Finance Bill 2014

David Gauke Excerpts

Friday 28th February 2014 Written Statements

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

The Finance Bill will be published on Thursday 27 March.

Explanatory notes on the Bill will be available in the Vote Office and the Printed Paper Office and placed in the Libraries of both Houses on that day. Copies of the explanatory notes will be available on HM Treasury’s website.

Point of Order

David Gauke Excerpts

Tuesday 25th February 2014 Commons Chamber

[Mr David Winnick (Walsall North) (Lab)]

On a point of order, Mr Speaker. I wonder whether you can advise me on how we can secure a statement from the Chancellor of the Exchequer, or another Treasury Minister, about the substantial extra sums that are being given to the leading bank executives, the most senior people: the chief executives and their colleagues. For example, the chief executive of HSBC is to receive an extra £32,000 a week on top of his salary of more than £1 million a year.

May I point out, Sir, that the annual salary in my borough is about £22,000? The sheer greed of the bankers involved is quite disgraceful. A Treasury Minister is in the Chamber now; I wonder whether he will respond.

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

indicated dissent.

[Mr Winnick]

The Minister shakes his head. I can well understand his embarrassment, because we are constantly told that we are all in it together. Why can we not have a statement about what is happening in the banking industry? If the Minister is not willing to respond to my point of order, may I suggest that we should have some opportunity to raise the issue in the Chamber?

Business Rates Administration Review

David Gauke Excerpts

Thursday 13th February 2014 Written Statements

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

The Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Great Yarmouth (Brandon Lewis), and I have today published the terms of reference for the Government’s review of business rates administration. This follows the Chancellor of the Exchequer’s autumn statement, where he announced a £1 billion package of business rates measures which benefits all 1.8 million ratepayers and means that around 360,000 small businesses pay no rates at all, and committed to discuss with business options for longer-term administrative reform of business rates post-2017. The terms of reference are set out below.

Terms of reference

Business rates are a tax based on property values. In England they raise around £23 billion each year, which helps fund services provided by local government. The review will consider the way in which the business rates system in England is administered by the Valuation Office Agency and local authorities, with a view to strengthening its responsiveness to changes in property values and its simplicity and transparency to business ratepayers.

The review will include consideration of the:

administration of billing and collection by local authorities, including the application of reliefs and exemptions; and of valuation by the Valuation Office Agency, including the scope for improvements in communication and the exchange of information between ratepayers and public bodies;

the circumstances under which liability can be backdated;

changes to valuation methods, consistent with the principle that business rates are based on rental property values and that the rates retention system rewards local government for growth in values; and

frequency of revaluations to enable tax assessments to be based on up-to-date property values.

In considering possible changes to the business rates system to be made post-2017, the review will balance the need for any system to deliver fairness, stability and predictability to ratepayers. Any changes will need to maintain the aggregate tax yield from which to fund local services, preserve the same level of financial autonomy to authorities and the local incentives to promote growth that were delivered through the implementation of the business rates retention scheme introduced on 1 April 2013.

Double Taxation Conventions (Japan, Iceland, Zambia)

David Gauke Excerpts

Wednesday 12th February 2014 Written Statements

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

A protocol to the double taxation convention with Japan and a new double taxation convention with Iceland were signed on 17 December 2013. A new double taxation convention with Zambia was signed on 4 February 2014.

The text of the protocol and the conventions have been deposited in the Libraries of both Houses and made available on HM Revenue and Customs’ website. The texts of each will be scheduled to a draft Order in Council and laid before the House of Commons in due course.

Tourism (VAT)

David Gauke Excerpts

Tuesday 11th February 2014 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for South Down (Ms Ritchie) on securing the debate and putting her case so strongly and on the fact that the debate is so well attended. Her constituency is known as one of the most beautiful in the United Kingdom, but I appreciate the strong case made by several other hon. Members for their constituencies to be on that list. In the interest of time, I shall not attempt to comment on each of those areas, but I can reassure hon. Members that the Government appreciate the value and importance of the tourism sector. Ministers from the Treasury and the Department for Culture, Media and Sport have been working closely with the industry to increase inbound and domestic tourism.

VAT is governed by EU law, which strictly limits reliefs. However, as hon. Members have pointed out, VAT law allows member states to implement certain reduced rates of VAT, which are listed in annex III of the VAT directive, at the discretion of the member states. Two of the reliefs are

“accommodation provided in hotels and similar establishments, including the provision of holiday accommodation and the letting of places on camping or caravan sites;”

and restaurant and catering services, excluding alcoholic drinks. As several hon. Members have pointed out, when the list of optional reduced rates of VAT entered into force in 2006, the UK opted not to implement those two reliefs and has maintained that position since.

Several other member states have chosen to implement a reduced rate of VAT on tourism, but the Government have yet to find any evidence of a causal link between VAT rates and tourism activity. Comparisons with other countries tend not to take into account the significant VAT reliefs that the UK provides for cultural attractions and public transport, or the other tourist taxes that other member states choose to levy. In addition to the sector-specific reliefs, the UK’s VAT registration threshold is the highest in the EU. Therefore, many tourist attractions do not have to charge any VAT to their customers. It is interesting to note that France, which is often the country quoted as reducing the rate and reaping the rewards, put its VAT rate on restaurant services up from 7% to 10% in January. Also, many businesses in the tourism sector are small businesses and will benefit from the £2,000 cut in national insurance contributions—the employment allowance—that will come into effect in April.

As I mentioned, Treasury and DCMS Ministers have discussed the Cut Tourism VAT campaign, and I have met campaigners and engaged in correspondence with them about the report mentioned by the hon. Member for South Down, among other things. The campaign’s analysis assumes that the revenue shortfall associated with a VAT cut should be met by increasing Government borrowing, but the latest figures from the Office for National Statistics suggest that reducing VAT to 5% for all catering services provided by restaurants, pubs, cafes and canteens would cost the Exchequer between £9 billion and £10 billion a year. Cutting VAT to 5% for accommodation would cost the Exchequer an estimated £2 billion a year. I do not have to remind hon. Members that those costs would have to be met by increasing other taxes, which would be likely to affect growth and jobs adversely elsewhere in the economy, by reducing spending or by increases in borrowing. That would be contrary to the Government’s long-term economic plan and risk raising interest rates, undermining the recovery and adversely affecting families and small businesses.

[Jim Shannon]

Many hon. Members spoke in the debate about the jobs that could be created; the figure for Northern Ireland was almost 15,000. Those jobs would result in taxes being paid and people coming off benefits. What weight has the Minister given to that part of the equation, in the figures he has just outlined?

[Mr Gauke]

I reiterate that funding the cut by additional borrowing would be contrary to our long-term economic plan to get the deficit down and put our public finances in a credible position. It would entail a risk to the recovery. As all hon. Members know, the Government’s priority is to tackle the record budget deficit decisively but fairly and to restore confidence in the economy and support the economic recovery. The conclusion that we reached, therefore, which I announced in Parliament last year, is that a VAT cut would not produce sufficient economic growth to outweigh the revenue shortfall. I have not seen any new evidence since then that has led me to revisit that conclusion, so, at present, the Government have no plans to introduce a VAT cut for the sector.

[Ms Ritchie]

The Minister will be aware of the report of Professor Adam Blake, who I understand is a Treasury adviser, and who used the Government’s computable general equilibrium model and maintained that it would be possible for a reduction in VAT on tourism to end up fiscally neutral. Has the Minister a comment to make on that, and did he talk to Professor Blake about the report and to Deloitte?

[Mr Gauke]

I think that I have touched on that, but I want to emphasise that the figures produced by the industry and Professor Blake represent independent research; the Treasury has engaged with the campaign and has concluded that VAT cuts would lead to a significant revenue shortfall. I could go into more detail about the modelling, but because of the time I will not. We do not accept the conclusions that the hon. Lady refers to.

A more targeted VAT cut, on a regional basis, is not possible under EU VAT law, because a single rate of VAT for a particular good or service must apply throughout a member state. A reduced rate for Northern Ireland is not possible, and it is also not possible to distinguish between tourists, locals and people on business who use a restaurant or hotel. However, I reassure hon. Members that we recognise the importance of the tourism industry and remain committed to a wide range of measures to support the sector.

Since 2011-12, we have put £37 million into the tourism pillar of the GREAT campaign, which in 2012-13 generated a return of more than 400,000 visits to the target cities; those visits brought in £200 million, which is a return of 8:1 on the investment. Between 2011 and 2015, we are spending £50 million on a tactical marketing campaign via VisitBritain, with a further £50 million match-funded by the private sector to market what the UK has to offer overseas. Between 2011-12 and 2014-15, we are spending £10 million on a campaign to encourage domestic tourism, which has already generated about £300 million in additional spending. There are also good results in Northern Ireland, where in the 12 months to September there was an 8% increase in the number of visits compared with the previous 12 months.

We are taking action to help the tourism industry, but a cut in VAT would be expensive and would create a revenue shortfall. That would put the Government’s economic credibility and long-term economic plan at risk.

Corporate Capital Gains

David Gauke Excerpts

Thursday 30th January 2014 Written Statements

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

I am announcing today the Government’s intention to include in the Finance Bill 2014 a legislative change to the Taxation of Chargeable Gains Act 1992. This will confirm that the targeted anti-avoidance rule preventing the use of capital losses in schemes to shelter income profits from corporation tax applies to all arrangements in which a chargeable gain accrues and however the tax deduction is achieved. This change will have effect from today.

HMRC has become aware of artificial arrangements where it is argued that these rules do not apply due to the particular way in which the chargeable gain and tax deduction arise. Such an interpretation is contrary to the original intention that the rule should be of general application to ensure that a company’s capital losses are only used to relieve chargeable gains that arise from genuine commercial transactions.

The amendment will put it beyond doubt that the rule applies to all arrangements where capital losses are misused in an attempt to reduce income profits. This confirms the purpose of the rule rather than extend its intended scope.

Oral Answers to Questions

David Gauke Excerpts

Tuesday 28th January 2014 Commons Chamber

[Keith Vaz (Leicester East) (Lab)]

6. What discussions he has had with the Secretary of State for Health on introducing an additional tax on drinks with a high sugar content.

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

There are difficulties of principle and practice with using tax instruments to promote public health. Unlike smoking, where any level of consumption can have damaging effects, the consumption of most drinks in moderation can be to the benefit, rather than the detriment, of an individual’s health. The Government are instead working with industry to reduce the nation’s calorie intake.

[Keith Vaz]

The Academy of Medical Royal Colleges has called for a 20% tax on sugary drinks, stating that it would provide enormous health benefits and yield £1 billion to the Treasury. We spend £9.8 billion a year on dealing with type 2 diabetes and its complications. Will the Exchequer Secretary consider that idea for inclusion in the next Budget? At the very least, will he meet a delegation of those who want to make the argument in favour of such a tax?

[Mr Gauke]

I am grateful for the right hon. Gentleman’s remarks. This is a problem of over-consumption and tax can often be a blunt instrument in dealing with such problems. My hon. Friend the Economic Secretary will be more than happy to meet the right hon. Gentleman and a delegation to discuss the matter.

[Mr James Gray (North Wiltshire) (Con)]

Does the Exchequer Secretary agree that tackling obesity in children should be a matter for parents, teachers and others who work with children, and that any tax increase such as that proposed by the right hon. Member for Leicester East (Keith Vaz) would be seen as a Treasury tax grab on those who enjoy Pepsi cola, Coca-Cola and Fanta?

[Mr Gauke]

My hon. Friend makes a perfectly fair point. It is right that the Government take steps, through the public health responsibility deal, to encourage companies to reduce calories in their products, and that we encourage participation in sport. That is more effective and targeted than a tax increase.

[Greg Mulholland (Leeds North West) (LD)]

8. What steps he has taken to reduce the cost of living for those on low incomes.

--- Later in debate ---

[Mr Aidan Burley (Cannock Chase) (Con)]

13. What assessment he has made of the level of recent job creation in the private sector.

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

The latest data published by the Office for National Statistics on public and private sector employment are available up to September 2013. Between the first quarter of 2010 and the third quarter of 2013, private sector employment increased by 1.67 million, more than offsetting a decrease in public sector employment of 433,000. Over the period, for every public sector job lost, 3.9 have been created in the private sector.

[Mr Burley]

In Cannock Chase, 4,000 more people were employed in the private sector in the 12 months to June 2013 than in the same period in 2012, an increase of more than 12%. Unemployment is down 40% in Cannock Chase since May 2010. What further action is the Treasury taking to make it easier for small businesses in my constituency to take more people on?

[Mr Gauke]

To highlight one measure, the introduction of the employment allowance in April will mean that the first £2,000 of jobs tax will not need to be paid. It is worth noting that some believed it was not possible that growth in private sector job creation would outweigh public sector jobs lost. Indeed, in 2011 the shadow Chancellor said that that whole idea was a “fantasy”.

[Sammy Wilson (East Antrim) (DUP)]

As the Chancellor is keen for an Opposition Member to endorse his growth figures, I welcome them—[Hon. Members: “Hooray!”] However, a report yesterday indicated that much of the growth in the private sector has been concentrated on London and not on other parts of the United Kingdom. What policies is he undertaking to ensure that the growth we are experiencing is experienced by cities across the UK?

[Mr Gauke]

First, may I express my gratitude for the first part of the hon. Gentleman’s question? As to the second part, he should be aware that in 2013 the focus on London changed and that only one in five of the new private sector jobs was created in London. Indeed, over the course of this Parliament employment is up in every region and nation of the United Kingdom.

[Jesse Norman (Hereford and South Herefordshire) (Con)]

14. If he will extend eligibility for child benefit and tax credits to the households of young people who are undertaking apprenticeships.

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

The Government continue to support apprenticeships by funding 16-to-18 apprenticeships for every employer who wants to offer them and every young person who secures a place, and by promoting the uptake of apprenticeships among employers and implementing reforms to drive up apprenticeship quality. When a young person takes up an apprenticeship, they are classed as in employment with training. From that point, benefits for the young person paid to their parents cease.

[Jesse Norman]

I thank my hon. Friend for that reply. The number starting apprenticeships in my constituency has almost doubled from 630 in 2009 to 1,100 last year. Will the Minister join me in congratulating all those apprentices and their employers? Does he share my view that this is one more sign that the Government’s long-term economic plan is working?

[Mr Gauke]

I entirely agree with my hon. Friend. His experience in Hereford in not unique: the number of apprenticeship starts across the nation has gone up by 82% in the course of the past three years. He is absolutely right to describe that as part of a long-term economic plan.

[Roberta Blackman-Woods (City of Durham) (Lab)]

15. What recent progress his Department has made on implementing the national infrastructure plan.

HMRC (Company Liquidations)

David Gauke Excerpts

Friday 17th January 2014 Commons Chamber

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

I thank my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) for securing a debate on this matter, which he has raised with me and with HMRC on a number of occasions in the past few years. As he pointed out, I can say the same for my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) and my hon. Friend the Member for Old Bexley and Sidcup (James Brokenshire), who is here today.

My hon. Friend made his case very powerfully in his capacity as a constituency MP. He also, in many respects, brought to bear on these matters his considerable experience as a barrister, and a criminal barrister at that. He rightly said that I am constrained by the principle of taxpayer confidentiality and the fact that Ministers and politicians do not interfere in operational matters; there is good reason why that is the case. I hope my hon. Friend will forgive me if I am not able to delve too deeply into this particular matter, given the principle of taxpayer confidentiality, although I will say what I can.

I can, however, discuss the use of provisional liquidations, which my hon. Friend has highlighted, and I hope it will be helpful if I do so. Liquidation is a court-driven process that takes time. It can take several weeks after the presentation of a winding-up petition for a liquidator finally to be appointed. Where the company is being controlled by fraudulent individuals, that delay can provide a perfect opportunity for them to destroy the evidence of their fraud and move assets out of the company. In such cases, any creditor, including Her Majesty’s Revenue and Customs, may petition the court for provisional liquidation. This allows the winding-up petition to be presented without any notice to the company. If the court is persuaded of both the company’s insolvency and the potential for fraud, it will appoint a liquidator to take immediate control of the company, its assets and its records. This protects creditors’ interests. The company directors will have a chance shortly afterwards to argue that the company is not insolvent and so should not be wound up. If they succeed, the provisional liquidator is removed. Where there is clear evidence that a company is perpetrating significant tax or duty fraud, HMRC will apply to the court for an order that the company be placed into provisional liquidation, to stop the fraud and recover assets.

Provisional liquidation orders can be made only by the court and HMRC applies to the court only in the most serious of cases, such as alcohol diversion fraud, whereby alcohol is purported to be exported lawfully without payment of duty or VAT to another European Union country but is then diverted unlawfully for consumption in the UK without payment of duty or VAT. The cost to the Exchequer of this type of fraud is estimated to be more than £1 billion. Provisional liquidation action stops the fraud continuing, because trade ceases, and allows assets to be recovered. It has also been used in cases of VAT missing trader fraud and ongoing pay-as-you-earn and national insurance fraud in the construction industry.

Provisional liquidation is an exceptional action and it is worth highlighting one or two statistics. In 2009, five provisional liquidations were instituted by HMRC. In 2010, there were just two cases and in 2011 there were four, while 2012 and 2013 had just one case each. In total since 2009, there have been only 13 applications to put companies into provisional liquidation, although in some of the cases, associated companies were liquidated simultaneously. In not one of those cases has any company successfully argued before the court that the provisional liquidation order should not have been made. Although my hon. Friend has raised concerns in this regard, I could, if I were so inclined, quote judges stating that HMRC’s behaviour in respect of bringing a provisional liquidation was entirely reasonable and well-evidenced.

It can take a long time to bring cases to a conclusion, but I am informed by HMRC that it considers that the 13 actions have prevented Exchequer loss of at least £150 million. I would not therefore wish HMRC to restrict its use of provisional liquidations in appropriate circumstances.

Before a case gets to court, HMRC has rigorous internal processes, which include the involvement throughout of an independent governance team that is separate from the case team. The specialist team challenges and considers the available evidence and strategy. It is made up of externally qualified insolvency specialists with a great deal of experience of insolvency matters. During the whole process, legal advice is provided by HRMC internal solicitors and, where appropriate, additional external insolvency specialist solicitors, and the final sign-off is at senior level. I hope that I have given a degree of reassurance about the general use of provisional liquidations.

Returning to the case that my hon. Friends have raised with me on several occasions, I will deal with the specific issue of the internal report referred to by my hon. Friend the Member for Bromley and Chislehurst. He is absolutely right that HMRC promised an internal review of the case. The review will be conducted by people separate from the operations directorate, and they will report to the HMRC commissioners. The litigation is still ongoing, as my hon. Friend has mentioned, so HMRC’s position is that it would be appropriate for the review to consider the entirety of the issue and to take into account the conclusion of the outstanding litigation. HMRC will consequently be able to respond not only on the litigation and court hearings that have already occurred, but on the one last outstanding piece of litigation. It therefore wants to undertake the review only once that point has been reached.

[Robert Neill]

Will the Minister help me on this point? In correspondence with my hon. Friend the Member for Old Bexley and Sidcup, HMRC indicated that the review had been commenced, but not concluded. My concern is that some factual matters that must be the subject of the review go back to the very early stages of the process, when assessments were raised in February 2009 or not long thereafter. One would obviously hope that investigations into those matters had taken place already, while the evidence was still fresh in people’s minds, rather than that they should be reviewed five years or so later. Will the Minister reassure me that work has already started on the review? If he cannot do so today, will he write to my hon. Friends and me about the progress, if not the conclusion, of the review?

[Mr Gauke]

The best thing that I can do is to take up his invitation to write to him to set out the exact status of the review, the evidence that needs to be assessed and the progress that has been made.

Notwithstanding the outstanding litigation on this matter, may I say to my hon. Friend that I am more than happy to facilitate a meeting of whatever type is appropriate so that his concerns can be raised at this stage? As I am sure was his intention, he has put his thoughts and concerns on the record very clearly and powerfully, and I know that HMRC will look at his every word with great care and attention. As I have said, there is a limit to how much I can say about such an operational matter, but I am grateful to my hon. Friend for raising the case. Let me assure him that his concerns will be taken most seriously.

Question put and agreed to.

Banking

David Gauke Excerpts

Wednesday 15th January 2014 Commons Chamber

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

This has been a thoughtful and interesting debate. I particularly thank my hon. Friends the Members for West Worcestershire (Harriett Baldwin), for Bournemouth East (Mr Ellwood), for Northampton South (Mr Binley), for Redcar (Ian Swales), for Spelthorne (Kwasi Kwarteng) and for Hexham (Guy Opperman), all of whom made excellent and intelligent speeches. I am not sure that I would use quite the same words to describe the speech made by the shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie), but I hope that he will not take that personally. I have a lot of sympathy for him—after all, he spent a number of years making speeches in debates like this one, saying that we were going too far, too fast, and that a plan B was needed. We do not hear quite so much about that now.

We have heard a fair amount about the cost of living in recent months, but Labour party spin doctors have been briefing the press that they are about to bring that campaign to an end, so where does Labour go now? How does it fill the vacuum that exists where an economic policy should be? The answer is, “With a bit of banker-bashing.” I could say, “Same old Labour”, but in reality the rhetoric that we have heard today and during the current Parliament is not consistent with what the last Labour Government did.

When it comes to dealing with the risks and excesses of our financial system, Labour is in no position to criticise us. It is extraordinary that the people who crashed the car now wish to give us a lecture on road safety. They left us with a regulatory system that had failed catastrophically—a system that had failed to identify risks, or, when they were identified, failed to do anything about them—and, when the crisis came, it was not clear who was in charge. But who was the special adviser in the Treasury who was running the show when the tripartite regime was established? The shadow Chancellor. And who was the City Minister in the run-up to the crisis? Again, the shadow Chancellor.

It was this Government who produced the Financial Services (Banking Reform) Act 2013 and implemented the Vickers report, and this Government who established the Financial Policy Committee, involving the Bank of England once again and providing clear lines of responsibility. It is this Government who have ensured that we ring-fence deposits, separating them from volatile investment banking, and it is this Government who have introduced a bail-in power that protects taxpayers, to ensure that shareholders and creditors, not taxpayers, are first in line to pay for a bank failure. It was the last Government who presided over a system whereby individual bankers could not be held properly to account. Under our laws—laws passed by this Government—reckless management of a bank could result in seven years in prison. Under the last Government, it could result in a knighthood.

[Bill Esterson]

Don’t worry, I’m not after a knighthood. The Minister’s party colleague, the hon. Member for Northampton South (Mr Binley), made it clear that the funding for lending scheme has failed and that lending to small businesses has fallen. The Minister’s comments have been notable in their failure to mention what he is going to do about funding for small businesses. Will he tell us now?

[Mr Gauke]

Gross lending is up, but one thing that will not help small businesses is if our interest rates rise prematurely because we do not have credibility. We have given this country economic credibility and that has helped to keep interest rates lower for longer.

Our system ensures rigorous scrutiny before someone can have a serious position in a bank. Labour’s system could allow someone like Paul Flowers to become chairman of a bank. While fines went back into the banking system in the past, now they go to support military charities and others.

[Mr Binley]

May I make the point that I did argue that business lending from the funding for lending scheme was very low indeed, and that is why Mark Carney took the action he did and why I want to see the Government make more sense of lending to small businesses, because that is where growth and well-being are going to come from?

[Mr Gauke]

I agree with that, and we are focusing the funding for lending scheme on exactly that purpose.

[Mr MacNeil]

Will the Minister give way?

[Mr Gauke]

No, I shall make some progress.

We did not hear anything about the bankers’ bonus tax from Labour today—at least we do not see much about it in its motion—although it is customary on these occasions for Labour to identify yet another spending programme to be funded by it. [Interruption.] I wonder whether there was no mention of it today because the Opposition are embarrassed by previous occasions when they have claimed that more would be paid—[Interruption.]

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. This has been a quiet and dignified debate. Members who were not present during it have now come into the Chamber. I ask them to have the courtesy to listen to the Minister.

[Mr Gauke]

Thank you, Madam Deputy Speaker. I do not know whether the Opposition are embarrassed by previous occasions when they claimed more would be paid from a bankers’ bonus tax than was actually paid in bankers’ bonuses. Perhaps they have noticed that if they cap bonuses they will get less tax from them. They may want to revise their numbers on that.

It has to be pointed out that it has been estimated that City bonuses in 2012-13 were more than 85% lower than at their peak in 2007-08. I know there is genuine concern about bank bonuses encouraging short-term high-risk behaviour, but it is not just the amount that matters; it is also the structure of the bonuses. There is a difference between cash bonuses and bonuses paid in shares with the opportunity for clawback if there is bad behaviour or a need to rebuild regulatory capital. Under the PRA remuneration code, large parts of bonuses must be deferred and paid in shares, aligning the interests of the employee with the long-term interests of the bank. The implication of many of today’s comments is that there is a concern about total remuneration, yet the motion and everything we have heard from the Labour Front Bench is about only one part of remuneration: bonuses. The reality is that the European directive and the policy pursued by Labour will drive up salaries. It is not clear why the Opposition are interested in only one aspect of remuneration, and we have certainly not had an explanation of that. It is also worth pointing out that the Governor of the Bank of England was critical of a cap in his evidence to the Treasury Committee this afternoon.

I am pleased that Labour appears to support the virtues of competition, but that was not its record in government. There were 10 banks in 1997, but that figure reduced over the following 13 years. The Cruickshank report, produced in 2000, was supposed to encourage more competition, but it was blocked by the Treasury and nothing was done. Our record has involved a much greater focus on competition, and it is a primary objective of the Financial Conduct Authority and a secondary objective of the Prudential Regulation Authority. We have a payment systems regulator, which makes things easier for small businesses, and we have changed the application process to make it much more proportionate for new businesses. Furthermore, the regulators indicate that 22 new banks are interested in acquiring authorisation in the UK.

On empowering consumers, our new switching policy saw a 54% increase in switching in December, compared with the year before. We have heard Labour’s proposals for a quota system. We do not have the details, of course, but simply reducing the number of branches of one bank will not create huge new levels of competition. There are concerns about branches being lost under Labour’s proposals. Most significantly of all, the Governor of the Bank of England told the Treasury Select Committee this afternoon that that would not help with competition. One other person has been critical of that policy in the past. In April 2011, the shadow Chancellor said that

“there is no need to break up institutions”.

The last Labour Government’s record on the banking sector was lamentable. Their regulatory system failed, and their attempts to ensure that individuals were held to account also failed. They tried to ensure that bonuses did not create perverse incentives, but that failed. They tried to encourage more competition; that failed. They tried to protect taxpayers’ money, but that failed too. Their record is one of failure, and until they acknowledge that, there is no reason why the British people should take anything they say on this matter seriously again.

Question put.

Annuities for Pensioners

David Gauke Excerpts

Tuesday 7th January 2014 Westminster Hall

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

It is a great pleasure to serve under your chairmanship, Mr Dobbin. I congratulate my hon. Friend the Member for Gloucester (Richard Graham) on securing this debate and opening it so well. He brings to the matter his professional experience before entering the House, his experience as chairman of the all-party parliamentary group on pensions and his experience of discussing these matters in Gloucester pubs, all of which have helped our deliberations. I thank my hon. Friend the Member for Fareham (Mr Hoban), who served with such distinction as a Treasury Minister dealing with such matters for more than two years and made a substantial contribution to the Government’s achievements in the area. I also thank my hon. Friend the Member for Warrington South (David Mowat), who spoke with great passion and demonstrated his determination to ensure that consumers—our constituents—are served well by the annuities market.

It is a priority for all of us that the annuities market should work in consumers’ best interests. When people have saved hard for a pension, it is right that they should get the best out of their savings on retirement. The decision that people make about their savings on retirement can determine what income they receive for the rest of their lives. Undoubtedly, it is one of the most important financial decisions that a person can make. As we have heard, more than 400,000 people purchase annuities each year, and studies show that there can be more than a 30% difference in the incomes offered by providers, highlighting the importance of making the right decision.

The Government want to ensure that the annuities market works in favour of the consumer and that consumers can make well-informed decisions to secure the best rates and exert effective competitive pressure on the market. The Government have been working with industry and consumer groups to make effective changes in the market, including work carried out by the open market option review group, which has introduced a number of measures aimed at encouraging consumers to shop around on the open market when buying an annuity.

For example, as my hon. Friend the Member for Gloucester pointed out—as did my hon. Friend the Member for Fareham, who worked so hard on the matter—the Association of British Insurers has introduced a code of conduct for retirement choices, which came into effect on 1 March last year. The code is binding on all ABI members that sell annuities, covering almost all the market. In addition, tailored advice and tools have been developed by the Money Advice Service and the Pensions Advisory Service to help consumers understand their choices and promote the benefits of shopping around.

The ABI code has brought about an important change in how annuity providers communicate with their customers, a point raised by my hon. Friend the Member for Fareham and my hon. Friend the Member for South Derbyshire (Heather Wheeler). The removal of application forms from pre-retirement packs actively encourages consumers to engage with the important process of choosing their annuity type and provider, ensuring that they do not automatically settle for the default. Through requirements on providers to provide better information to retirees in their wake-up packs, and new and improved tools such as the Money Advice Service’s comparison tables and the Pensions Advisory Service’s online planners, we can ensure that consumers have the resources that they need to make informed decisions.

The ABI will evaluate the impact of its code in March this year, one year after its implementation. The OMO review group will also evaluate its wider package of measures and their effectiveness.

[Jim Shannon (Strangford) (DUP)]

I apologise for not being here in time, Mr Dobbin. My plane was an hour late, so I could not be here. I also apologise to the Minister and to the hon. Member for Gloucester (Richard Graham). I wanted to speak in this debate, but I did not have the chance. Does the Minister agree that the language used in the selling of annuities, especially to elderly people, must be such that they can understand what they are getting themselves into? I believe that they do not.

[Mr Gauke]

The hon. Gentleman raises an important point. It must be right that we should do all that we can to ensure as much transparency for consumers as possible. That includes a number of aspects, some of which I have mentioned. Let me go further.

The code and other measures will only be as successful as the outcomes that they prompt. We want clear evidence that more people are making active, better choices about their retirement income as a result of the changes. If we do not, we will not hesitate to consider further action. In addition to the ongoing work to help consumers make better choices, the FCA is currently conducting a thematic review of the annuities market and how well it is working to serve consumers’ interests, a pricing survey of all annuity providers and a comparison of the rates available to consumers through a range of distribution channels. The review will consider whether firms create barriers that can restrict consumers from shopping around, and what risks and potential for detriment those barriers may present for consumers. I look forward to the report’s initial findings, which will be published next month.

Although it is imperative that the annuity market works in the consumer’s interests as an effective option for retirement income, it is important to consider the retirement income market as a whole to ensure that consumers have income flexibility in retirement. To increase flexibility, the Government have removed both the default retirement age and the effective requirement to purchase an annuity by age 75. Whether they annuitise or not, individuals are permitted to take 25% of their accumulated pension savings as a tax-free lump sum before going on to secure an income with the remaining savings. To ensure that that income can best serve retirees’ needs, the Government have reformed the capped draw-down rules and raised the annual withdrawal limit from 100% to 120% of the value of an equivalent annuity. That can help to raise the retirement incomes of individuals in draw-down arrangements who may recently have experienced reductions in income due to wider economic conditions.

There is additional flexibility for those with a guaranteed income of at least £20,000 a year. With income already secured, they have the option of a flexible draw-down arrangement, in which they can withdraw any amount from their pension pot. Those coming to retirement will benefit from having more flexibility in deciding how to provide an income for themselves in retirement, and for those with small pension pots, the Government have taken steps to reform the trivial commutation pensions tax rules. An individual who is aged 60 or over with total pension savings of less than £18,000 can withdraw the entirety of their savings as a lump sum. The first 25% of that lump sum is normally tax-free, with the remainder taxable as income. In addition, small occupational pension pots under £2,000, and up to two small personal pension pots under £2,000, can be taken as a lump sum for those aged 60 or over, even when people have savings in excess of the aggregate limit. All those options add flexibility.

Having a decent retirement income is driven by two factors: saving enough for retirement through working life, and making good choices at retirement to secure a reliable and maintainable income throughout retirement. It is important to remember that the biggest determinant of how much income someone receives in retirement is how much they have saved during their working life. With the introduction of auto-enrolment, the Government have taken a huge step forward towards ensuring that consumers start to save for their retirement and carry on saving throughout their working life. Auto-enrolment is the most important pensions change for a century—around 6 million to 9 million people will make new savings and increase savings for their retirement. It is estimated that that will generate around £11 billion in extra pension saving by 2020, which will mean an extra £11 billion coming to the retirement income market within the next six years and a new wave of retirees with robust defined contribution pension pots, making it all the more important that we ensure that the retirement income market is working effectively.

The Government are also acting to protect those valuable savings. We recently consulted on proposals to cap pension charges and introduce a range of transparency measures as a means of ensuring that savings are not eroded by charges. We are currently assessing the responses to the consultation and an announcement will be made when that work is completed.

[David Mowat]

The Minister is right that the Government are consulting on pension charges. I have two questions for him. First, have the Government given any thought to annuity charges and to capping them? Secondly, approximately what level of charge does he believe is reasonable on an annuity of £100,000 during the lifetime of that annuity?

[Mr Gauke]

I suspect that my hon. Friend will not be surprised to learn that I am not inclined to be drawn into specifying what I believe is a reasonable charge for an annuity. What I will say to him—I will expand on this in a moment—is that we want to ensure that the annuities market works. We want to ensure that there are competitive pressures in that market. In the light of the consultation that we have undertaken on pension charges, the work undertaken by the FCA and the analysis of the evidence that has already emerged on the ABI code of conduct and so on, we want to ensure that the spotlight remains on the market, so that we do everything we can to ensure that it works effectively for consumers.

We are committed to ensuring that consumers have access to retirement income options that provide a reliable and decent income throughout retirement. That is an agenda to which ministerial colleagues in the Treasury and the Department for Work and Pensions and I are committed. We are working together to ensure that consumers have appropriate options, value for money and support when they come to turn their hard-earned pension savings into a retirement income. As the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), who has responsibility for pensions, has recently suggested,reforms will be considered in the context of that work. That is why the Treasury and the DWP are currently considering the broad range of research and evidence on decumulation and how the market is working—to explore the impacts and interactions between market and consumer behaviour and Government policy.

I thank my hon. Friend the Member for Gloucester for securing and opening this debate. It has allowed us to discuss important annuities issues that are crucial for consumers if they are to secure the best from their savings at retirement.

[Richard Graham]

Will the Minister give way?

[Mr Gauke]

I will certainly give way to my hon. Friend—I can assure him that I am not about to conclude my remarks in the next sentence or two.

[Richard Graham]

I will be very brief, and I am grateful to my hon. Friend for his very measured reply to the debate. When the FCA review is published and when the ABI one-year review of the code of conduct comes out, the Treasury—as the Minister was saying—will look closely at how well the market is working. Just so we can be absolutely clear, if there is evidence that it is not working as well as it should and that there are hidden commissions, unnecessary charges and all the rest of it, will they be taken into consideration and reviewed and changed if need be?

[Mr Gauke]

Let me put it this way: the industry, the Government, the regulator and consumers all have roles to play in ensuring that consumers get the best deal. So far, action by the Government, the industry and the regulator has focused on ensuring that the market works more effectively to ensure that consumers shop around; identifying conduct risks that prevent them from doing so; and ensuring that they have the right tools and information to make informed choices and provide competitive pressure on the market. However, as I said earlier, those measures are only as effective as the changes they bring about, and they should not stop here.

The Government look forward to the results of the ABI’s evaluation of the effectiveness of its code, and to the FCA’s findings following its thematic review of the market and how consumers are being treated. They will complement the Government’s review of the evidence on how the market is operating and whether improvements are necessary. However, to answer directly the question put by my hon. Friend, the Government are serious about ensuring that the action already under way has a clear and positive impact. We have not ruled out further action in future.

[Gregg McClymont]

Does the Minister accept that the thrust of pensions policy has been to accept the reality of inertia and harness it for the public good? Everything that he has read so far from his script has been about individual engagement. Does he think that individual engagement is enough in this market?

[Mr Gauke]

The hon. Gentleman is too quick to dismiss the role of individual engagement—it seems to me that he dismisses it almost completely. It is important that we engage individuals in such hugely important decisions, that we increase transparency and that we remove any hidden barriers that may exist. There is consensus—we all want the market to work. If we are to succeed, we must take every measure available to improve individual engagement. We should not dismiss it.

[Mr Hoban]

Is not the point that we can design legislation around inertia to benefit from it, and that we can also design out inertia? The default—acquiring an annuity from a pension provider—can be designed out through an effective open market option, which will ensure that consumers can shop around and have good-quality information. The mass engagement solution put forward by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) is another way of tackling inertia. He accepts that we can change inertia and get people to shop around instead.

[Mr Gauke]

My hon. Friend puts it very well and I agree with his point.

To conclude, the view of all hon. Members who have spoken in the debate is that annuities are very important. There are concerns as to whether the market has worked as well as it might have done during a number of years, but there is recognition that the Government have made a number of reforms on our watch—I am delighted that my hon. Friend the Member for Fareham, who was so involved with those reforms, is here. However, we must keep our eyes on the matter and keep the spotlight on the annuities market. Crucially, we must ensure that the market is working in the best interests of consumers.