Budget Changes
Debate between Chuka Umunna and David Gauke(8 years, 8 months ago)
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Mr Gauke
Yes, I can confirm that. The changes to small business rate relief will help hundreds of thousands of businesses, particularly small businesses. We are delivering on the pledge in the Conservative party manifesto to increase the higher rate threshold to £50,000—this Budget takes it to £45,000—and we are also raising the personal allowance. The typical basic rate taxpayer is now paying more than £1,000 less in income tax as a consequence of the changes we have made.
Mr Chuka Umunna (Streatham) (Lab)
The Minister has talked about debt and our record. Of course, the last Government borrowed more in five years than the Labour Government did in 13 years. We understand that Conservative Members are clamouring for a change to the PIP proposals, on the basis that they disproportionately hit the disabled. If that is the case, why not also reverse another measure that disproportionately hits the disabled—namely, the disgraceful and appalling bedroom tax?
Mr Gauke
Let me deal with this point. During the whole of the last Parliament, we debated in this place measures to reduce spending and the Labour party constantly opposed them. It argued that we should borrow more—I presume this is what the hon. Gentleman means from what he has just said—to borrow less. If that is the position of the shadow shadow Chancellor, it is not much of an improvement on that of the shadow Chancellor. It is right that we try to find savings in the welfare budget, and the spare room subsidy is an important part of that.
Credit Rating Agencies
Debate between Chuka Umunna and David Gauke(13 years, 6 months ago)
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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
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
Debate between Chuka Umunna and David Gauke(13 years, 11 months ago)
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Mr Gauke
As we have heard, Her Majesty’s Revenue and Customs’ assessment of the tax gap was £42 billion, but we are taking measures to address that. It is right that we do so, and we showed our determination this month when we announced a series of measures to reduce tax avoidance.
Mr Chuka Umunna (Streatham) (Lab)
I would like to get some clarity on the taxation of the banking sector. The Business Secretary made it clear over the weekend that if the financial services sector did not exercise restraint in bonus payouts during the current round of bonuses, which goes on until April next year, the Government would consider imposing further taxes above and beyond existing taxation arrangements and the banking levy. Will the Chancellor, who adopted quite a different tone in New York, please confirm whether the Government are considering imposing extra taxation, over and above the existing arrangements and the banking levy, on the banks if they do not exercise restraint?
Oral Answers to Questions
Debate between Chuka Umunna and David Gauke(14 years ago)
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Mr Chuka Umunna (Streatham) (Lab)
8. What steps he is taking to review the regulation of credit rating agencies.
Finance (No.2) Bill
Debate between Chuka Umunna and David Gauke(14 years ago)
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Mr Umunna
No doubt the Government will consider my hon. Friend’s interesting suggestion and comment accordingly.
One of the main problems with the new measure is that people fall off a cliff edge when they hit the higher rate. Have the Government considered introducing a taper mechanism to prevent that anomaly from occurring, because obviously that is where the unfairness shines through?
Mr Gauke
The new clause would link the future withdrawal of child benefit from higher rate taxpayers with the principle of independent taxation. The payment of child benefit is clearly a spending issue and is not directly linked to the Bill. I therefore shall not try your patience, Madam Deputy Speaker, but it is important to set out the background to the change.
The spending review set out how the Government will tackle the deficit that they inherited from the previous Administration. Given the comments that have been made by the Leader of the Opposition—I congratulate him on becoming the recipient of another child benefit payment, and wish him and his family well—as well as by the hon. Member for Nottingham East (Chris Leslie) and several other Labour Members today, I take it that the Labour party remains opposed in principle to our reform of child benefit and believes that it should continue to be paid to all households.
Mr Gauke
I take the hon. Lady’s point, but I am not clear about whether her party’s position is to say, “Something should be done, but we don’t like the way it’s being done,” which, I think, is the position that she sets out, or to say, “We don’t think anything should be done at all,” in which case we must include the £2.5 billion that the measure will save the Exchequer—that is an estimate from the Office for Budget Responsibility—as part of our assessment of the Opposition’s fiscal policies.
Mr Umunna
The Minister cites savings of £2.5 billion, but will he estimate the likely cost of administering the new policy, which will have an impact on those savings? John Whiting has said that the extra burden associated with administering the change in the way it is envisaged will make a fairly big dent in the expected savings.
Mr Gauke
The hon. Gentleman asks a fair question, but I will not give him a precise number because that is something that we continue to consider. The implementation of any policy clearly involves a cost, but I assure him that this cost will be small when compared with £2.5 billion. I am keen to ensure that the policy does not place an undue burden on HMRC. He made a fair point about HMRC. It faces a budget reduction, even though the Government are protecting it by ensuring that it has more resources to tackle evasion and avoidance, but we are keen to ensure that the burden of administering the policy will not cause it undue difficulty.
We have to take tough decisions and make tough choices, and this is one of the decisions that the Government have taken because we believe it is the right thing to do. We do not think it is fair to tax people on low incomes to pay for the child benefit of those earning much more. We cannot afford to continue providing financial support through child benefit to better-off households where there is a higher rate taxpayer. From January 2013, the Government will therefore withdraw child benefit from families that contain a higher rate taxpayer. Despite the noises from the Opposition, the British people understand that this is a tough, but fair, decision.