Funding Reform (Wales)
Danny Alexander Excerpts(11 years, 8 months ago)
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The Chief Secretary to the Treasury (Danny Alexander)
The Secretary of State for Wales and I are pleased to publish the statement on funding reform that has been agreed jointly with the Welsh Government, copies of which have been deposited in the Libraries of both Houses. The statement follows a year-long process of talks between the two Governments and addresses Welsh devolved funding, the case for capital borrowing powers and wider fiscal reform.
Cash Ratio Deposit Scheme
Danny Alexander Excerpts(11 years, 9 months ago)
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The Chief Secretary to the Treasury (Danny Alexander)
Cash Ratio Deposits (CRDs) are non-interest bearing assets deposited with the Bank of England by banks and building societies. They are used by the bank to finance its unremunerated activities, in particular its efforts to secure price stability and the stability of the financial system in general, from which these institutions are key beneficiaries.
The CRD scheme was extended to include building societies, and was placed on a statutory basis, when the Bank of England Act became law in 1998. The scheme was reviewed in 2003, when the threshold above which institutions are obliged to place deposits with the Bank of England, was amended following a public consultation. The outcome of the following CRD review in 2008 resulted in a reduction in the CRD ratio to 0.11% from 0.15%. As part of the CRD scheme review in 2007-08 the Government made a commitment to conduct a further formal review at the latest in five years’ time. The Treasury, working closely with the bank, will now begin that review.
The review will include an assessment of the detailed arrangements of the scheme as well as the continuing suitability of the scheme itself compared to alternative sources of funding. It will also address the impact of the scheme on the eligible institutions. The broad conclusions of the review will be the subject of a public consultation.
Infrastructure (Financial Assistance) Bill
Danny Alexander Excerpts(11 years, 9 months ago)
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The Chief Secretary to the Treasury (Danny Alexander)
I beg to move, That the Bill be now read a Second time.
We are introducing the Bill because a number of key infrastructure projects in this country that are close to starting construction are being held back as a result of the difficulties they face in accessing finance. These difficulties are not because of poor commercial or economic viability of projects, but because of temporary capacity constraints in debt markets and significantly longer lead times to secure lending commitments. Accordingly, we are expediting this Bill so that we can provide the necessary financial assistance as quickly as possible and provide confidence to the markets that the Government will be in a position to do so. Once Parliament approves the Bill we will be able to complete formal negotiations with project providers over financial assistance, which we would like to do as quickly as possible to prevent costly and unnecessary delay. I therefore thank Opposition Members and the Opposition’s Front-Bench representatives for agreeing to expedite the Bill.
The measures that the Bill will make possible—financial assistance to infrastructure and housing projects worth tens of billions of pounds—have received widespread support, particularly from the business community. They are supported, for example, by the Confederation of British Industry, which says that our approach
“marks a big step towards unlocking the…investment needed to renew our national infrastructure,”
and that our proposals
“will provide a much-needed tonic for the construction sector, getting diggers on site and people into work. It will make a difference to households across the country.”
Mr Denis MacShane (Rotherham) (Lab)
I support the main thrust of the Bill, but on Sunday last week I drove my son to start his studies at Edinburgh university and the A1 between Newcastle and Edinburgh, which is a single-carriageway road, was clogged up with tractors and hay balers. It is extraordinary that, in contemporary Britain, the access road to one of our main capital cities belongs to the back of beyond in Bangladesh. Can we do anything to dual-carriageway that road? It is close to the Chief Secretary’s constituency as well as mine.
Danny Alexander
I think that my constituents in the highlands would say that describing it as close to my constituency might be a misuse of the word “close”, but none the less I recognise the right hon. Gentleman’s point. I gently observe that his party had 13 years in office to deal with that project, although I mean no disrespect to him in saying so.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Will the Chief Secretary give way?
Danny Alexander
Let me answer the intervention made by the right hon. Member for Rotherham (Mr MacShane) and then I will gladly take a further intervention. I will deal with them one at a time, if I may.
I certainly will pass on the right hon. Gentleman’s concerns to the Department for Transport, which is aware of the matter. I have received representations from Members of all parties in the north-east of England about that particular project.
Mr Robinson
On road projects that would be advantageous, such as the one mentioned by my right hon. Friend the Member for Rotherham (Mr MacShane), is the Chief Secretary aware that not a single one of those announced in the autumn statement has yet got under way?
Danny Alexander
I would point out to the hon. Gentleman that one of the announcements in the autumn statement was about local authority major projects. He will know, for example, that the Kingskerswell bypass is under constructions, that the A164 Humber bridge to Beverley improvements are under construction, and that the east of Exeter scheme improvements to the M5 junction 29 are under construction. I could carry on, but I will save the rest of the list for further interventions.
Kelvin Hopkins
The fact is that public sector investment fell by 29% between the last year of the Labour Government and this year, and that it is forecast to fall further to 32%. Given that borrowing money is as cheap as it has ever been, surely the decision is just a matter of reversing what the Government have been doing.
Danny Alexander
The hon. Gentleman will know that the headline plan set out by the previous Chancellor and Government included cuts to capital spending that were substantially greater than those being implemented by this Government.
Danny Alexander
I will gladly take another intervention after responding to the hon. Member for Luton North (Kelvin Hopkins). He will know that the low interest rates to which he has referred are in part a consequence of the fiscal credibility that this Government have established. It is precisely because we wish to use the strength of this country’s balance sheet which comes from that credibility that we are able to announce this guarantee scheme, which I will go on to describe in a moment. However, I shall take an intervention from the shadow Chief Secretary first.
Rachel Reeves
The right hon. Gentleman will be aware that the Office for Budget Responsibility has forecast that the previous Labour Government’s plans would have led to £6.6 billion more investment in infrastructure than that planned by this Government over the next three years. Will he confirm those numbers?
Danny Alexander
That is not my understanding of the position. In 2010, we added a little more than £2 billion in every year of the spending review to the capital headline figures set out by the previous Government. We added to that further in last year’s autumn statement by switching some money from current spending to capital spending, precisely because of the value that we ascribe to infrastructure projects.
In addition to the CBI, the proposals are supported by the British Chambers of Commerce, which said:
“Business will appreciate the pace with which the government is moving to put its new housing and infrastructure guarantees in place”.
They are supported by the National Housing Federation, which speaks for registered social landlords in this country. It said:
“This can play an important role in helping reduce development risk, boost returns and attract investors once the development is complete.”
John Howell (Henley) (Con)
I wonder whether my right hon. Friend has seen the survey that was published today by the CBI and KPMG, which shows that 97% of business leaders see the planning system as a big turn-off to allowing infrastructure to go forward.
Danny Alexander
I did see that survey. I note that it was conducted before the Government announced the guarantees plan. However, a subsequent snap-shot poll showed a widespread welcome from the business community for the Bill. My hon. Friend will know that we have made significant changes to the planning system, including in the announcements last week, that relate directly to the threshold for infrastructure projects. Those will allow more projects of a slightly smaller scale to go through the national process, rather than getting tied up in local processes.
Geraint Davies
The right hon. Gentleman will know that there are schemes in America where, with the support of pension funds, the private sector builds houses on land provided by the public sector. That provides a mixed asset with social and private housing, and a revenue stream for the public sector at no cost to it. When such schemes are available, why are the Government instead saying to the private sector, “Forget about social housing for a while. Just build private sector housing”? That will have a long-term impact on the demography of an area.
Danny Alexander
The hon. Gentleman, with the greatest of respect, has misunderstood the Government’s message. Part of the guarantee programme will extend the benefit of Government guarantees to housing associations, to enable an additional 15,000 affordable properties to be built. That is why it has been welcomed by the National Housing Federation, which speaks for housing associations in this country. Housing associations recognise that they will benefit from the guarantee, because it will reduce the cost of finance and help them to build many more homes for the sadly limited amount of money that is available to this country at the moment.
The plans are also supported by the Home Builders Federation, which said:
“Government now clearly understands the constraints on delivery and has outlined action to address them.”
The Government are committed to delivering a sustainable, private sector-led recovery that is balanced across industrial sectors and geographical regions; to moving away from an economy focused exclusively on the south-east of England, which is reliant on financial services and unsustainable debt, towards an economy supported by a wide variety of industries across the United Kingdom; and to making the UK one of the best places in the world to do business, attracting foreign investment and promoting our exports. To achieve that vision, the Government are committed to delivering world-class infrastructure, thereby giving firms access to the communication and transport networks that they need, wherever in the UK they happen to be.
Roberta Blackman-Woods (City of Durham) (Lab)
Will the right hon. Gentleman give way?
Danny Alexander
I am going to make some progress, but I will come back to the hon. Lady.
We want to allow Britain to compete on the world stage. Our national infrastructure plan sets out an ambitious but credible road map for delivering on that vision. There is a pipeline of £200 billion of upcoming investments in major necessary projects, most of which will be delivered through the private sector. In addition, we want to see billions of pounds of investment in housing and infrastructure to support our public services.
Even in more favourable circumstances, raising the private finance that is necessary to deliver on those goals would be a challenge. Given the disruption caused by the instability of international markets and the eurozone, and its adverse effect on capital markets, it is clear that decisive action is necessary to enable these projects to be delivered. The Bill will allow us to take that action and to bring forward the investment that is required.
Roberta Blackman-Woods
Will the right hon. Gentleman explain why it has taken so long for the Government to recognise that additional investment in infrastructure is needed if the economy is to grow?
Danny Alexander
Again, I do not agree. By looking at the way we use capital moneys across Government, the decisions we took in the 2010 spending review have enabled us, for example, to devote more capital moneys to the Department for Transport for investment in our transport infrastructure over these four years than our predecessors were able to devote over the previous four years. The same could also be said of communications and broadband infrastructure. This Bill is a major development along that road. Labour could have put in place a guarantee scheme at any point in the previous 13 years, but it chose not to.
Andrea Leadsom (South Northamptonshire) (Con)
I have a business breakfast club in my constituency. A group of business people told me recently that the big challenge for them is not being able to move into decent premises so that they can expand and the inflexibility of the system. Can my right hon. Friend tell me whether there is anything in the Bill for those businesses? Surely they are the real engines of growth, operating at the sharp end of our economy.
Danny Alexander
By offering guarantees to a wide range of infrastructure projects that might otherwise be delayed because of lack of access to finance—thereby bringing those projects forward, or in some circumstances accelerating them—the Bill will, I hope, help to ensure that the businesses my hon. Friend is describing can access the quality of infrastructure they need to deliver their growth plans. In that sense, I think the Bill will make a big difference.
Mr Nick Raynsford (Greenwich and Woolwich) (Lab)
I have been listening carefully to what the Chief Secretary has been saying. I understand the argument in principle, but he has been short on specific illustrations. He will know that the national infrastructure plan identifies a significant number of schemes. Can he now tell us which schemes that are currently stalled and not proceeding he would anticipate getting the go-ahead as a result of the Bill being passed?
Danny Alexander
I have a good deal more detail to get to in my speech, and I shall do so as soon as I have got through the various interventions that have been made. However, I shall not list individual projects before we have agreed guarantees for them, for the very good reason that it would be wrong to set out in this House those projects that could potentially benefit from the Bill, as doing so could either disturb the commercial position of some of the finance that has already been secured or undermine the discussions that we are engaged in to put in place such guarantees.
Joan Walley (Stoke-on-Trent North) (Lab)
When the Minister gives the details of where the investment will be going, will he tell the House what regard will be given in the decision-making process to the Climate Change Act 2008 and the work of the Committee on Climate Change? It would be short-termism and completely the wrong way to go about the policy if, for example, his infrastructure investment locked us into greater use of carbon rather than reduced use.
Danny Alexander
The hon. Lady makes an important point. Of course, the Bill will not discriminate between projects on policy grounds. We have set out some criteria, which I shall come to, but there are many energy projects—particularly in the renewables field—that are being brought forward in this country as a result of that framework and the policies that have followed from it. Some of those projects may well fall into the category that needs the support from the guarantees that the Bill will provide. In that sense, the Bill should give us an extra tool to ensure that the renewables investment that we need can go forward in a timely fashion, which I hope she would welcome.
The House will know that the Treasury already has wide powers under common law, not limited by statute, to issue guarantees, make loans and give other financial assistance in support of infrastructure. In some cases, Secretaries of State have statutory powers to support infrastructure; in others, they would need to rely on common law powers. However, many Members will also know that there is a long-standing convention, dating back to 1932, that the Government should not rest significant and regular expenditure under common law powers on the sole authority of general supply legislation. Accordingly, in order to offer the support that we want to see, the Government need Parliament’s authority to incur expenditure in connection with agreements to provide financial assistance and to pay out on liabilities, should they be called on to do so. Today we seek authority for the Treasury, or the Secretary of State where appropriate, to incur up to £50 billion of expenditure in connection with giving financial assistance to infrastructure across the UK.
Hazel Blears (Salford and Eccles) (Lab)
In drawing up the agreements for such significant expenditure, what account will the Chief Secretary take of the Public Services (Social Value) Act 2012, so that we can secure a social, environmental and economic impact from such contracts—in particular, through employment and training opportunities for young people—and ensure that the money makes a difference on the ground in our communities?
Danny Alexander
The right hon. Lady is referring to an important piece of legislation, which, generally speaking, will have been taken into account in the process of giving consent to a project. The guarantees will be offered to projects that meet a number of criteria, one of which is that they already have the necessary consents in place to get going within 12 months. The objective is to bring forward and accelerate the development of infrastructure, and it would be inappropriate to impose additional obligations on people delivering projects. This is about enabling projects that are already slated to happen to get going quickly.
Mr Robinson
This is a huge sum of money that the Treasury is undertaking to guarantee. I cannot imagine what some officials must think about it, but I know that there will be a strong case for ensuring that all guarantees are immediately and unconditionally added to the public sector borrowing requirement. Is it the case that any guarantee will be counted as public expenditure and be part of the PSBR?
Danny Alexander
It is good to hear from someone on the Labour Benches who thinks that £50 billion is a lot of money, given the freedom with which the Labour Government borrowed such sums during their time in office. The hon. Gentleman will know that these guarantees will not score to the PSBR, except to the extent that one makes an assumption about them being called, which causes a bit of immediate public expenditure. It is only at the point at which a contingent liability is called on that it scores as public spending. He will also know, because I suspect that he was involved in these matters when he was a Minister at the Treasury—
Danny Alexander
If the hon. Gentleman will let me finish my answer, I will give way to him again. He will also know that we recently obtained the agreement of Members on both sides of the House to introduce a new process known as the whole of Government accounts. That process, in addition to covering the national accounts that relate to immediate expenditure, also reports on off-balance-sheet expenditure of all sorts. Contingent liabilities of the kind that might be entered into under the Bill will be reported in the normal way.
The hon. Gentleman will also observe that the Bill includes significant reporting requirements. These will require the Treasury—or the Secretary of State, where appropriate—to report to the House in circumstances in which guarantees are issued under the terms of the Bill. I hope that that satisfies him—but perhaps it does not.
Mr Robinson
There was a long-standing Treasury tradition—I do not know when it was last breached, or whether it has been discarded—that a guarantee was counted as expenditure when it was given, not when it was called. The Bill seems to provide yet another easy way for the Government to find some off-balance-sheet expenditure in a way that they swore not to do.
Danny Alexander
I am advised that that is not correct, but if the hon. Gentleman wishes to enter into correspondence on the matter, I shall gladly follow it up.
Dan Rogerson (North Cornwall) (LD)
I am pleased that the Government are doing more to build on the work that they have done to invest in infrastructure and to encourage investment for other projects. I hope that many hon. Members visited Cornwall over the summer. If so, they might well be familiar with the Temple to Higher Carblake stretch of the A30 on Bodmin moor, which is not dualled. The road on both sides of that stretch is dualled. Local proposals have been made to come up with funding that can be put with Government funding to take the dualling scheme forward. I hope the Chief Secretary will ensure that this legislation will help to unlock local sources of funding to take such projects forward.
Danny Alexander
I had the pleasure of spending some time in Cornwall earlier this year, and of driving down that stretch of road. I understand the case that my hon. Friend makes. It has been made to me by Cornish colleagues from both coalition parties, and we will of course look sympathetically at any requests that might be made. It is always welcome to see local funding coming forward, and to see a local area taking responsibility for what it wants to do.
Charlie Elphicke (Dover) (Con)
The way in which the guarantees will be structured will be incredibly important for the planning by the financiers who wish to unlock these important projects. Will this involve credit support for the land or undeveloped infrastructure, credit support for the development finance piece, or credit support for the off-take or use of the infrastructure at the end of the day?
Danny Alexander
As I shall explain, we are not seeking to circumscribe unnecessarily the nature or structure of the guarantees, either through the Bill or through the announcements that the Government have made. We are willing to have discussions with those involved in projects that meet the criteria that have been set out, and it might well be that different structures of guarantee will be appropriate for different projects. I do not wish artificially to circumscribe the flexibility of the scheme in advance of the discussions with the individual projects. I am sure that those involved in the projects will be well able to have discussions with Infrastructure UK about the nature of the guarantee that would suit them best.
I was explaining the convention that the Government should not rest significant expenditure under common law powers on the sole authority of general supply legislation. Accordingly, to offer the support we want to see, Government need Parliament’s authority to incur expenditure in connection with agreements to provide financial assistance and to pay out on liabilities should they be called upon.
Today we seek authority for the Treasury to incur up to £50 billion of expenditure in connection with giving financial assistance to infrastructure across the UK. That financial assistance might take the form of guarantees, loans, indemnities or other support backed by public funds. It could be used—
Danny Alexander
I am going to make some progress; I will come back to the hon. Gentleman later.
It could be used to support investment in utilities, transport, other infrastructure for the provision of economic and social public services or housing.
Danny Alexander
No. I am going to make some progress.
The Bill does not affect any existing authority to incur expenditure that might already have been conferred on a Secretary of State; nor will it cover expenditure by a Secretary of State that can properly rest on the authority of annual supply legislation, without requiring specific statutory authority.
Where costs connected to the guarantee are incurred by the Exchequer that cannot reasonably be absorbed by the funds already provided by Parliament and where it is not possible to seek authorisation of Parliament for the additional expenditure—for example, because the House is not sitting—the Bill allows provision to be made from the Consolidated Fund. This is to cover the commercial reality of situations in which payments need to be made very quickly following an unforeseen obligation. Without this provision, any guarantee could lack commercial viability.
Danny Alexander
I am going to make some progress; I shall take some more interventions later.
The Government intend to offer assistance in the form of guarantees, although the Bill makes provision for other forms of assistance that we intend to use only where unforeseen urgent provisions are required. We believe that up to £40 billion of investment in infrastructure could be brought forward or accelerated under the UK guarantee scheme, using the powers in the Bill. That will help to deliver core infrastructure that supports growth, to improve the UK’s energy, transport, water, waste and telecommunications, and it includes about £6 billion-worth of public-private partnership projects delivering essential public service infrastructure. We will issue guidelines and scrutinise proposals to ensure that any proposal that receives an infrastructure guarantee is nationally significant, financially credible, good value for the taxpayer, requires a guarantee to get under way and is ready to start within a year.
Danny Alexander
I am going to make some progress, as I say, but I will take some more interventions at a later stage.
Since the projects we expect to back will be structured to minimise the potential of losses to the Exchequer, there will be minimal impact on public sector net borrowing as a result, except in the extreme circumstance that a guarantee is called upon or other forms of financial assistance are provided. We intend to levy a commercial charge for the services received by infrastructure providers, ensuring that companies pay a fair price for the benefits they receive, and that the taxpayer receives a fair price for any risk being taken. We also plan to use these powers to support up to £10 billion-worth of investment in housing.
Danny Alexander
Now might be a good time to give way to the former Minister for Housing.
Mr Raynsford
I am grateful to the Chief Secretary for giving way, although this intervention is not on a housing matter, but relates to his earlier comment about “schemes of national significance”. As he will know, this was part of the original blueprint, yet I searched in vain through the fine print for any definition of “national significance”. Is the absence in the Bill of any such reference to nationally significant schemes a significant omission, or not? If not, how are the Government going to ensure that their objective of supporting schemes of national significance is met?
Danny Alexander
It is not an omission from the Bill, which puts in place broad and permanent powers to issue guarantees for infrastructure projects. The Government expect that under the UK guarantee scheme, which will be the first manifestation and use of the Bill’s powers, nationally significant projects will be the sorts of projects able to apply. That means projects listed in the national infrastructure plan or other such projects as may come forward, but the Bill gives a broader authority to the Treasury to issue guarantees in other circumstances. What I am describing is how the Government intend to use the powers in the Bill.
Danny Alexander
I will give way to the hon. Gentleman, who has not intervened in the debate so far.
John McDonnell
On that specific point, I hope that the right hon. Gentleman is going to deal with clause 1(2)(b), which is one of the provisions defining the range of facilities that will be funded in this way. It refers to
“railway facilities (including rolling stock), roads or other transport facilities”.
Will he clarify whether those “other transport facilities” include airport expansion and runways? Although the third runway at Heathrow, or perhaps elsewhere, is not listed in the national programme and will not be brought forward in the next 12 months, there are no sunset clauses, so this Bill could be used to that effect.
Danny Alexander
The hon. Gentleman is right: there is no sunset clause. That is because we think that it is important to introduce these powers, not just for now but for the future. By circumscribing the financial limit of the extent of the powers and also by establishing strong requirements for reports to be made to Parliament, we can ensure that Members continue to be informed on how they are used. As the hon. Gentleman says, no such proposals are on the table at present, but in principle, should a major infrastructure scheme arise in the transport sector but be unable to attract the necessary finance because of conditions in the funding markets, it could be eligible in the future. However, that would be a decision for the Government of the day.
Henry Smith (Crawley) (Con)
Will my right hon. Friend join me in congratulating London Gatwick Airport Ltd on the £2 billion that it is investing in the upgrading of the facility, including the rail infrastructure?
Danny Alexander
The hon. Gentleman has cited the airport that I use most, apart from Inverness airport, because it services Inverness. I probably use it a couple of times a week. I have observed the investment programme, and it is certainly improving the facility. We hope that that improvement will continue.
Joan Walley
I am grateful to the Minister for giving way a second time. Does he agree that it is important for the Bill to provide for proper environmental impact assessments? Given that consultation is taking place in the House now that the Government have got rid of the regional spatial strategies, there is a requirement for us to ensure that environmental impact assessments take place. Will the Minister explain how that is linked with the requirement in clause 3?
Danny Alexander
I think it important for legislation to contain provision for appropriate environmental impact assessments, but this Bill is not the proper place for such a provision. Such assessments will have already taken place as part of the consenting process. As I have said, the Government will offer guarantees only to projects that can get under way in less than 12 months and have secured the relevant consents.
Kelvin Hopkins
Private companies in Britain are sitting on a cash surplus of £700 billion, but they are, in effect, on investment strike. They will not invest because the economy is depressed and they see no possibility of a profitable return. Is it not the case that only the Government can drive us into growth again, and that the Government must take the lead to unlock that money for the private sector?
Danny Alexander
One of the things that the Bill will do, which I hope the hon. Gentleman will welcome, is help to generate private investment in this nation’s important infrastructure, which has suffered from under-investment for so many years. Perhaps that is the answer that he was seeking.
The Government will use their hard-earned fiscal credibility to pass on lower costs of borrowing to support the long-term delivery of new affordable and private rental homes. We plan to issue debt guarantees for a private rental housing scheme and the affordable housing scheme to give institutional investors the assurance that they need to invest in housing. Under those schemes, the Government would enable providers who commit themselves to investing in additional new-build rented homes to raise debt with a Government guarantee. Housing proposals will be scrutinised and approved on the basis of presenting low-risk, high value-for-money investments.
As with UK guarantees, there will be a minimal impact on public sector net borrowing, as the developments we expect to back will be structured to minimise the potential losses to the Exchequer. For the private rented sector guarantee, we intend to levy a commercial charge to reflect the benefits that companies receive and to cover the risk taken by the taxpayer.
The actions made possible by the Bill would provide enormous benefits across the UK. We expect the boost to housing construction, combined with our recently announced planning reforms, to generate about 140,000 jobs in the construction sector, and the infrastructure unlocked through UK guarantees could provide hundreds of thousands more. However, this is not just about a near-term boost. The projects that go ahead as a result of the action that we are taking will provide major long-term benefits for individuals, firms, households, and the whole UK economy. They could help businesses to take better advantage of 21st-century technology by improving broadband and mobile speed and connectivity. They could help businesses to connect with consumers, employees and each other, and allow workers to gain access to new job markets by improving our major ports, airports and corporate centres, and the transport links between them.
Damian Collins (Folkestone and Hythe) (Con)
I am grateful to my right hon. Friend for giving way. He is being very generous with his time.
The planning system has an important part to play. Two years ago, the local authority gave Lydd airport, which is in my constituency, permission to expand. A private investor is willing to pour in millions of pounds so that the work can start immediately, but the decision is still locked up in the planning system awaiting the Secretary of State’s approval. Is there any advice that my right hon. Friend can give his colleagues in the Government that might make it easier for people to invest in the kind of infrastructure that he is describing?
Danny Alexander
The Secretary of State will have to make a decision in the normal way. I am sure that he will have heard my hon. Friend’s comments, and I shall ensure that they are passed on.
Danny Alexander
I must make some progress, but I will give way again later.
Housing guarantees, alongside a wider package of housing and planning reforms, will contribute to the construction of up to 70,000 homes, including affordable housing, and opportunities for first-time buyers to get on to the housing ladder. That will ease conditions in overcrowded and overpriced residential areas, and will enable people to locate near to jobs.
The steps that we plan to take, and which the Bill enables us to take, will help more companies in a wide range of sectors to grow and flourish, not just in the south-east of England but throughout the UK, and will give more people access to a wider range of opportunities. The benefits will also be felt in Scotland, Wales and Northern Ireland. The UK’s hard-won fiscal credibility should benefit the whole of the UK.
Danny Alexander
I have a bit more to say. I have been generous with my time, but I must now make some progress. The hon. Gentleman’s Front-Bench colleagues are becoming restless.
The Bill will enable major infrastructure projects to secure finance regardless of where they are based. We will work closely with the Northern Ireland Assembly, the Welsh Assembly Government and the Scottish Government to ensure that the authority conferred on the Treasury or the Secretary of State by the Bill can be used effectively to help to deliver for people in Scotland, Wales and Northern Ireland.
I shall now give way to the hon. Member for Swansea West (Geraint Davies).
Geraint Davies
In certain areas of Wales—such as Swansea, part of which I represent—the cost-benefit ratio is not always as strong as it might be. Will the Minister support, for instance, super-connectivity for Swansea, given that it has been granted to Cardiff, and better links to Cardiff airport? Passenger numbers are not great at present, but that is simply because the infrastructure has not been there in the past.
Danny Alexander
I hear the case that the hon. Gentleman is making. We have made important announcements recently, particularly in relation to rail links in and to Wales, which I hope he welcomes. I will not support specific projects that may be in gestation, but we will work with the Welsh Assembly Government, who are principally responsible for such proposals. If there are projects for which a guarantee is appropriate, we will consider that very positively in the light of the representations made to us.
As the hon. Gentleman will know, great interest has already been expressed by investors and those involved in projects since the UK guarantees idea was launched six weeks ago. Since then, about 40 companies and project sponsors have come forward, responsible for projects worth well over £5 billion and covering high-priority investment in areas such as energy, transport, water, waste and telecommunications. Detailed discussions are already taking place with, for example, those involved in the Mersey Bridge Gateway project, which is considered to be one of the world’s top 100 infrastructure projects. We have also indicated that we would be willing to consider a guarantee relating to the green deal.
There should be no doubt that the Government are in a position to deliver this policy, and the investment it will unlock, only because of the decisive action that we have taken to reduce the deficit, and the credibility that that has secured for this country. When we came to office, the UK taxpayer was paying interest rates comparable to those of Spain and Italy. Were that still the case, the course of action that we are taking now would be impossible. Because we made tough decisions to regain control of our public finances, we now enjoy interest rates of only about 2%. That is the result of a responsible approach to spending and a credible long-term commitment to regaining control of the public finances.
Despite those tough decisions, we are already spending more on critical transport and communications infrastructure directly as a Government than was spent at the height of the spending boom. We are providing £18 billion-worth of rail investment, supported by the spending review, and a further £9.4 billion of infrastructure enhancements for the rail network was announced in the summer. Ten super-connected cities—the hon. Member for Swansea referred to super-connectivity—will enjoy ultrafast broadband and high-speed wireless connectivity as a result of Government investment, with funding set aside for a further 10. We are also focusing on how we can reduce burdens and keep costs low so that investment, whether public or private, goes as far as possible.
Last week we announced a package of measures to reduce burdens on business still further, including the reform or removal of more than 3,000 regulations to reduce their impact. That constitutes the most ambitious action ever proposed by a modern British Government to set business free. Our spending plans have prioritised capital spending that supports balanced sustainable growth across the country, and our efforts to reduce burdens on businesses mean that investment has gone even further. That approach is producing results despite difficult conditions. More than 1 million private sector jobs have been created under this Government, and this year we rose from 10th to eighth in the World Economic Forum rankings of international competitiveness. The Bill could allow us to unlock even more investment without placing material additional burdens on the public finances, enabling the Treasury to support infrastructure delivery so that we can make better use of private sector finance, skills and incentives, while also managing exposure to the taxpayer.
Under the previous Government, the UK fell in the infrastructure world rankings from seventh in 1998 to 33rd in 2009—behind Namibia, Slovenia and Cyprus. We are now up to 24th and taking the necessary steps to make the further improvement this country needs. There can be no argument with the view that we are delivering far more than under the plans we inherited from our predecessors.
The Bill contains appropriate safeguards and checks to ensure transparency and accountability to Parliament for actions taken under it. It imposes an upper limit on the amount of expenditure that the Treasury and Secretary of State may incur, which can be increased through affirmative resolution. It also requires the Treasury to update the House regularly. In answer to a point that was made earlier, where expenditure is charged on the Consolidated Fund, the Bill requires the Treasury as soon as practicable to lay a report before Parliament specifying the amount paid. Any expenditure or contingent liabilities will be reported in the whole of Government accounts.
Charlie Elphicke
One of the key sensitivities is that one does not want a guarantee to end up like quantitative easing, whereby guarantees are issued and nothing actually comes out the other end. To what extent and how will the Treasury monitor the situation, to ensure that this is a results-based guarantee that brings forward such projects and really makes them happen?
Danny Alexander
I am not sure I accept my hon. Friend’s characterisation of quantitative easing. One of the strengths of the tight fiscal policy that this Government have run and will continue to run is precisely that it allows the monetary activism that we have seen in this country and, indeed, in other parts of the world. However, he is right that the purpose of the Bill is to enable infrastructure projects to come forward quickly. That is why one of the key criteria by which we will decide whether to issue a guarantee to a particular project is that it can get under way within 12 months of the guarantee being issued, and that it has the necessary consents in place. This is about bringing forward projects now; it is not about offering guarantees now for projects where nothing will happen for many years to come.
Stella Creasy (Walthamstow) (Lab/Co-op)
Many Members will want to follow where the public money is spent, and we should consider the role of the Public Accounts Committee in understanding these measures. Will the Minister say a little more about when a liability will go on to the balance books, and the impact of the value for money assessment of the Public Accounts Committee of any of these projects? What will be the impact on those decisions and on any future liability that might be incurred?
Danny Alexander
Of course, the Public Accounts Committee will be able to undertake scrutiny in the normal way. Clause 3 sets out detailed reporting requirements to Parliament for the guarantees, and the PAC will want to scrutinise such matters. As I was explaining earlier, these contingent liabilities will be reported through the whole of Government accounts process, which is the appropriate way to report such things. They will manifest themselves as public spending only as and when the liabilities are called, or where an assumption has to be made about the likelihood of a guarantee being called; otherwise, they are contingent liabilities, as the hon. Lady will well understand.
The Bill contains measures that will support growth, jobs and families, all at minimal expected cost to the taxpayer. It will support the UK’s construction sector by providing access to finance for financially credible, high value for money projects. It will unlock the investment that the UK needs to make it one of the best places in the world to do business, and to support sustainable growth balanced across sectors and regions.
Oral Answers to Questions
Danny Alexander Excerpts(11 years, 9 months ago)
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Mr George Mudie (Leeds East) (Lab)
5. What assessment he has made of the implications for his policies of the public sector net borrowing figures in the current fiscal year.
The Chief Secretary to the Treasury (Danny Alexander)
Public sector borrowing figures have been higher than expected, primarily because of short-term factors, including lower corporation tax receipts caused by the Elgin shutdown and the lower than expected oil price. With eight months of the year remaining, it is too early to draw conclusions about the year as a whole, but the Government remain committed to returning the public finances to a sustainable path, while allowing the automatic stabilisers to operate in response to the weakness in the global economy.
Mr Mudie
The Chancellor boasted in his 2010 Budget speech that the borrowing requirement this year would be £89 billion. The Office for Budget Responsibility is suggesting that the figure will be £120 billion—a 33% overshoot. Can we have an explanation of why the Chancellor got it so wrong?
Danny Alexander
The hon. Gentleman, as he knows, is referring to the OBR’s forecasts. Of course, a number of problems in the global economy, not least those in the eurozone, have become more serious since those forecasts were made. I would have thought that he would applaud the fact that our plan is sufficiently flexible to allow the automatic stabilisers to support our economy when there is weakness in the global economy.
Richard Graham (Gloucester) (Con)
No one in the House underestimates the size of the economic challenge before us or the importance of supporting manufacturing and exports, which make up a fifth of the gross domestic product in my constituency, but at a time when the employment figures are encouraging, our manufacturing indices are outstanding and our global competitiveness has risen by two places, does my right hon. Friend agree that two impediments to business confidence are the threat of strikes by unions and the chorus of despair from the Opposition?
Danny Alexander
My hon. Friend is right to highlight some of the positives in the UK economy, especially the employment figures. My experience of dealing with trade unions is that one should not pay much attention to the rhetoric at their conferences. When one gets down to business with the trade unions, as I did on public service pensions, the majority of them are willing to behave responsibly. That said, and as the shadow Chancellor has said, the British public and trade union members do not want to see strike action in this country.
Bill Esterson (Sefton Central) (Lab)
Borrowing is rising because of the scale and speed of the cuts, as we warned it would. Is it not the case that the economic policy brought in by the right hon. Gentleman and his friend the Chancellor has backfired?
Danny Alexander
Before asking that question the hon. Gentleman should have reflected on the fact that the policy of his party’s Front Benchers is to increase borrowing yet further. They recently announced a new approach, known as pre-distribution. We now know what that means: spend money before it has arrived, in the hope that it might arrive in future. That is the policy that failed this country for 13 years and we will not go back to it.
Mr Julian Brazier (Canterbury) (Con)
Does my right hon. Friend agree that the 900,000 extra private sector jobs that have been created since the last election will go a considerable way towards easing the fiscal position, as well as cast some doubt over the output figures of the Office for National Statistics?
Danny Alexander
I certainly would not wish to question the integrity of the ONS’s figures. However, I join my hon. Friend in highlighting the excellent record of many private sector businesses in creating jobs in all parts of the country over the past two years.
Rehman Chishti (Gillingham and Rainham) (Con)
6. What steps he has taken to help households with their cost of living.
The Chief Secretary to the Treasury (Danny Alexander)
The Government have taken wide-ranging action to support households. For example, we cut fuel duty last year and have deferred various increases planned by the Labour party. We are also helping those in work by raising the personal allowance by £1,100 in April next year, which is the largest cut in income tax for median earners in more than a decade. That is a substantial record of dealing with the big questions in the cost of living for families.
Rehman Chishti
I thank my right hon. Friend for that answer. There are concerns that fuel companies delay the reduction in petrol prices when the cost of crude oil falls. What action are the Government taking to ensure that companies pass on savings to motorists?
Danny Alexander
The hon. Gentleman raises an important point, and I sympathise greatly with families up and down the country who face the problem that he describes. That is why we have made decisions on fuel duty that mean that the price of petrol is roughly 10p a litre less than it would have been had we followed through the Labour party’s plans. The Office of Fair Trading has recently announced a call for information on the problem, and I urge him and Members in all parts of the House to pass on any information that they have. Having spoken to Clive Maxwell of the OFT, I know that it is committed to ensuring—
Mr Speaker
Order. I am greatly obliged to the Chief Secretary, but from now on we need rather shorter exchanges if I am to maximise the number of Back-Bench contributors.
Kerry McCarthy (Bristol East) (Lab)
The Chief Secretary will know that one thing that is really hitting people at the moment is the rising cost of food. A huge number of people, even those in work, are having to resort to going to food banks. What action are the Government taking to address that situation?
Danny Alexander
The hon. Lady will also know that the substantial increases in the personal allowance are putting more money in the pockets of people on low incomes who are working hard. We protected the lowest-paid public sector workers from the impact of the pay freeze, and she will also know that out-of-work benefits went up by 5.2% this year.
Tessa Munt (Wells) (LD)
Returning to the high cost of petrol, diesel and heating oil, I am sure the Chief Secretary is aware that in the past few days FairFuelUK has published a statement from a whistleblower alleging that the oil commodity trading market is being rigged in a similar way to LIBOR. Will he confirm that he will back the call for a wider investigation and inquiry into the UK oil trading market by the Financial Services Authority or the Bank of England, whichever is more appropriate?
Danny Alexander
I applaud the work of the FairFuelUK campaign in drawing attention to such issues. Having discussed the matter with Clive Maxwell of the Office of Fair Trading, I can reassure my hon. Friend that if the call for information in which it is currently engaged yields evidence of real problems in the fuel market, it will launch a full investigation.
Chris Leslie (Nottingham East) (Lab/Co-op)
In four months’ time, more than a million families will see their cost of living rise, with the loss of child benefit and a complex tax change costing the Exchequer £100 million more just to administer. Can the Chief Secretary tell the House how many more families will have to fill out a self-assessment tax form for the privilege of losing their child benefit, and when will those complex forms begin to arrive?
Danny Alexander
Letters to people who are likely to be affected by that change will go out in October—[Hon. Members: “Which year?”] October of this year. I am surprised to hear that the hon. Gentleman objects to the change, given that it is a necessary part of our fiscal consolidation, and particularly part of our asking the wealthiest in this country to make a contribution to deficit reduction. His party should support that.
Karl MᶜCartney (Lincoln) (Con)
7. What assessment he has made of the effect on pubs of the continuation of the beer duty escalator.
John Stevenson (Carlisle) (Con)
14. What assessment he has made of the effect on the cost of living of the increase in the personal allowance.
The Chief Secretary to the Treasury (Danny Alexander)
In this year’s Budget, we announced a £1,100 increase in the personal allowance for 2013-14—the largest ever cash increase. The combined increases that the coalition has announced will reduce the tax paid by a typical basic rate taxpayer next year by £350 in real terms and £546 in cash terms.
John Stevenson
Given that the policy of significantly increasing the personal allowance has been hugely successful, would the Chief Secretary agree that the long-term goal should be to link the personal allowance with the minimum wage, thereby ensuring that anybody on the minimum wage does not pay income tax?
Danny Alexander
I am grateful for my hon. Friend’s endorsement of the policy. The coalition Government have committed to increasing the personal allowance to £10,000—a policy that was on the front page of the Liberal Democrat election manifesto—but I agree that the long-term objective, which I and my party share, should be to link the personal allowance to the minimum wage. However, a considerable cost would be attached to that.
Alison McGovern (Wirral South) (Lab)
May I bring the Chief Secretary back to the reality faced by my constituents, who see their cost of living rising all the time, with food prices increasing in the shops, and Government borrowing rising nationally? Which part of the Government’s record is he least proud of?
Danny Alexander
As the question that the hon. Lady is following up on concerns the personal allowance, let me limit my answer to that, Mr Speaker. Her constituents, in common with other Members’ constituents, are benefiting from the fact that the Government have introduced the most radical policy for many years by putting more money back into the pockets of hard-working families across the country. She would do well to accept that.
Gavin Williamson (South Staffordshire) (Con)
15. What steps the Government have taken to reduce the cost of credit to the real economy.
Derek Twigg (Halton) (Lab)
T7. The Chief Secretary to the Treasury was asked earlier about the cost of living, but he said nothing in his reply about what the Government were doing about rising food, transport and energy prices. Have he and his colleagues had discussions with the Energy Secretary about getting a grip on the energy companies and sorting out the soaring energy prices and the profits that the companies are making as a result?
The Chief Secretary to the Treasury (Danny Alexander)
I have certainly had conversations with the Energy Secretary about initiatives such as the green deal, under which people’s energy costs will be brought down by insulating their homes. The hon. Gentleman mentioned fuel costs, but he must be aware that the price of a litre of fuel is 10p less than it would have been if we had stuck with the plans that the previous Government put in place. That was their approach to the cost of living, and this is ours.
Andrew Stephenson (Pendle) (Con)
T8. Big increases in the funding of vital rail infrastructure projects in the north-west of England, such as the Todmorden curve, the northern hub and High Speed 2, are hugely welcome and will provide jobs and opportunities that would not have been available under the previous Government. Will my right hon. Friend confirm that, without his decisive action on the public finances, such high levels of spending on infrastructure would simply not have been possible?
Stephen Williams (Bristol West) (LD)
The fact that the deficit has come down by a quarter enables the British Government to borrow at roughly the equivalent rate of the United States Government—a rate lower than every EU member state apart from Germany. Does the Chief Secretary agree that this enables the Government to contemplate infrastructure investment and to use the strength of our balance sheet to facilitate and guarantee private sector infrastructure investment?
Danny Alexander
My hon. Friend is absolutely right. We can use the strength of the balance sheet that has been built up as a result of this Government’s fiscal credibility to provide, for example, £40 billion of guarantees to infrastructure investment and £10 billion of guarantees to registered social landlords. The Labour party may oppose these guarantees, but they have been widely welcomed by infrastructure providers, by the business community and, in the latter case, by housing associations. That shows precisely the benefit of the tough fiscal policy decisions this Government have taken.
Jenny Chapman (Darlington) (Lab)
Will Ministers look urgently at the length of time it is taking to process tax credit applications? My constituents are being declined their tax credits simply because they are on fixed-term contracts that come to an end before the tax credit application is considered.
Sir Nick Harvey (North Devon) (LD)
What are the Government’s intentions regarding transition regions in the next round of EU funding? I am told that four Departments are slightly at odds over that. May I surprise my hon. Friends by saying that in the south-west those in the Treasury are seen as the good guys, in this context at least? Will they impress on their Government colleagues the fact that if these schemes are to help areas such as North Devon and Torbay, which have been shown to be at more risk of going into poverty than Cornwall, they will need to operate bottom-up and not top-down?
Danny Alexander
My hon. Friend is right to say that transition status has benefited regions such as his—and, indeed, mine in the highlands and islands—during the current multiannual financial framework period. Our principal objective in relation to the budget negotiations is to bring down the total EU budget in recognition of what is going on around Europe, but we will happily discuss further with him his concerns about the issues that he has raised to ensure that we secure a fair deal for impoverished regions of this country as well.
John Healey (Wentworth and Dearne) (Lab)
Legislation for Government borrowing guarantees to help to fund infrastructure is due to be presented to the House next week. The Chancellor is right to try to use the power of government in this way, so why has it taken two and a half years, and nine months of double-dip recession, for him to decide to do it?
Non-departmental Public Body (Pension Reform)
Danny Alexander Excerpts(11 years, 11 months ago)
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The Chief Secretary to the Treasury (Danny Alexander)
The Government accepted the recommendations of Lord Hutton’s Independent Public Service Pensions Commission (IPSPC) as the basis for discussion with unions on the reform of public service pensions, Official Report, 23 March 2011, column 951. The Hutton pension reform process was explicitly applicable to public service pensions in general, including non-departmental public bodies (NDPBs) and other types of public bodies as the interim IPSPC report (page 134) made clear. As announced in the Queen’s Speech on 9 May, the Government intend to bring forward legislation during the current parliamentary Session to provide a consistent legal framework for public service pensions. Those reforms will allow the major unfunded public service pension schemes to provide pension benefits to employees of new and existing NDPBs with unfunded pension schemes. In future, new bespoke schemes for NDPBs will be allowed only in compelling circumstances, provided they follow Lord Hutton’s design recommendations. The Government will consider further how to reform funded defined benefit schemes in line with Lord Hutton’s recommendations. Funded defined contribution schemes will not be reformed as part of this process as they do not impose liabilities on the Exchequer. A provisional list of existing NDPBs’ pension schemes due for reform will be published when the Bill is introduced.
The Government will honour in full the accrued rights earned by all scheme members and, where applicable, will maintain the final salary link for past service for current members. Members of NDPB pension schemes will also benefit from my announcement on 2 November 2011 that no-one within 10 years of retirement on 1 April 2012 will see any change in when they can retire nor any decrease in the amount of pension they receive, Official Report, 2 November 2011, columns 928-29.
Once the major scheme reforms are settled, we will look to begin discussions with NDPB staff and their representatives, whom we invite to work with the Government to ensure the changes are introduced as effectively as possible no later than 5 April 2018.
Fiscal Sustainability Report
Danny Alexander Excerpts(11 years, 11 months ago)
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The Chief Secretary to the Treasury (Danny Alexander)
Today the independent Office for Budget Responsibility (OBR) published its second fiscal sustainability report (FSR). This document meets their requirement to prepare an analysis of the sustainability of the public finances each financial year, and provides an important insight into the state of the public finances taking into account the significant impact of demographic change. The report was laid before Parliament earlier today and copies are available in the Vote Office.
The FSR shows that, without additional policy change, an ageing population is projected to increase age-related spending by 5.0% of GDP between 2016-17 and 2061-62, as health, social care and pension expenditure become an ever larger proportion of total public spending and the economy. The OBR projections show that public sector net debt is expected to fall to a trough of 57% of GDP in the mid-2020’s, before rising to reach 89% of GDP in 2061-62 in the absence of further policy change.
The Government are committed both to shoring up our fiscal position now and making it sustainable for the long term. The OBR analysis makes it clear that our medium-term consolidation plan is essential to restoring long-term sustainability in the public finances. They show that a deterioration in the primary balance in 2016-17 worth 1% of GDP could increase projected public sector net debt in 2061-62 to around 130% of GDP. This shows the scale of impact if the medium-term consolidation was not achieved.
The OBR discusses the impact of changes to policy on their long-term projections. They show that excluding policy changes announced since the 2011 FSR and the new population projections, public sector net debt would have been projected to reach nearly 200% of GDP by 2061-62. They identify the additional spending reductions announced at autumn statement 2011 as one of the key factors in preventing this increase in projections, as well as highlighting the long-term decisions we have made in bringing forwards the state pension age increase to 67 and public service pension reforms.
The FSR presents the first estimates for the savings delivered by our public service pension reforms. These independent projections show that net spending on public service pensions is projected to fall from 1.5% of GDP without reform to 0.9% with reform in 2061-62. The Government’s reforms will bring total spending on public service pensions in line with the long-run average over the last 40 years. This will save 40% of net expenditure by 2061-62, so freeing up funding for other services. The Treasury estimates that this represents around £430 billion of savings in current GDP terms over the next 50 years. This shows that the deals confirmed last week are good for taxpayers, as well as public sector workers who will continue to receive pensions that are among the very best available, providing a guaranteed pension level for all members.
The long-term projections presented in this report also provide important context to ongoing debates about public service reform, such as on social care. The OBR’s projections suggest that spending on social care will increase substantially over the next 50 years as the UK’s population ages and it is clear that the UK will need to take into account the likely pressure on public services from demographic change as we consider reforms in this and other areas.
We will bring forward the necessary legislation to reform public sector pensions in this parliamentary Session and set out proposals this autumn to ensure the state pension age is reviewed to take into account future changes in longevity. These and other decisions reflect the Government’s continuing commitment to make the right decisions for the long term, including for the long-term sustainability of the public finances.
Public Service Pensions
Danny Alexander Excerpts(11 years, 11 months ago)
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The Chief Secretary to the Treasury (Danny Alexander)
On 20 December 2011 I set out to the House the main elements of the new public service pension scheme designs, following the agreements reached with the majority of unions representing health, civil service and teachers’ workers Official Report, column 1201. These agreements were based on the Government’s enhanced offer, an 8% value increase, which I announced in the House on 2 November 2011, Official Report, column 927.
Departments continued to engage with trade unions to finalise the remaining details of the new schemes. Those discussions concluded earlier this year, with proposed final agreements being reached. My right hon. Friend the Minister for the Cabinet Office and Paymaster General, the Minister of State, Department for Education, my hon. Friend the Member for Bognor Regis and Littlehampton (Mr Gibb) and the Secretary of State for Health reported the details of these final agreements to the House in written ministerial statements on 12 March 2012, Official Report, columns 1WS, 4WS and 7WS respectively.
The Government made it clear that the proposed final agreements were their final position. Most of the unions agreed to take the agreements to their executives on this basis, as the best deal that could be achieved through negotiations.
Most unions have now consulted their membership on the final scheme designs for the NHS pension scheme, teachers’ pension scheme and principal civil service pension scheme.
I am now confirming to the House that the Government will be taking forward legislation based on the position reached in March. Legislation will be introduced during the current parliamentary Session to take these changes forward, as announced in the Queen’s Speech on 9 May.
I can also confirm that the Government have reviewed the fair deal policy and agreed to maintain the overall approach, but deliver this by offering access to public service pension schemes for transferring staff. When implemented, this means that all staff whose employment is compulsorily transferred from the public service under TUPE, including subsequent TUPE transfers, to independent providers of public services will retain membership of their current employer’s pension arrangements. These arrangements will replace the current broad comparability and bulk transfer approach under fair deal, which will then no longer apply. The Government will bring forward detailed proposals for implementing this in the autumn.
The Government will now focus on implementing the public service pension reforms and unions are invited to work with the Government to ensure the changes are introduced as effectively as possible.
Oral Answers to Questions
Danny Alexander Excerpts(12 years ago)
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Stephen Timms (East Ham) (Lab)
3. What recent estimate he has made of the level of economic growth in 2012.
The Chief Secretary to the Treasury (Danny Alexander)
The Office for Budget Responsibility is responsible for producing independent economic and fiscal forecasts. In its March economic and fiscal outlook, the OBR forecasted economic growth of 0.8% in 2012, but more recent independent forecasts have been lower, reflecting the fact that the euro-area crisis remains the biggest risk to the UK recovery.
Stephen Timms
A worryingly large jump in Government borrowing has been reported today. Why is it that of all the G20 countries, only Britain and Italy are in recession?
Danny Alexander
The right hon. Gentleman refers to borrowing, but his Front-Bench team wants us to borrow tens of billions of pounds more, which is not the right response. If he studies the figures carefully, he will see that departmental spending is rising much less than was forecast, but, of course, the automatic stabilisers in the economy are operating. That is precisely the flexibility in our plan, which is tough on the structural deficit but supportive of the economy.
George Freeman (Mid Norfolk) (Con)
Has my right hon. Friend seen the latest Office for National Statistics figures, which show that unemployment is down 50,000 in the last quarter and over 800,000 new jobs have been created since we took office? Does he agree that this suggests that the Government’s programme of deficit credibility, public sector restraint and support for business is laying the foundations for a sustainable recovery?
Danny Alexander
I am grateful to my hon. Friend for that question. He is, of course, right to say that the recent figures show that unemployment has been falling, and that is good news, of course. Inflation is also coming down, which is good news for hard-pressed consumers.
Rachel Reeves (Leeds West) (Lab)
Does the Chief Secretary think the fact that the economy is in recession explains why today’s figures show that borrowing is going up, not down as the Government intended?
Danny Alexander
As I said to the right hon. Member for East Ham (Stephen Timms), the figures reflect a combination of things, including the fact that departmental spending has been held down by more than was forecast, but the automatic stabilisers in the economy are operating. That is the flexibility in our plan. It is because of the fiscal credibility the Government have brought to this country that we can do that.
Rachel Reeves
I do not think the Chief Secretary answered the question. Figures out this morning show that, with the economy in recession, tax receipts are falling, and the benefits bill is going up, so borrowing is already £4 billion higher this year than last. Is it not time that the Government admitted their plan has failed, and without action on jobs and growth, borrowing does not go down, it just goes up?
Danny Alexander
That is an astonishing question from the party that made the mess in the British economy that we are trying to clear up, and the party whose plans wanted this Government to borrow even more. That just goes to show what would have happened to the UK economy if we had been unfortunate enough to have the Labour party stay in power.
Nicholas Soames (Mid Sussex) (Con)
Does my right hon. Friend agree that protectionism is the enemy of economic growth? What steps will he take to re-energise the Doha round?
Danny Alexander
I wholeheartedly agree with my right hon. Friend. It is a very important point that, in times of economic stress worldwide, some countries may seek a protectionist approach. That is why at the forthcoming European summit the Prime Minister will again be arguing for measures within Europe to strengthen the single market and to increase free trade within the EU, and for measures for the EU to take to build on the free trade agreements that, collectively, we are signing with a number of other important economies in the world. We need to keep up the momentum of that process in order to help support the world economy.
Andrew Gwynne (Denton and Reddish) (Lab)
6. What assessment he has made of the performance of the economy in the last 18 months.
The Chief Secretary to the Treasury (Danny Alexander)
As the Office for Budget Responsibility made clear last autumn, Britain’s recovery has faced strong headwinds from the euro area, high oil prices and the impact of the financial crisis being deeper than previously thought. Our actions to reduce the deficit and rebuild the economy have secured stability and kept interest rates near record lows, benefiting families, businesses and taxpayers, although, of course, considerable external risks remain.
Andrew Gwynne
That just does not wash, because by May 2010 the British economy was growing, whereas since the Government’s emergency Budget of June 2010 the economy has at best flatlined and at worst dropped back into recession. Why does the right hon. Gentleman think that is?
Danny Alexander
By May 2010, the hon. Gentleman’s Labour Government had put in place plans to increase fuel duty by above the rate of inflation each and every year of this Parliament. He should be welcoming the fact that we are taking steps to support hard-pressed families and hard-pressed consumers across the country in the very difficult economic circumstances that we face.
Robert Halfon (Harlow) (Con)
Does my right hon. Friend agree that motorists across the country will welcome the cut in fuel tax announced for August and that it will greatly improve the performance of the economy? Does this not show that the Government are on the side of hard-pressed working people?
Danny Alexander
I agree entirely with my hon. Friend. I met representatives of the FairFuelUK campaign yesterday. We have a great deal of sympathy with its arguments, as well as with those made by families across this country, including in remote and rural areas. It is worth saying that thanks to the decisions this coalition Government have made not only is fuel tax 10p a litre lower than under Labour’s plans, but council tax is lower and income tax is lower. In the Budget in March we also saw the largest ever increase in the income tax personal allowance, all of which puts money back into the pockets of hard-pressed families.
Mr David Nuttall (Bury North) (Con)
7. What recent assessment he has made of the effect of EU regulations on economic growth.
Roberta Blackman-Woods (City of Durham) (Lab)
10. If he will discuss with his ministerial colleagues bringing forward the timing of public infrastructure investment in order to encourage economic growth.
The Chief Secretary to the Treasury (Danny Alexander)
We are having those discussions as we speak. We are already spending more on new roads and new rail now than we were at the height of the spending boom in the previous Parliament. We have provided £2.4 billion for the regional growth fund, £770 million for the Growing Places fund and £570 million for the Get Britain Building fund. We can also support infrastructure investment through the use of Government guarantees and will be announcing more about how we plan to do so later this summer.
Roberta Blackman-Woods
But will the Chief Secretary listen to the business leaders quoted recently in the Financial Times, who said that they had heard Ministers talking about infrastructure projects for months but with no visible results? Will he publish a timetable today, or very soon, for each region showing the projects that will be brought forward with their delivery dates?
Danny Alexander
The hon. Lady will have seen that last November we published the national infrastructure plan, which does precisely what she said and which was widely welcomed by business leaders and business organisations across the country. She will know that we are spending more on road and rail than the previous Government managed, including on a number of projects in her part of the world.
Jane Ellison (Battersea) (Con)
My constituents warmly welcome the Government’s support for the Northern line extension in the Vauxhall/Nine Elms development area. Is that not a good example of exactly the kind of infrastructure project that the Government could support to help unlock economic growth?
Danny Alexander
It is precisely such an example of the sort of infrastructure that this country needs and the sort of project from which the economy of London and elsewhere will benefit if we can bring the investment forward and make things happen more quickly. As I said, we are looking for ideas about doing just that.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Is the Chief Secretary not aware that the so-called national infrastructure programme is way behind schedule, that the construction industry is flat on its back and that the apprenticeships in that sector, so badly needed by the industry and by the Government, are seizing up? Why does he not get his finger out and do something about it instead of making vague promises?
Danny Alexander
The hon. Gentleman is wrong to say that the national infrastructure plan, which we published last November, is behind schedule, but of course he is right to say that there are problems in the construction sector. That is why we have taken a number of steps to support the house building sector, but we will make further announcements in that area later this summer.
Elizabeth Truss (South West Norfolk) (Con)
Over the past four years, footfall on the Norwich-Cambridge line and the Fen line has increased by 20%. In the Government’s infrastructure plan, will they bring forward the upgrading of the Ely North junction, which will enable half-hourly services on both those lines?
Danny Alexander
I do not know the details of the Ely North junction project but I shall certainly raise the matter with the Secretary of State for Transport. However, that is precisely the sort of project we have been bringing forward over the past two years to support economic growth across the whole of the United Kingdom, rather than having a model of growth based solely on receipts from the City of London, which was basically the policy of the Labour party.
Mr Rob Wilson (Reading East) (Con)
11. What recent steps he has taken to increase bank lending to small businesses.
Gemma Doyle (West Dunbartonshire) (Lab/Co-op)
T10. Written answers to my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) reveal that the nationalist Scottish Government have made no approach whatever to the UK Government on membership of the Bank of England’s Monetary Policy Committee. Does the Chancellor think that Scotland would have more influence on monetary policy as part of the UK or outside the UK using sterling as a foreign currency?
The Chief Secretary to the Treasury (Danny Alexander)
The hon. Lady refers to just one of a number of shambolic statements made by the Scottish National party since it launched its campaign for independence a few weeks ago, and not just on the Bank of England, but on financial services regulation. She makes the point very powerfully indeed that Scotland is “better together” as part of the United Kingdom. We have greater strength together as part of a more credible economic unit and part of the shared monetary policy of the Bank of England. All that would be jeopardised if Scotland were ever to become independent.
Andrew George (St Ives) (LD)
T7. The Chief Secretary has rightly committed the Government to clamping down on tax avoidance. Given recent high- profile cases of tax avoidance, and notwithstanding the earlier question from the hon. Member for Bolsover (Mr Skinner), will my right hon. Friend update the House on the progress being made and perhaps give a projection for the progress he expects over the rest of this Parliament?
Danny Alexander
I am grateful to my hon. Friend for his question. As the Chancellor said, the Government have done more on this issue in two years than the previous Government managed in 13 years. In particular, at the time of the spending review I announced that we would invest an extra £900 million in Her Majesty’s Revenue and Customs so that it could employ a large number of additional experts to deal with tax avoidance. That programme is projected to lead to an additional £7 billion a year in tax revenue by the end of this Parliament, and we are well on track to meet that objective.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
Can the Chancellor confirm that the Government are going to spend an additional £150 billion in borrowing above their plan of a year ago?
Mr Dominic Raab (Esher and Walton) (Con)
T9. Last year we lost the most working days to strikes in 20 years, and since the last election union leaders have never won the backing of a majority of their members for any major strike. Will my right hon. Friend task the Office for Budget Responsibility to provide annual estimates of the cost to the economy of strikes and of the concessions, paid for by taxpayers, to avoid them?
Danny Alexander
I am not sure that the hon. Gentleman’s suggested idea would be an appropriate task for the Office for Budget Responsibility to undertake, but he is right that strike action is costly to the economy. He would also be right to observe that it has not stopped this Government proceeding with the reform of public service pensions, and with pay restraint in the public sector, too, to help deal with the enormous mess left to us by the Labour party.
Alison McGovern (Wirral South) (Lab)
With regard to the problems at RBS this week, my constituent David Robinson has been unable to access his funds, including disability allowance, from his account with thinkbanking. It is an internet-based bank that uses the RBS platform, so he could not go into an RBS branch to resolve his problems. Will the Minister please make contact with RBS about internet banking users and make sure that my constituents—and everyone else—are not unduly affected?
Public Appointees (Tax Arrangements)
Danny Alexander Excerpts(12 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chief Secretary to the Treasury (Danny Alexander)
As hon. Members are aware, in February I announced a review of the tax arrangements of public sector appointees. I said that I would report back to the House on the results of that review, which is what I would like to do in this statement today. As I said at the time to the House, there is absolutely no place for tax avoidance in government. That is especially so at a time when money is tight and we all have to pay our fair share to help tackle the deficit.
As I told the House in February, senior civil servant appointments are audited against the Treasury’s “Managing Public Money” guidance. That document states that
“public sector organisations should avoid using tax advisers or tax avoidance schemes as any apparent savings can only be made at the expense of other taxpayers or other parts of the public sector.”
That is why when questions were raised about the tax arrangements for senior public service appointees, I immediately put this review in place, and I would like to thank the investigative journalists at ExaroNews for bringing the issue to our attention.
The review looked at the extent of off-payroll engagements in Government Departments and their arm’s length bodies. With respect to the NHS, the review was limited to the boards of NHS organisations. None the less, the “Managing Public Money” guidance, and the new principles that I will set out today, apply in full to the NHS. The review could not include either local government or the BBC, which are not under direct control from central Government—it will be for those organisations to justify their own off-payroll arrangements, in the light of the unprecedented transparency we are showing today. Nor does it include devolved Administrations, and I hope they will now also follow the example we are setting.
Let me be clear to the House: the review published today did not seek to identify evidence of tax avoidance—that is the role of Her Majesty’s Revenue and Customs. The review looked at off-payroll engagements, because the opaque nature of those engagements has created the conditions where tax avoidance could be taking place. Let me also make it clear there are circumstances where it may be necessary and appropriate for an employer to appoint an individual off payroll—for instance, where Departments need to employ specialists to carry out short-term roles when there is no available civil service expertise. That practice will continue. However, the review has revealed the extensive and long-standing nature of off-payroll engagements in government. I can tell the House that the review has identified more than 2,400 off-payroll engagements in central Government Departments and their arm’s length bodies that were live on 31 January this year. That is an unacceptable number, given the lack of transparency on the tax arrangements of these contracts.
That lack of transparency cannot continue, so today each Department involved is publishing on its website a list of off-payroll appointees who, as of 31 January, were engaged at an annual cost to the Department of more than £58,200. The majority of cases relate to technical specialists; in fact, more than 40% relate specifically to IT specialists. The data also show that 70% of cases relate to arm’s length bodies. About 10% of the cases relate to payments made directly to a personal services company. More than 85% relate to intermediaries such as employment agencies, where it is not possible to know whether the individual is or is not using a personal service company. The other 5% relate to the self-employed, who are therefore subject to self-assessment in the normal way. About 70% of all those in the identified cases are paid more than £400 a day, and more than 70 cases cost Departments more than £1,000 a day. About 900 of the cases—approximately 40%—date back longer than two years. In fact, more than 20 cases date back more than 10 years, which some might consider an astonishing length of time to be on a contract. It is also worth noting that since January this year, more than 350 off-payroll contracts identified by this review have since ended. In about 10% of those cases the individual remained with the Department but is now on the payroll.
It is clear that off-payroll engagement without sufficient tax transparency has been endemic in the public sector for too many years. It is a problem that built up and was presided over by the previous Government. Indeed, it is likely that under their watch many more thousands of cases of off-payroll payment have come and gone, yet no one said a word.
The solution to the problem is not to turn a blind eye or brush it under the carpet. We must bring an end to the “don’t ask, don’t tell’ approach to the issue and it is clear that the tax arrangements for off-payroll employees in the public sector are not as transparent to the employer as they should be. At the moment, contracts with off-payroll employees do not give Departments the right to request detailed tax assurance from individuals; nor can HMRC provide that information due to taxpayer confidentiality. Even when off-payroll employees are in fact paying the correct amount of income tax and national insurance, the employer has no means of reassuring themselves that that is the case. It is right that we should tackle that lack of transparency.
Today I can announce new tighter rules on off-payroll appointments. First, the presumption is that in the future the most senior staff must be put on the payroll. Secondly, all Departments must put in place provisions that allow them to seek formal assurance that anyone paid a senior rate and employed off-payroll for more than six months is meeting their income tax and national insurance obligations in full. If that reassurance is not provided when requested, Departments should terminate the contract.
Finally, these new tighter rules will be monitored carefully and any Department that does not comply will be fined up to five times the cost of the salary by the Treasury. In addition to those changes, we have shared all the detailed information from the review with HMRC, which will be able to take any further action it decides is necessary in individual cases. There will be no lengthy transition period for the new rules, either. They will be implemented by September this year and will be applied to existing contracts too, subject to value for money. Departments will report to Parliament on the outcome as part of the 2012-13 annual report and accounts process.
There is one further measure I want to announce today. Working through an intermediary provides an opportunity to minimise, or in some cases avoid completely, paying income tax and national insurance that would otherwise be payable. We already have anti-avoidance legislation, commonly known as IR35. That rule ensures that where there is in effect an employment relationship, if it was not for the interposition of a personal service company, the person concerned pays the appropriate amount of tax and national insurance. The rule is a vital tool in tackling tax avoidance and helps to ensure that people pay the right amount of tax.
Let us take as an example an individual earning £120,000 a year. In that instance, there could be as much as a £23,000 difference between the amount of tax and national insurance paid compared with that paid by somebody on the payroll. When IR35 was introduced 10 years ago, it was comparatively rare for controlling persons of an organisation to work through a personal service company. In the past few years, however, there have been high-profile reports of that happening, so today the Government are also consulting on the Budget proposal that all so-called “controlling persons” must by law be on the payroll of their organisation. This proposed tightening of the rules will apply to any organisation, be it public or private. It is right that when an individual is in a position to control the major activities of an organisation, they should be on the payroll of that organisation.
At a time of tight public finances, it is vital that everyone pays their fair share. The changes I have outlined today help to ensure that senior public staff pay, and are seen to pay, their full and fair share of income tax, and they demonstrate yet again the Government’s determination to clamp down on all forms of tax avoidance. I commend the statement to the House.
Rachel Reeves (Leeds West) (Lab)
I thank the Chief Secretary for his statement and for providing advance notice of it. We welcome this review of the pay and tax arrangements of senior public servants.
At a time when ordinary families and businesses are bearing the brunt of the recession that this Government have created and at a time when more than 700,000 jobs in the public sector are being cut while ordinary public service workers who keep our NHS, schools and police services running have had their pay frozen and their pension contributions increased, people will be shocked that more than 2,000 senior public servants, many earning several times the average public sector wage, have been paid in a way that allows them to avoid paying their fair share of tax, and that 1,200 of these deals have been done by the present Government in the past two years.
The vast majority of working people in this country have no choice over how or whether to pay the tax that they owe and they will feel that those who benefit from the highest public sector salaries have a special responsibility to make their proper contribution to the funding of the public services on which we all rely and to which they owe their generous salaries. We should all be clear that if the taxpayer is paying someone a living, particularly a better living than the vast majority of taxpayers enjoy, that person has a duty to pay their fair share of tax and the Government have a duty to ensure that they do so.
The statement is a valuable step towards greater transparency and accountability and we welcome that, but I have a number of questions that I hope the Chief Secretary can answer today. First, on the question of the chief executive of the Student Loans Company, we now know that he was appointed at a salary significantly higher than that of his predecessor and that he potentially avoided paying around £42,000 annually in tax, an amount almost twice the average public sector salary. Will the Chief Secretary tell us which members of the Government agreed to the arrangement made with the chief executive of the Student Loans Company and which members of the Government were aware of the arrangements before the matter came to the public attention in February? Have changes been made to his payment arrangements since then and can we be assured that he is now paying his full share of income tax and national insurance? If not, when can we have that assurance? If his contract has been altered, has there been any cost to the taxpayer in doing so?
The Government committed to publishing details of all public servants paid more than £150,000, yet the chief executive of the Student Loans Company was not on the list published in 2011 despite, as we know, earning £182,000 and despite the fact that his predecessor was listed. Will the Chief Secretary explain why the chief executive’s name was not on that list and can he tell us if any other public servants paid more than £150,000 have not been listed so far and whether they will be listed in the 2012 publication?
Secondly, on the subject of the extent of the problem and the scope of the review, will the Chief Secretary confirm how many such deals were signed off since February, when the affairs of the chief executive of the Student Loans Company came to light? Will he confirm that those individuals paid more than the Prime Minister will have been personally approved by the Chief Secretary? How many has he personally approved? If any did not come to him for approval, can he explain why?
The review’s findings cover only people who earn more than £58,000, which is more than twice the average annual salary in this country. Will the Chief Secretary tell us why his review excluded anyone on less than £58,000 a year, and if he will return to the House with findings that include all such cases? In those cases where a public servant was not being paid on payroll, were the individuals concerned paying their proper share of income tax or national insurance? What was the cost to the Exchequer of those arrangements?
Despite the emphasis on transparency, the findings presented today do not include local authorities, non-maintained schools, public broadcasting authorities or other publicly owned companies. Those areas account for a substantial portion of the public sector pay bill. When will the Chief Secretary come to the House with figures that cover those areas? It is not enough for him merely to encourage the publication of that information by others.
The findings also do not cover publicly owned banks. I think that taxpayers who have paid to rescue those banks would expect those employed by the banks to be paying their tax at the appropriate rate. Will the Chief Secretary conduct a review of the extent of such arrangements in the publicly owned banks?
The findings also do not cover privatised or contracted-out services. Does the Chief Secretary think that those earning large incomes from taxpayer-funded contracts should be expected to pay their proper share of tax, and what steps will he take to ensure that that is happening?
Thirdly, as regards what the Government will do next, the Chief Secretary has told us that there will be a new presumption that the most senior staff must be on the payroll. How does he define “the most senior staff” for those purposes? Will he give a clearer definition of the exceptional circumstances in which he will allow some public servants to continue receiving their salaries off the public sector payroll? Will he give an undertaking that those cases for which those exceptions have been made will be made public and that the exceptional reasons for them will be given?
In future cases, will Departments be allowed to seek assurances about the tax affairs of public appointees with off-payroll arrangements, or will they be required to do so, as this morning’s news reports imply? If they will not be required to do so, why not? Why not have that duty to seek such assurances?
Where these arrangements are disallowed for current or future appointees, can the Chief Secretary give us his assurance that their salaries will not rise to compensate them for the loss of net income that may result? Can the Chief Secretary confirm that in accordance with previous commitments given on transparency and accountability, all those covered by the review whose earnings exceed £150,000 will be included in the Government’s annual list of people earning more than this figure?
On the wider issue that the Chief Secretary mentioned—how IR35 laws are used to avoid tax beyond the public sector, which clearly needs to be addressed—can he guarantee that HMRC will have sufficient resources to monitor, manage and enforce the full payment of taxes at a time when it is being asked to absorb £2 billion-worth of cuts to its budget?
In conclusion, the Government need to ensure value for money for every pound of taxpayer money spent, especially at a time of wage restraint for nurses, teachers and police, and huge cuts in the number of people working in the public sector, so the Opposition welcome the Chief Secretary’s commitment to rein in the avoidance of tax, but I hope this will apply to all those who are paid by the taxpayer, and that there will be genuine transparency in pay and in any exceptions to the rules set out today.
Danny Alexander
I am grateful for the shadow Chief Secretary’s welcome for the steps that I announced today, though it was striking that in her response there was no reference at all to the fact that many of these arrangements date back to the time of the previous Government. About 40% of the cases identified began work under the previous Government.
If the hon. Lady wants to know more about why those arrangements came into place, she could ask her Front-Bench colleagues if they were here. She could ask the Leader of the Opposition, for example, as two cases date back to his time as Secretary of State for Energy and Climate Change. She could ask the shadow Home Secretary, as nine cases date back to her time as Secretary of State for Work and Pensions. She could ask the shadow Health Secretary, as 45 cases date back to his time as Secretary of State for Health. She could ask her colleague the shadow Chancellor, because at least 24 cases date back to his time as Secretary of State for Education. Yes, it is once again their mess and we are cleaning it up.
The hon. Lady asked a few questions. With reference to the chief executive of the Student Loans Company, as I said in answer to the urgent question from the right hon. Member for Newcastle upon Tyne East (Mr Brown) in February, the individual concerned went on the payroll straight away—that day. I announced that at the time of that statement, which I think the hon. Lady responded to. Of course, going on the payroll was the appropriate thing to do. As I made clear then, I had no knowledge of any tax benefit to an individual. As is the practice with cases where those involved are earning more than the Prime Minister’s salary, the approval is given within the Department. My role as Chief Secretary is to examine the salary level to make sure that it is consistent with the pay restraint that we are properly putting in place across the public sector.
This review looked at the salary level above £58,200 because that is the minimum salary level in the senior civil service, and it focused on senior public service appointments. These rules will be available for Departments to apply more generally, should they wish to do so. As I said in my statement, the review was not looking for evidence of tax avoidance because individual tax arrangements are a matter of taxpayer confidentiality, but all the results of the review from across Government have been passed to Her Majesty’s Revenue and Customs so that they can investigate if they choose to do so.
I referred in my statement to organisations that are not within the control of central Government, such as local authorities, the BBC and so on, but I am sure the many Labour councils around the country will have heard the shadow Chief Secretary’s remarks and will be bringing forward as a matter of urgency transparent publication of all the arrangements in their local authorities. I look forward very much to seeing that.
In relation to IR35, I should remind the House that in the spending review we provided an additional £900 million to Her Majesty’s Revenue and Customs specifically to focus on their work tackling tax evasion and tax avoidance. That will include resources to investigate cases caught out by the review or cases under IR35. The hon. Lady will know that the Office of Tax Simplification looked at the operation of IR35 last year and we are carrying forward some of its recommendations, but the proposal on which we are launching a consultation today—that controlling persons in organisations should, as a matter of course, be on the payroll—will strengthen the IR35 regime, which I hope Members on both sides of the House will welcome.
Alec Shelbrooke (Elmet and Rothwell) (Con)
I listened carefully to my right hon. Friend’s statement, taking note of his comments regarding the BBC. A great number of my constituents pull their hair out at the huge salaries paid to people at the BBC, only to see them invest them in companies outside to try to avoid tax. Will the IR35 regime go some way towards trying to address the situation?
Danny Alexander
The arrangements at the BBC are a matter for the BBC. I know that my right hon. Friend the Secretary of State for Culture, Olympics, Media and Sport has drawn the review to the BBC’s attention, so it is aware of the focus that the Government are placing on the issue. IR35 potentially applies to any taxpayer in the relevant set of circumstances, whether that individual works for the BBC or for any other organisation.
Madam Deputy Speaker (Dawn Primarolo)
Order. The right hon. Lady is not asking a series of questions. This is a statement. I have given her considerable latitude, given her seniority, but I think she has asked enough questions now. Perhaps she should leave some for other Members who are rising.
Danny Alexander
I am grateful to the right hon. Member for Barking (Margaret Hodge) for her questions. Certainly, Treasury officials will co-operate with the investigation which I gather her Committee will undertake into these matters. I welcome that because, as I said in my statement, it is important that the light of transparency is shed on the issue as much as possible. I am sure that her Committee can play an incredibly valuable role in that, as it always does. I gather that the role of HMRC may be the subject of a soon-to-be-forthcoming report from her Committee. No doubt that will speak for itself, but of course the rules that I am putting in place today and the rules that exist for managing public money should be applied by all Departments in relation to public service appointments, and I made clear my view about the particular case that she referred to when I responded to the question from the right hon. Member for Newcastle upon Tyne East (Mr Brown).
I agree that scope matters. I should say in relation to the NHS that although the review looked at board members in NHS organisations, because I wanted it to be done quickly so that we could bring forward recommendations and change the practices across the public sector, its recommendations will apply across the NHS and will need to be applied there in the same way as in any other part of the public sector.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
Will my right hon. Friend stress an important assurance which I think he made, that HMRC will continue to be blind as to whether they are dealing with somebody who works for the public sector or the private sector, that all people will be treated equally by HMRC, and that for the most part in his statement he was speaking as an employer? In his review of IR35, will he take great care not to catch up with musicians, artists and others who are traditionally regarded as self-employed but may have controlling roles in organisations? It would be a great mistake if we made the cost of employing those people, particularly international people, much more expensive, to the detriment of the arts in this country.
Danny Alexander
I can assure my hon. Friend that HMRC is completely blind as to whom any individual works for. Taxpayer confidentiality is an essential part of the way in which HMRC works and we are making no changes whatever to that. We have passed the information that we discovered through the review to HMRC. It will be for it to decide whether it wishes to make any further inquiries. That will be a confidential matter for it to pursue in its own right. This is not an overall review of IR35; it is a particular consultation in relation to controlling persons of organisations. I am certain that the point that he raised will be noted and perhaps brought forward by him or others in responding to the consultation, which opens today.
Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)
The Chief Secretary deserves credit for his handling of the issue since it came into the public domain. Like my right hon. Friend the Member for Barking (Margaret Hodge), I pay tribute to him and to the investigative journalists, David Hencke and others, who first drew it to our attention. It makes no difference whether those arrangements were agreed by Labour Ministers or Ministers in the coalition; they are wrong and he is proceeding in the right way to put a stop to things. Can he tell the House roughly the cost of unwinding the arrangements and whether that cost will fall on the individual Departments from within their existing allocations, or whether some supplemental allocations will be needed? Can he also say when the Secretary of State for Business, Innovation and Skills first knew about the arrangements for the head of the Student Loans Company and what he did to bring them to an end?
Danny Alexander
I am grateful for the right hon. Gentleman’s comments and for his role in bringing these matters to the House’s attention. I wholeheartedly agree that it makes no difference when the arrangements started and which Minister was responsible; frankly, the situation has grown up over a number of years and under Governments of different hues. It is right that we are taking action to bring the situation under control and ensure proper transparency so that there is no perception of the potential for tax avoidance. He and I agree 100% on that.
It is impossible to say at the moment what the costs, if any, of unwinding the existing arrangements will be. Of course, as I said in my statement, senior people must be brought on to the payroll, unless there are exceptional short-term circumstances. For others, we need arrangements in place that allow assurances to be given that the proper and full amount of tax is being paid, and that will depend on the outcome of those processes with individual members of staff. Of course, if there are costs to be borne, they will have to be borne from within existing departmental allocations. If Departments do not comply with those rules, there will be a fine of up to five times the salary involved, levied by the Treasury on departmental allocations, which I hope will give Departments a strong incentive to comply with the rules as quickly as possible.
Stephen Williams (Bristol West) (LD)
My right hon. Friend and his colleagues have done some very important work in bringing these arrangements to light, but is it not the case that someone should be engaged in this way only in circumstances where there is a genuine short-term shortage in government of a particular expertise or if the individual genuinely has a wide portfolio of private sector clients unrelated to other public sector work? Is not what is needed an emphatic statement from him that these arrangements should be not commonplace, but truly exceptional?
Danny Alexander
I am grateful to my hon. Friend for his comments and his welcome. He is right that the arrangements should be exceptional and unusual, and should apply only in particular cases, such as when there is a short-term shortage, as he says, or a particular specialism is needed to deliver a project. That is why so many of these cases relate to IT professionals delivering individual projects. There is an employee test under the IR35 rules, which I am told is simple and straightforward, and that should be sufficient for determining on which side of the line someone sits.
Mr Alan Campbell (Tynemouth) (Lab)
It is now clear that some of the worst cases take place in local authorities such as North Tyneside. Can the Chief Secretary not do more to direct HMRC not only to deal with these abuses, but to seek redress?
Danny Alexander
I am interested to hear that there are particularly egregious offenders in North Tyneside and am grateful to the hon. Gentleman for drawing that to the House’s attention. My right hon. Friend the Secretary of State for Communities and Local Government has of course drawn this process to the attention of all local authorities precisely to get them to show a transparency similar to that which we have shown with the review today, and I very much hope that they will all follow that example. It is for HMRC to decide whether it wishes to investigate an individual case and whether there is a case to answer. As I have said, the existence of these arrangements does not in itself demonstrate that tax avoidance is taking place, because it is perfectly possible for the arrangements to be in place and for the proper amount of tax to be paid. The problem is a lack of transparency, so getting people to publish the information so that HMRC can decide whether it wishes to investigate must be the right process to go through.
Bob Blackman (Harrow East) (Con)
I welcome my right hon. Friend’s statement. Everyone wants to see public servants paying their right and fair share of tax. I respect the fact that he cannot investigate the tax affairs of all the individuals concerned, given the scale of this activity and the length of time it has been going on for, but what estimate has he made of the total loss that would be caused to the Exchequer if all these people used this legal means to avoid paying tax?
Danny Alexander
I am grateful for my hon. Friend’s welcome for this work. I am sure that he would not wish Ministers to investigate the tax affairs of individuals, as that way would lie ruin for the country. I cannot make such an estimate for the reason behind my previous comment: taxpayer affairs are confidential and it is for HMRC to deal with particular cases when it finds that avoidance is taking place. What I can say is that there is a very large number of cases and that this relates to the wider question of consultancy and contingent labour in government. He might be interested to know that in 2009-10 the previous Government spent £2.4 billion on contingent labour of various sorts. In 2010-11, thanks to the additional controls on consultancy that we put in place, we reduced that to £1 billion, and I expect the bill to be reduced further in 2011-12. There are things that central Government can do to reduce dramatically those costs across government, and that is precisely what the coalition Government are seeking to do.
Mark Durkan (Foyle) (SDLP)
I thank the Chief Secretary for his statement and commend him for the action he has taken since the scandal became apparent. If we are to believe that Revenue and Customs is now boarding this Good Ship Lollipop, how will we know whether someone receiving amounts of money from the public purse over £58,200 in future will not exempt themselves simply by ensuring that they accumulate it from a number of Departments rather than one? The measures he has announced today relate to Departments reporting amounts over £58,200 that they are paying to individuals, but they do not seem to address the issue of people pocketing money from a number of contracts with different Departments.
Danny Alexander
The hon. Gentleman asks an interesting question, and he is right that someone might be earning small amounts of money from a number of different Departments. Of course, in that case it is likely to be a contractor, of the sort my hon. Friend the Member for Bristol West (Stephen Williams) referred to, who has multiple clients. It is not clear on the face of it that these rules should apply in those cases, but I will certainly consider the sort of case that the hon. Gentleman mentioned.
Mr David Winnick (Walsall North) (Lab)
As someone who is not involved in a vendetta against the BBC, unlike some Tory Back Benchers, I can tell the Chief Secretary that, as a result of correspondence with the director-general of that organisation, I have been informed that there are just two full-time employees left at the BBC, both very high-earners, on personal service contracts and that that will end in July, which is certainly welcome. Why is it so difficult for the Treasury to close the loophole, whether in the public or private sectors, so that unless it is a genuine company there can be no way in which individuals pay less tax than they should be paying?
Danny Alexander
I am grateful for the hon. Gentleman’s remarks about the BBC, which is useful information for the House to have before it. I say to him in all seriousness that the rules relating to this sort of case—the IR35 rules—were put in place by the previous Government, and we are seeking to strengthen them through the consultation we have today. The coalition Government have done more than many previous Governments to take action on dealing with tax avoidance and evasion across the board, because it is vital in a time of austerity that everyone pays their fair share, and that is what we are doing. Frankly, it is what the Government of whom he was a part did not do.
Mr Nigel Dodds (Belfast North) (DUP)
I welcome the Chief Secretary’s statement, but should we not apply the rules to all individuals receiving money from the public purse, rather than allowing the BBC, local authorities and others off the hook? I fear that, unless they are forced to take this action on transparency, all sorts of obstacles will be put up. I know from correspondence with the BBC in Northern Ireland that it has not been as transparent there as it has been elsewhere. In fact, it has stonewalled and refused completely to give information to me as a Member of Parliament, so I urge him to go further and force organisations such as the BBC into transparency.
Danny Alexander
The new Treasury rules that I have announced today apply only to organisations under central Government control. That is how the rules work, but I encourage the right hon. Gentleman and other hon. Members who have made the point about local authorities to continue their campaigning in order to ensure that those organisations do reveal such information. He did not refer to the Northern Ireland Assembly Government, but he may very well want to take steps to ensure that that organisation also brings forward the appropriate degree of transparency about its arrangements, too.
Mr Andy Slaughter (Hammersmith) (Lab)
The Chief Secretary to the Treasury is right to admit that without the work of Exaro and “Newsnight” he would not have a clue what is going on across Departments, but the action that he has announced today will affect no more than a tiny percentage of the abuse taking place throughout the public sector. He needs to do more than write letters to the NHS and to local government. One so-called consultant, Mr Nick Johnson, has received £1 million from Hammersmith and Fulham council in the five years since he retired on an ill-health pension of £60,000 a year from another local authority. On the Chief Secretary to the Treasury’s figures, Mr Johnson would have avoided £200,000 in tax, so when is the right hon. Gentleman going to act on such abuse?
Danny Alexander
The hon. Gentleman refers to the national health service, and I was very clear in my statement and in my response to the right hon. Member for Barking (Margaret Hodge), the Chair of the Public Accounts Committee, that the rules apply throughout the national health service and, indeed, to academy schools. I do not control the finances of local authorities, but I can make it very clear that I want to see them go through a similar process, and I am sure that campaigning local MPs such as the hon. Gentleman will not rest until their local authorities do so.
Business and the Economy
Danny Alexander Excerpts(12 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chief Secretary to the Treasury (Danny Alexander)
This has been a good debate, with many contributions from all parts of the House. I would particularly single out the contributions of my hon. Friends the Members for Solihull (Lorely Burt) and for Skipton and Ripon (Julian Smith), and of the right hon. Member for Birkenhead (Mr Field), who I see in his place.
Towards the end of the debate, the hon. Member for Wansbeck (Ian Lavery) said how difficult it was to prepare his speech in the light of the fluctuating lengths of speeches allowed for Back Benchers. It is perhaps a bit like dealing with a fluctuating economic forecast. Nevertheless, the hon. Gentleman made some important points, and I would like to respond to a couple of them. In particular, he spoke about the need for enterprise zones in Northumberland. As his hon. Friend the Member for Blyth Valley (Mr Campbell), who is sitting next to him, already knows, if a strong case can be made to include a particular area such as the land around the port of Blyth in the north-east local enterprise partnership, as it was at the time of last year’s autumn statement—it should be noted that some enhanced capital allowances might also be available—it should be made, and we will listen very carefully to it. The hon. Member for Wansbeck was right to say that these enterprise zones can play a role in helping to support economic development in places affected by the sort of job losses that he described in his constituency. I urge him to work with the LEP to make that case.
Mr Ronnie Campbell
I am led to believe that a scheme from the port of Blyth has been put forward to the Minister. I hope he now has it on his desk.
Danny Alexander
Not only has a scheme from the port of Blyth been put forward, but the inclusion of several areas of land around the port in the enterprise zone was referred to at the time of the autumn statement. I gather that a discussion is going on within the north-east local enterprise partnership about the sites on which it would like to see the enhanced capital allowances deployed. I think the hon. Member for Wansbeck had a view about an additional site that he would like to be included in the enterprise zone. I encourage him to work with the LEP to make that case, as I said. I hope he will take the opportunity to present that argument to the Government in due course.
The hon. Member for Blyth Valley also expressed support for the green investment bank, whose establishment is one of the key measures in the Queen’s Speech that could play a part in boosting the economy. I do not know whether he did so in song, because I was not present for his speech. Given the potential importance of the renewables sector to his part of the world, I hope he agrees that the bank could contribute to the investment that it needs, and that the substantial £3 billion capitalisation that we provided for it in the spending review will enable it to invest in precisely the sectors that he mentioned. Those sectors were also mentioned by many Government Members who recognised that the green investment bank was an important initiative, as, indeed, is the regional growth fund.
Listening to the shadow Business Secretary talk about the regional growth fund, I concluded that he had picked up the wrong end of the stick, although I must add in fairness that his tone was not reflected in speeches on the subject from other Members on both sides of the House. The National Audit Office report made it clear that the fund had created or protected some 328,000 jobs, which is a good use of public funds. What is more, as the hon. Gentleman will see from the evidence that has been provided, for every pound that we are spending on the regional growth fund, some £6 of private investment is being unlocked. In many cases in which public money has not yet started to flow, private investment is already taking place because businesses know that they have access to the fund. I think that that is a great success story about support for investments throughout the country. Certainly we on the Government Benches are very proud of what the fund is achieving, which is why we chose to give it additional resources last year.
Catherine McKinnell
I thank the Chief Secretary for giving way, and also for his generosity in addressing some of the concerns expressed by Members representing constituencies in the north-east. The regional growth fund would also be useful in providing access to European regional development funding. Has the Chief Secretary an update for north-eastern Members on the £120 million that is yet to be drawn down?
Danny Alexander
The hon. Lady has made an important point about the use of European regional development funding, which we have been considering in connection with the regional growth fund. I am afraid that I cannot give her an update on funds for the north-east, but I will ensure that the Minister responsible for such matters writes to her with one.
Mr Umunna
The facts that I gave earlier about the regional growth fund came straight out of the National Audit Office report. Am I right in saying that the Chief Secretary has denied that the report said that only about 41,000 jobs could be created under the scheme? Was I also wrong in stating that the report was very clear about the fact that, in some cases, the cost of each job would be up to £200,000?
Danny Alexander
If the hon. Gentleman will stop heckling from a sedentary position and listen to the answer for once, I will do my best to deal with his question.
In the individual case in which the £200,000 figure was given, it was given before the due diligence phase, as a Member whom I could not identify has just pointed out from a sedentary position. If the project reaches its final stages, it will involve a cost per job much closer to the average. The 41,000 figure was a mechanical estimate for which a model was used, whereas the 328,000 figure that I gave is based precisely on information provided by successful applicants on the number of jobs that will be created and safeguarded by the regional growth fund. I think that, rather than sneering at the fund, the hon. Gentleman should recognise the important contribution that it is making, and the important contribution to economic recovery that is being made by the private sector businesses that it is supporting.
Danny Alexander
I do not have that information to hand. However, the point I made earlier, which he ignores, is that in many cases where the regional growth fund has been awarded, the private investment takes place well in advance of the public funds being needed. The measure he seeks to use of who has received public funds is therefore not necessarily the best measure of the investment that has taken place, quickly stimulated by the award of regional growth funds. If he looks around the country, he will see many examples of private sector businesses that have been awarded moneys from the regional growth fund and have started their investments well in advance of public funding arriving, because that is how their projects have been planned. If he were doing his job properly, he would understand that that is the way in which many businesses operate.
We have also heard a number of comments about the banking Bill. Indeed, strong support for that Bill was expressed on both sides of the House, and there was support, too, for the strong recommendations of the Independent Commission on Banking.
Mr Redwood
Has the Chief Secretary noticed the latest forecast, which says total City bonuses are likely to be only £2.3 billion this year, as opposed to £11.5 billion at the peak, under the Labour Government? Will he consider representations in favour of a bankers’ bonus tax in the light of how little revenue it will raise compared with the original forecast?
Danny Alexander
I was about to come on to the mess that the Labour party made of our economy, but the right hon. Gentleman’s question causes me to bring those remarks forward. One of the most calamitous failures of the last Labour Government was the complete failure to regulate the financial sector and to control the excesses that built up in the banking system, and the figures he gave are just one example of that. The banking Bill will implement the reforms that are necessary to deal with some of the excesses and, more importantly, to protect the taxpayer and the British economy from the sorts of problems that previously arose. It was very striking that in neither Labour Front-Bench speech did we hear any apology for the previous Government’s failure to regulate the banks properly, just as we heard no apology for the mess they made of our public finances and the many other mistakes they made, too.
Danny Alexander
No. I have given way to the hon. Lady’s Front-Bench colleague three times, and I am now going to press on. I have only two minutes left, and she used up plenty of time.
There were a number of speeches about the groceries code adjudicator, including by the hon. Member for Macclesfield (David Rutley) and my hon. Friend the Member for St Ives (Andrew George), who played an important role in promoting the idea of the GCA and rightly welcomed the fact that the Government will take that forward. A number of comments were made, especially by Opposition Members but also from the Government Benches, on the enterprise and regulatory reform Bill. By and large, its measures on directors’ pay were welcomed, although concerns were expressed, particularly by Labour Members, about the proposals on employment law. The hon. Member for Bolton West (Julie Hilling) made that a key point in her speech, although I noticed that she welcomed the substance of the measures in the Bill, which are to do with providing more options before a tribunal is reached to enable complainants to resolve their case without the need to go through what she rightly describes as an often painful and expensive process. It is important that those measures are carried forward, and they will make a difference for many small businesses.
The economic context was an important theme in this debate, and Members on the Government Benches are fully aware that addressing the key issues is no easy task in the current economic climate, not least because of the crippling legacy the last Government left to us: a decade of unbalanced growth that left the UK one of the most indebted countries in the world; a decade that resulted in our having the most highly leveraged financial system of any major economy; and a decade that meant the UK entered the economic crisis with the highest structural deficit in the G7. All that meant that the UK was one of the hardest hit countries in the world when the crisis came.
Our recession was among the deepest and our deficit among the largest, which means that our challenge to deliver a sustainable recovery is among the greatest. Let me remind the House that when this Government came into office we inherited the largest peacetime Budget deficit this country has ever faced and the largest forecast deficit in the G20—larger than those of many of the countries mired in the sovereign debt storm in the euro area. It is only because of the decisive and immediate action we took that we have sheltered the UK from the worst of that debt storm.
The measures in the Queen’s Speech represent part of a bold and wide-ranging programme of economic reform: a strategy to rid the economy of the debt burden left by the previous Government; a strategy to secure our stability at a time of global instability; and a strategy that puts private sector enterprise, ambition and innovation at the heart of our recovery. It is the right recipe to clean up the mess that the Labour party left us and to bring this country back to sustainable prosperity.