. Aviation taxation is putting the UK at a competitive disadvantage in comparison with our European neighbours. This duty will incentivise the strengthening of alternative hubs to the UK both in and outside Europe. In the end, it could well reduce the number and connection of destinations served by UK airports.

Let me move on to tourism. I have been in the House quite a few years and I have lived to see Caribbean countries urged to restructure their economies and to move away from old-fashioned economies, such as those based on bananas and sugar, into financial services, which ended badly. Then they were encouraged to restructure the economy and diversify into tourism. Thus the Caribbean tourism industry now employs, directly and indirectly, more than 1.9 million people—11% of the region’s work force. In important tourist destinations such as Jamaica and Barbados, as much as 25% of the work force are engaged in tourism, while 60% of St Lucia’s gross domestic product derives from tourism. For the Barbados hotel industry, a significant number of holidaymakers are British, and there is no question that the tourism industry in the Caribbean has been damaged by the increases in this duty.

Arrivals from the UK to the Caribbean are now in decline, while those from other markets are increasing. The latest figure from the UK Office for National Statistics shows that visits to the Caribbean by UK residents in 2010 were 16% lower than for the same period in 2009. Visits to Barbados for the same period were 22% lower. For a tourist, as opposed to someone with family links to the region, the Florida Keys is now a cheaper destination. In respect of our air passenger duty arrangements, the whole system is wrong and it is having an effect on British citizens who happen to have links with the Caribbean.

[Mr Chuka Umunna (Streatham) (Lab)]

I congratulate my hon. Friend on securing this debate on an incredibly important issue. I represent one of the constituencies with the biggest Caribbean diaspora populations in the country. It covers Brixton, for example, and this is a huge issue in my community. I endorse all my hon. Friend’s comments, but would add one more. If this measure were primarily about increasing sustainability and reducing emissions, one would have thought that the proceeds would be used for environmental purposes. My understanding is, however—I am sure the Minister will correct me if I am wrong—that the sums raised from this duty go back into the general pot. Will the Minister also answer a specific point that was put to me? How can it be fair to charge a greater level of tax to fly to Jamaica—there are many Jamaican families in my constituency—than to fly the whole way to Hawaii? I would appreciate an answer on that.

[Ms Abbott]

I am grateful to my hon. Friend, who makes his point very well. He raised the question of the avowed environmental intent of the duty. I remember that when passenger duties were put forward under a Labour Government, Ministers said that they were there largely in order to help the environment and discourage unnecessary airline travel. This Government have stated that the rises in air passenger duty are partly intended to help achieve environmental goals.

Far be it for me to accuse any Government—whether it be my own or the present Government—of glossing over the reality, but the truth is that if APD were really about achieving environmental goals, it would be calculated differently. For instance, APD is calculated according to only one element of a given flight—the distance travelled, not according to whether the plane is full or half-empty. A whole range of other factors are relevant to environmental impacts, including the type and age of the aircraft, the time it spends in the air and how heavy it is, but the Government choose not to take those factors into account in calculating aviation tax rates.

As I have said, if this is really about the environment, why is no duty charged on private aircraft? The failure to establish a way of calculating the duty that would actually minimise the effect on the environment gives people the impression that, although Ministers may indeed believe in the environmental benefit, it may be no more than a pretext on the part of their officials.

If we want to persuade people to abandon planes for other forms of transport, it is surely logical for APD to bear more heavily on short-haul flights, to which there are genuine alternatives in the form of trains and boats. What, though, is the alternative for the retired nurse living in Hackney who wants to return to Jamaica every couple of years to see her friends and family? There is no such alternative, but we are imposing these big APD rates on her flight, or that of her family.

Having raised the issue under the last Government, I have taken the earliest possible opportunity to raise it again now.

--- Later in debate ---

[Ms Abbott]

My hon. Friend and I went on a number of delegations to Treasury Ministers, and found them—as Ministers always are—well-meaning, kindly and ostensibly understanding of our case. However, they were simply unable to stand up to their officials. We look to this new Treasury Minister for more stoutness of heart and firmness of purpose.

[Mr Umunna]

I think it important for us to send the public—our constituents—the message that this is not a party-political issue. I have obtained a very good House of Commons note on the subject, and I know that the hon. Member for Chelsea and Fulham (Greg Hands), who is sitting behind the Minister, made a number of excellent points about it in the debate on the Finance Bill in, I think, 2009.

[Ms Abbott]

I am grateful to my hon. Friend for making that point. I agree that this is not a party-political issue, but one on which Members on both sides of the House feel strongly. I also agree with my hon. Friend the Member for Slough (Fiona Mactaggart) that Ministers should show some fixity of purpose. The present method of calculation is indefensible in terms of both equity and environmental impact, and it could have a big impact on British business by removing the incentive for business-class travellers to make long-haul flights to the Caribbean from London rather than from the continental hub. It is bad for business, it is bad for the Caribbean’s economy—of which tourism is a vital part during an international downturn—and it is bad for British citizens with business interests or family members in the region who simply want to be able to travel at an affordable price.

I have pursued this issue for some time, but I have every hope that a new set of Treasury Ministers will view the arguments afresh, and will undertake to reconsider the way in which air passenger duty is calculated. We appreciate that the Treasury’s tax take must remain the same, and, as I said at the outset, we appreciate that there is a genuine environmental case for seeking to lessen air travel over time. However, we consider the present level of air passenger duty to be unfair, indefensible, and a burden on the Caribbean which this Government should seek to lift.

--- Later in debate ---

[Justine Greening]

I am grateful for that intervention. My hon. Friend points out the impact on local communities but, in a friendly way, I would challenge the point about contradictions. In terms of our tourism industry and our need for links with other countries to drive economic growth, this is very healthy. Our relationship with the Caribbean and the role that aviation plays in helping us to maintain that more broadly is particularly important, so we are not necessarily faced with an either/or choice.

One of the most intractable problems we face, which underpins the whole approach in the Treasury, is the unavoidable challenge of tackling the fiscal deficit. We are faced with that while also making sure that the tax measures in place work effectively and do not have the sort of negative impacts that we do not want or need them to have.

[Mr Umunna]

I should like to follow up the point about equity made by the hon. Member for Bedford (Richard Fuller), which I endorse. The key issue is the banding system, which was, admittedly, introduced by the previous Labour Government—I think one of the Minister’s predecessors referred to it as being rather rough and ready—and I would not necessarily endorse the form of APD that they put in place. The Minister says that the coalition Government have undertaken to review the system, but can she tell us when we can expect the results of the review? Obviously, the Budget will be on 23 March. Are the results of the review likely to be announced then or beforehand? That information would be useful to the industry and the many families who want to plan what they will be doing in the next few months.

[Justine Greening]

First, it would be wrong of me to pre-empt the Budget statement. What I can say—we have already been clear about this—is that any major change to air passenger duty will be subject to consultation. One thing that we have learned from looking at how this tax and others have been changed in the past is that we need a sensible tax-making policy that involves not just the Treasury thinking about the objectives it wants to achieve, but talking with stakeholders. There is a need to issue a consultation document to which people can respond and then draft legislation to make sure that the final legislation can achieve the aims we have agreed on and that have come out of the consultation.

I cannot give the hon. Member for Streatham any timings for all that, but I can tell him that we want to ensure that any reforms we bring forward will work as intended. He quoted a previous Minister saying that the system was rough and ready. We want to avoid making another change to APD that brings other problems we have not anticipated. Whatever we do in this area, it is impossible to get the perfect system, but we need to understand the pros and cons of any particular approach. We need to understand what the risks are and whether we can mitigate them. He is right to ask about timelines. The fact that we said in the previous Budget that we want to review and reform APD and that we have been working on that and meeting a variety of stakeholders to get their views shows that we want to do this in a thoughtful way rather than just announcing something that would be a surprise to the industry and to people who are trying to plan for their holidays.

Let me finish by saying that I recognise the urgency with which the hon. Member for Hackney North and Stoke Newington wants this area of tax policy to be changed. However, I think we are right to work out cautiously which path we want to go down. That is why we talked about reviewing the existing APD regime in the June Budget. As I have said, in the past few months I have met a variety of stakeholders, particularly from the Caribbean countries and the Caribbean Council in London. Those discussions have been very helpful and I have had a useful and detailed report from the Caribbean countries about their views on how we could reform APD. Obviously, we will look at that carefully. I am determined to make sure that we continue that constructive dialogue and I hope that in doing so we can ensure that wherever we end up with the reform of APD we will have done a better job of making sure that—

Bank Bonuses

Chuka Umunna Excerpts

Tuesday 11th January 2011 Commons Chamber

[Mr Osborne]

It is explicitly those sorts of practices that are part of the discussions we are having with the banks. We want to ensure that they treat customers, including small businesses and households, more fairly, to look at the overcharging issue and to make sure that families and business are given good advance warning of the need to renegotiate terms. That is all part of what we seek to renegotiate. As I have said, we have heard absolutely no positive proposals from anyone in opposition. That says a great deal.

[Mr Chuka Umunna (Streatham) (Lab)]

The Chancellor has given the impression that the new bonus restrictions have been implemented at his instigation, whereas, of course, they have been introduced to ensure compliance with EU rules, particularly those of the capital requirements directive and the Committee of European Banking Supervisors. The directive was opposed by Conservative MEPs. As for disclosure, Stephen Hester has indicated that the industry is quite relaxed about the implementation of a unilateral disclosure scheme. In the light of his comments, will the Chancellor reconsider the implementation of such a scheme, so we can at least know what is paid in the sector?

[Mr Osborne]

As I said, we are looking for greater disclosure. We are also seeking agreement at European level, because this is an international industry. These are perfectly sensible steps to take, and we have introduced in this country the toughest financial code on bonuses of any financial centre of any size anywhere in the world.

Treasury

Chuka Umunna Excerpts

Tuesday 21st December 2010 Commons Chamber

[Fiona Bruce (Congleton) (Con)]

Thank you, Mr. Deputy Speaker, for giving me the opportunity to highlight the need for a more co-ordinated approach to the teaching of financial capability to ensure that no young person leaves school without the benefit of that critical life skill.

Financial capability can be briefly described as the ability to manage one’s own finances and to become an informed consumer of financial services. Some excellent work is being done in schools, and I shall refer to it shortly, but more needs to be done. The delivery of financial education in schools is patchy, as there is no requirement to provide it. My son Samuel will leave his excellent school in a few months’ time without having received a single lesson in financial education, although the term PHSE stands for “personal, health, social and economic education”.

Before I go into more detail, let me emphasise that I am a proponent of prevention rather than cure, and that I recognise the vital effort that goes into counselling people out of debt. However, I believe we have a problem that a co-ordinated approach to financial literacy will do much to alleviate. All Members are aware of the high levels of personal debt and the untold stress that much of it causes. Each day a staggering 372 people are declared bankrupt, and citizens advice bureaux are currently dealing with some 9,400 new debt problems every working day. A recent survey by another highly effective debt advice organisation, Christians Against Poverty, showed that 74% of its clients had visited a GP while suffering from stress and other medical problems caused by debt.

I have had 20 years’ experience of running a law firm, and during that time the biggest single cause of marital discord among those entering my firm’s doors seeking divorce advice has been money differences. Sadly, many couples enter relationships without being capable of addressing financial challenges together. It is partly because I have witnessed those problems for many years, and the huge personal cost that they entail, that I raise this issue today.

The cost to the national budget of dealing with the ramifications of poor financial literacy must be vast, not only because of relationship breakdowns but because of the implications for the health of individuals and families. A recent study by Aviva and a leading psychologist at City university found that those with sensible financial plans were happier overall and had a stronger sense of financial well-being, and that that was the case regardless of salary.

I believe that the big society, represented by both voluntary and commercial organisations and by government locally and nationally, can work together effectively to give young people and their parents the tools to draw up positive and informed financial plans that will help to secure their future happiness. The need for that is pressing.

Let me offer an example of best practice. Two years ago in my constituency Will Spendilow, a former chief IT architect for Barclays bank, started to visit Congleton high school and Eaton Bank school in my constituency on a voluntary basis. He helps GCSE and A-level students to understand the importance of financial planning, using the DebtCred curriculum, one of many that are available. It empowers children to set life goals and choices, helps teenagers to articulate their short-term and long-term financial goals, and helps students to budget by explaining what proportion of a wage is spent on essentials. Young people learn about the implications and the costs of borrowing; they also learn how to read a bank statement, put together a budget, and distinguish between financial products.

Mr Spendilow’s work has been received enthusiastically by schools and recognised by the high sheriff of Cheshire, Diana Barbour, who has congratulated him on his “sterling achievements”. At the end of one of his classes a teacher said to the young people, “That is the best and most valuable PHSE lesson that you have ever had.” However, when I asked Mr Spendilow what provision there would be if he did not teach financial capability, he said that he did not know of any.

[Mr Chuka Umunna (Streatham) (Lab)]

I congratulate the hon. Lady on raising a subject that I consider to be tremendously important. I particularly endorse what she has said about Christians Against Poverty and the citizens advice bureaux, which operate in my constituency. Does she share my huge disappointment that there is no Treasury Minister present to respond—[Interruption.] I was not aware that the hon. Member for Scarborough and Whitby (Mr Goodwill) was a Treasury Minister. Is he the Treasury Minister who will respond to the debate?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Fiona Bruce.

--- Later in debate ---

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

I wish to raise the issue of the funding settlement for Her Majesty’s Revenue and Customs, for two reasons. First, it is important to my constituents, many of whom work in the Cumbernauld branch of HMRC, one of the largest tax offices in the country. Secondly, it is important to the nation for our tax to be collected efficiently and effectively.

I have several questions for the Minister about the settlement that HMRC received in the comprehensive spending review. It mandates overall resource savings of 15% and efficiency savings of 25%. I should be grateful if the Minister clarified the precise meaning of those two figures. To what budget does the 25% refer? What proportion of the 15% overall resource saving will be met from efficiencies, and what proportion will be met through a reduction in the scope of HMRC’s activities? How does the Minister define an efficiency saving? And—this is the most important question for my constituents in Cumbernauld—what is the Minister’s most recent estimate of the number of redundancies that he expects at HMRC across the country during the spending review period, and what proportion of them will be compulsory?

Will the Minister confirm that neither the £900 million for combating tax avoidance nor the £100 million for reducing error, both of which were announced in the comprehensive spending review, will be additional money for HMRC? Will he also explain whether the figures refer to annual allocations, or to money redirected to these purposes over the entire spending review period? How does the Minister expect HMRC to achieve such a redirection of resources, in the context of significant cuts to its overall resource budget?

I would like to place HMRC’s funding settlement in a broader context and draw attention to some specific problems faced by my constituents working in the Cumbernauld office.

[Mr Umunna]

Does my hon. Friend share my concern about the hugely increased bureaucracy that HMRC will have to deal with because of the change to child benefit, which will require HMRC in some sense to monitor the incomes and outgoings of millions of families across the country?

[Gregg McClymont]

My hon. Friend raises an important point, which speaks to the overall context in which HMRC will be operating.

We know that there is no direct correlation between reduced funding and increased output. The productivity of individual public servants can increase, but overall output can still decline. There comes a point when any organisation can no longer do more with less. If resources are reduced too far and too hastily, it will end up doing less with less, even if productivity increases. Does the Minister accept that it will be extremely difficult to deliver the additional revenue and improved customer service that we need from HMRC in the context of large reductions in overall expenditure?

Many of the savings that the Government talk about will be made through redundancies and restructuring. Staff motivation and industrial relations at HMRC are already poor. These problems have been recognised by HMRC, which was the subject of heavy criticism in the capability review published by the Cabinet Office in 2009. The review found that only 25% of HMRC staff, compared with 61% of senior civil servants, were proud to work for the Department. In the 2009 staff survey, only 11% of all staff and 17% of senior civil servants felt that change is well managed in HMRC.

We know that working in HMRC is often a difficult job. Dealing with people who are recalcitrant in paying their tax is, I suggest—without direct experience of it—often not much fun, yet staff morale is extremely important. I worry that a combination of low staff morale and further funding cuts is likely to lead to further problems for HMRC. Staff in Cumbernauld, for example, are deeply concerned about the restructuring that is taking place among staff in the benefits and credits section, a reform that is taking place two years ahead of the planned move to universal credit.

These staff have been threatened with compulsory relocation to other tax offices in East Kilbride and Livingston, a source of particular concern for staff with child care and caring responsibilities. I hear that there are fewer jobs available in these new offices than there are posts in Cumbernauld. Staff who are not redeployed might be labelled as surplus, with an uncertain future. Staff in payroll and human resources for the whole of HMRC are also based in Cumbernauld. They are extremely concerned about potential redundancies following the introduction of next generation human resources.

Does the Minister expect that these changes will result in redundancies in Cumbernauld, or will the Cumbernauld office perhaps expand its functions and its staffing? More broadly, can he give us an assurance that HMRC will improve the manner in which it manages change in its organisation?

Finally, I would like to ask a broader question about HMRC’s strategic vision. Does the Minister accept that there is a tension between announcing Britain’s business- friendly credentials to the world and cracking down on tax evasion, particularly by companies and wealthy individuals? In particular, what view does he take of the remarks that David Hartnett, Permanent Secretary, made in the Financial Times last August, when he suggested that

“HMRC is packed full of very intelligent people but we are sometimes too black and white about the law”?

Does the Minister believe that it is possible for tax officials to be “too black and white” about the antisocial behaviour of tax evaders? I can assure him that my constituents, and no doubt those of every hon. Member, do not take that view.

A well resourced and properly motivated HMRC is crucial to the important work of Government. I ask the Minister to provide more detail on the implications of HMRC’s funding settlement, and to consider the assumptions underpinning it.

--- Later in debate ---

[Mr Chuka Umunna (Streatham) (Lab)]

I echo those wishes of good will and merriment to the House.

Before I start talking about choice and competition in the banking sector, I would like to put on record my thanks to the Building Societies Association and the pressure group Compass for giving me assistance in preparing for this debate, and to the fantastic staff of the Treasury Committee, who have provided excellent briefings to me and other Members throughout our ongoing inquiry into choice and competition in the sector.

The financial crisis had a major impact on the shape of the banking sector. There has been widespread consolidation, and concerns have been raised that competition in the sector is not working—with, for example, investigations by the Office of Fair Trading into overdraft charges—and that there is now an ever greater lack of choice and diversity in financial services. That is borne out by the latest OFT figures on market concentration. In the personal current account market, the five largest providers in the country have a 73% market share. In the mortgage market, they make up over 75% of gross lending. They have cornered over 90% of the credit card market as well. By way of comparison, in Spain, the US and Germany, the five largest providers have less than 50% of the personal current account market. In all but a couple of cases, the largest providers are banks. There has been just one new start-up retail bank, Metro Bank, since 2008. These figures demonstrate that there is a lack of choice and diversity in the sector, which, of course, also reduces competition.

I believe we can increase choice and competition by growing and expanding the mutual sector. I hope the Government agree with me on that, particularly as a commitment was given in the coalition agreement to

“bring forward detailed proposals to foster diversity in financial services…and create a more competitive banking industry”,

in part by promoting mutuals.

But why mutuals, and what can they offer that standard banks cannot? First, mutuals are democratic. Banks are accountable to shareholders who demand a rising share price and a big dividend, whereas mutuals, collectively owned by their customers, have a collective of people who vote on the direction they wish the institution to take.

[Gregg McClymont]

I have been listening closely to my hon. Friend’s comments. Given the Government’s commitment to what they call the big society, does my hon. Friend agree that mutuals seem to be a perfect example of collective self-organisation of the type the Government talk about?

[Mr Umunna]

I agree with my hon. Friend and I shall expand on that matter a little later. An example of the participation of members of mutuals is displayed when one attends a building society annual general meeting. The participation rates in such AGMs have increased sharply over the years, and some have member panels, which play an enhanced role in the management of the organisation. I am in favour of markets, but properly regulated ones. That means that we need to redemocratise the market so that it serves people, rather than having things the other way round, which is an avenue we have gone down too much over the past couple of decades. Giving life to mutuals is a good way of redemocratising the financial services sector.

Secondly, mutuals add biodiversity to the financial services sector; a thriving mutuals sector adds to the diversity of the financial system. The more diversified the financial system in terms of size, ownership and structure of businesses, the better able it is to withstand the strains produced by normal business cycles and we can also avoid the herd instinct commonly displayed in the market over recent times.

Thirdly, mutuals have a lesser appetite for indulging in risky financial activities and so, on the whole, they weathered the storm well during the global financial crisis. For example, building society mortgage arrears are less than two thirds of those of the market as a whole. Building societies are also, thankfully, legally barred from taking positions in derivatives, foreign currency and commodity markets, which is where other financial organisations have found themselves in deep trouble. Where mutuals have run into difficulty, as the Dunfermline building society did in March 2009, it has been because they have moved away from the traditional mutual business model. So a growth in mutuals will not only reduce exposure to risky financial activities, but bring systemic advantages. It will foster a culture that moves away from the risky, reckless behaviours that we have seen precipitate the crisis, and so we can reduce the chances of that reoccurring.

[Mr Peter Bone (Wellingborough) (Con)]

The hon. Gentleman is making a powerful speech on an important issue. Does his argument go on to say that the large banks should be broken up into smaller ones, as in the example from the United States?

[Mr Umunna]

I do not wish to pre-empt the inquiry being carried out by the Treasury Committee. I have some sympathy for those views, but I would like to continue to hear the evidence that my Committee is taking on this matter and read some of the submissions to the Independent Commission on Banking before coming to a firm view.

The fourth argument that I make in favour of mutuals is that they have strong local links and roots in local communities. Mutuals are often regionally based and therefore often have a better understanding of those they seek to serve because they understand and are rooted in those communities. Finally, mutuals will undoubtedly help to promote competition. As I have mentioned, building societies do not have to pay dividends to shareholders, so they can use their funds either to pay higher savings rates or provide lower mortgage rates. It is no surprise that they regularly top the “best buy” tables.

[Justin Tomlinson]

As the Nationwide building society’s head office is in Swindon, I fully support the points that the hon. Gentleman is making. To further strengthen them, may I say that the lack of competition will lead to higher costs and charges for customers?

[Mr Umunna]

I thank the hon. Gentleman for that intervention. I do not wish to speak for too long, so I will just conclude by talking a bit about Northern Rock and Bradford & Bingley. As we all know, Northern Rock was nationalised on 18 February 2008, having been demutualised in 1997. After it demutualised, it had moved away from the traditional mutual business model and famously came unstuck in the summer of 2007. Likewise, Bradford & Bingley was taken into public ownership on 29 September 2008, having demutualised in December 2000. It, too, had run into trouble at the height of the crisis. For all the reasons that I have mentioned, we should remutualise Northern Rock and Bradford & Bingley as soon as we can.

In answer to a written question on 3 November, the Financial Secretary to the Treasury, who I am disappointed to see is not present, given that he was here for Treasury questions earlier, said:

“The Government have made it clear that they are not a permanent investor in UK banks and that their intention, over time, is to dispose of all the investments in an orderly way.”—[Official Report, 3 November 2010; Vol. 517, c. 825W.]

So I ask the Minister who is here, what is the Government’s current view on the issues that I have raised? Are the Government open to remutualisation as a way of meeting their promise in the coalition agreement to promote mutuals? If not, why not? How else do they propose to promote mutuals as promised? Has the Treasury carried out a feasibility study of the remutualisation of Northern Rock and of Bradford & Bingley? If it has not, I call on the Government to do so and publish the findings of that study, so that we might have a proper national debate on the issue.

If the Minister is unable to reply to my detailed questions today, will he undertake to ensure that the Financial Secretary to the Treasury provides me with details of the same? I cannot emphasise to the House how important I think those issues are, because if we are serious about ensuring that our constituents do not have to pay the price for the global financial crisis that in turn contributed to and caused the recession, we as a collective absolutely need to get a grip on such matters.

--- Later in debate ---

[Mr Umunna]

I raised a number of detailed questions with the Minister, responses to which have not been forthcoming. I heard with interest the views of the hon. Member for Wellingborough (Mr Bone) about the response that the Minister is giving, bearing in mind that he has been called to do this at such short notice. However, I would be grateful if he explained why the Financial Secretary himself is not here, as he was here only a few hours ago. Will he undertake to ensure that I get detailed responses to the issues that I have raised?

[Mr Goodwill]

I thank the hon. Gentleman for his intervention. First, this has not happened at short notice—it has always been the plan for me to answer this debate. He had an opportunity earlier at Treasury questions to raise specific issues when the majority of the team were there. I am aware that I have only less than a minute left, which is why I want to move on to the next point. I am sure that he will get a detailed response, particularly about the way in which the banks, which are now largely in the public sector, are sold on or whatever. The Government will no doubt be looking at the best value for the taxpayer as well as the best service to business and individuals. I am sure that my hon. Friend the Financial Secretary will write to him, and we will be making further announcements in the House at an appropriate time.

On the withdrawal of cheque facilities, it is true that the number of cheques issued has declined dramatically. More than 11 million cheques were written in 1990, and that figure declined to 3.5 million in 2009. A provisional date of 31 October 2018 has been set for the withdrawal of cheque facilities, with a final decision to be made by 2016. I, too, have received a letter from a constituent, which arrived this morning. It is from Mrs Hunter of Whitby, who tells me that she is over 90 years old and does not possess a computer or a laptop, or even a mobile phone or any credit or debit card, and so will find it very difficult to send money through the post to her family at Christmas or to make payments to charities. Her local post office, which was within walking distance, was closed when the previous Government were in office, so a journey to the Yorkshire building society or the Co-op would require a taxi journey or a bus ride. She is very concerned that elderly people without recourse to cheques will not find it easy to make payments. Similarly, many small businesses find the cheque system very convenient.

The Government believe that suitable alternatives must be in place for all users of cheques before the system can be phased out, and they welcome the new commitments made by the banking industry on 7 December. In those commitments, the industry recognises the importance of having in place proper alternatives to cheques for those who rely on them most, such as the elderly, the housebound, charities and small businesses. The industry has said that a potential alternative to cheque facilities may include a paper system. Of course, if cheques were to be phased out, it would also be the end of the famous phrase, “The cheque is in the post.”

Thank you very much, Madam Deputy Speaker. I hope that all right hon. and hon. Members on both sides of the House have a very peaceful and comfortable Christmas, and let us look forward to a productive new year for the coalition Government.