Taxation of Pensions Bill

David Mowat Excerpts

Wednesday 29th October 2014 Commons Chamber

[Priti Patel]

Let me assure my hon. Friend that guidance will be available in good time. It is also imperative that we get the guidance right, so we are working assiduously to do exactly that.

The scope of the high-level content of the guidance was set out in the FCA consultation that it ran in anticipation of its standard-setting role. The Treasury and its delivery partners, the Pensions Advisory Service and Citizens Advice, are working up the operational details and the context of the guidance while adhering to the FCA standards.

I will come to some of the other points raised by colleagues, but I would like first to touch on the Ipsos MORI poll that has been referred to. The poll also found that 88% of people would not draw down their entire fund. People said that rather than just spend their funds on a range of things, they would use them for good financial planning. That is exactly what these reforms are all about: trusting people with their money.

[David Mowat (Warrington South) (Con)]

The Minister talked about guidance a few moments ago. In the event that guidance is found to be inadequate or not to have been offered properly, would that potentially void any transaction made subsequently?

[Priti Patel]

The guidance that is provided will not make specific recommendations. Information will be provided to individuals not to make specific decisions, but to signpost and guide them through the areas I have touched on.

[David Mowat]

I thank the Minister for that answer, but if a supplier sold a product without offering any guidance and without checking whether that had happened—notwithstanding the question of its not being specific—would that be a problem and could it void the transaction?

[Priti Patel]

The FCA will be clear in setting out standards. However, I will come to that point shortly, because we have also discussed the consequences of mis-selling and fraud.

I would like to reply to a number of points made in the debate. The hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) talked about the tax revenue implications of the annual allowance and highlighted the evidence given before the Pension Schemes Bill Committee on 23 October. As my hon. Friend the Financial Secretary outlined earlier, the assumptions made in that evidence generated a huge overestimation of the likely cost of the reforms to the Exchequer. The Government believe that the introduction of a £10,000 annual allowance is the appropriate approach to allow people the flexibility to withdraw or contribute to their pensions as they choose from age 55, while ensuring that individuals do not use the new flexibilities to avoid paying tax on current earnings. It will also avoid unnecessary complexity for both consumers and pension providers when the new system comes into place in April 2015.

I would like briefly to touch on the two other contributions. We heard from my hon. Friend the Member for Amber Valley (Nigel Mills), who I understand celebrated his 40th birthday yesterday. He seems far too young to be contributing to pensions debates, although I know he has specialist knowledge in this area. He made a thoughtful contribution and raised a number of points. He mentioned the open market option. To be clear, the open market option will continue to be highlighted in the information that pension schemes are required to provide to their members at retirement. We have simply removed the requirement under the tax rules for the member to have chosen the annuity provider in order for the annuity to be an authorised payment. It is not appropriate for the member to be charged tax because they have been deprived of the opportunity to select an annuity provider.

Other points were raised about a proposed criminal offence for mis-selling. FCA rules are clear and require the responsible sale of products to consumers in a way that is clear, fair and not misleading. The FCA also has powers to take action against firms engaged in authorised business, and is able to prosecute a number of criminal offences. I hope that clarification reassures the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who was very explicit in her points. We are very clear on that. It goes without saying that the FCA and the Pensions Regulator will monitor this whole area to ensure that fraudsters do not use the reforms to take advantage of vulnerable people.

My hon. Friend the Member for Redcar touched on annuities, as did my hon. Friend the Member for Amber Valley. The Government are clear that annuities will remain the right choice for many at some point during their retirement. We believe that many people will still value the security of an annuity, but that is something that individuals—not the state—should decide. As all contributions have made clear, this is about individual choice and opening up the marketplace. As retirement changes, many people may, for example, opt to buy an annuity later in life, allowing them to benefit from higher annuity rates. It is for individuals to buy products that are best suited to their particular circumstances.

In response to my hon. Friend the Member for Redcar—who was firm on the need to get on with this—we understand the scale of the challenge. That is why we have appointed an implementation team in the Treasury for the guidance guarantee, and we are working closely with the industry to ensure that it is ready for April 2015.

Finally, the risk of people spending all their money at once was briefly mentioned. I would like to reiterate that the Government believe that people who have worked hard all their lives should have the freedom to decide how to use their savings and, importantly, should be trusted to do so. The Government do not dictate how people should spend their money generally, so why should it be any different when it comes to their pension savings?

I am grateful to have had the opportunity to explain the issues that have arisen today. We have had a good debate and look forward to more in Committee. A number of important points have been raised. I think all hon. Members have sensed that the main issue is the principle of empowerment and allowing individuals to make choices that are right for them, especially when they come to assess their pensions. The Bill is about choice and it will make that choice possible. I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Taxation of Pensions Bill (programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Taxation of Pensions Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 20 November 2014.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Mr Gauke.)

Taxation of Pensions Bill (Ways and Means)

Resolved,

That, for the purposes of any Act resulting from the Taxation of Pensions Bill, it is expedient to authorise the making of provision in connection with the taxation of pensions.—(Gavin Barwell.)

Energy-intensive Industries

David Mowat Excerpts

Thursday 11th September 2014 Commons Chamber

[Chi Onwurah]

I thank my hon. Friend for putting very clearly—I should have done so myself—the position of many in the energy-intensive industries, who see the need for a long-term future for their significant investments and wish to see a more competitive transition towards it.

[David Mowat (Warrington South) (Con)]

I have been listening very carefully to the hon. Lady. To say that members of the energy-intensive industries want us to go further and faster than other countries with the green stuff is a bit of a leap. Although no one disputes that we must decarbonise, the issue we need to address—the hon. Lady has not yet done so—is the extent to which we need to do that more quickly and more unilaterally than others. That is a fair question.

[Chi Onwurah]

I think that the hon. Gentleman has misinterpreted the remarks of my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith). She said not that the energy-intensive industries seek to go further and faster, but that they recognise the need to transition to a green economy if they are themselves to have a long-term economic future in this country and globally. I certainly support that position.

[David Mowat]

I will not intervene on the hon. Lady again, but as she said that I had misinterpreted the point, I want to come back on that. The issue is that we in this country are doing things unilaterally that other parts of the EU are not doing—it is not an EU issue—and that is a problem for many of the people, including my constituents and perhaps those of the hon. Lady, who derive their income and prosperity from the 900,000 jobs in energy-intensive industries. The valid point for us to debate is the extent to which we should be out of step with other countries, including in other parts of Europe.

[Chi Onwurah]

It was of course the hon. Gentleman’s Government who introduced the carbon floor tax, but I very much agree that it is legitimate for us to discuss such subjects, which is why I was so keen to take part in this debate. The way in which the UK leads in moving to a sustainable economic future is itself an opportunity for jobs and innovation, but it should also protect our energy-intensive industries.

I shall soon bring my remarks to a close, but I wanted to say that the previous Labour Government established the Sustainable Development Commission, the Committee on Climate Change, and the Warm Front scheme to tackle fuel poverty, and they invested in low-carbon industries. The economy was growing, but the air quality in our towns and cities nevertheless improved. Our CO₂ emissions fell by 10.8 million tonnes in our final year in government, when our greenhouse gas emissions were 66 million tonnes lower than in 1997. We helped 5 million households to get better insulation and keep warm, which reduced emissions and saved consumers money at the same time.

The next Labour Government will carry on that work. We recognise that a secure, clean energy mix is vital to powering our economy, meeting our climate change obligations and protecting customers from bill rises driven by events overseas. A long-term strategy should look at and support innovative new techniques, such as carbon capture and storage and underground coal gasification. Five-Quarter, a company spun out from Newcastle university, is leading the world in looking at the development of underground coal gasification as a clean way to deliver electrical power.

My key point is that aggressive action to tackle climate change is not incompatible with a strong manufacturing base. With the right strategies and support in place, the north-east can be the vanguard for a UK that competes globally in manufacturing and labour-intensive industries, while also setting an example in tackling climate change.

[Ian Swales (Redcar) (LD)]

I congratulate the hon. Member for Stockton North (Alex Cunningham) on securing the debate. On this issue, I regard him as an hon. Friend, and I was delighted to support his motion. Our constituencies are divided only by the River Tees, but they are joined by many pipelines.

I have taken a keen interest in these issues since I entered the House. I worked in the electricity industry for five years, and in an energy-intensive part of the chemical industry for more than 20 years, so I am very familiar with many of the issues.

As the hon. Gentleman said, the Tees valley is a “hotbed”—an interesting word to use—of such businesses. In fact, it has 18 of the 30 largest carbon emitters—energy-intensive industries—outside the energy sector in the UK. My constituency has the Sahaviriya Steel Industries steelworks, Tata Steel activities, Sabic petrochemicals and Lotte petrochemicals, which are some of the biggest businesses, as well as many others.

As the hon. Gentleman said, there is a proud history of such businesses in the north-east. On the wall of my office in Portcullis House is a picture of Lambeth bridge lying in pieces before it came down from Middlesbrough to be installed close to this place. When I took the Secretary of State for Business, Innovation and Skills around the Tata beam mill in my constituency, the work force were making beams for the new World Trade Centre. They told us proudly that their beams are in nine of the 10 tallest buildings in the world. That emphasises the point made by the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), which is that steel cannot be melted without using a great deal of energy. Steel beams cannot be made without using a great deal of energy. There are physical and chemical limits to what companies can do.

When I first became an MP, one of the key requirements for me was to get the steel works in my constituency going again. It will be of no surprise to Members that I therefore had to meet Ministers at the Department of Energy and Climate Change. The new owners wanted reassurance about the UK’s energy policy and an assurance that they would get the emissions allowances that were required to restart the plant. The owners were probably slightly naive and did not ask enough questions about how many issues they would face on the energy front. They have been surprised by the depth and breadth of the various environmental obligations on them.

As Members have said, Governments in other parts of the world are nowhere near as aggressive towards energy-intensive industries as ours seem to be. The former Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker), who was recently moved out of office, was told by his civil servants that energy costs in the UK were not out of line with those in other countries. That is the line that Ministers were being sold. He visited Germany because of the representations that he kept hearing from industry and was shocked by what he found. He had not realised that industry gets such a lot of support in Germany and that industrial energy costs can be as low as half the cost of domestic energy. The comparisons that the hon. Member for Stockton North has given became clear to him.

I was keen, along with other Members and particularly the hon. Member for Penistone and Stocksbridge (Angela Smith) in the early days, to form the Energy Intensive Users Group. The group was originally envisaged as an offshoot of the all-party parliamentary group for the steel and metal related industry, but we realised that it was a far bigger issue.

[David Mowat]

The hon. Gentleman made the important point that Germany’s electricity costs for energy-intensive industries are substantially lower than ours, even though its domestic energy costs are substantially higher, because it has a cross-subsidy. Does he know, or does anybody know, why that is not an issue in respect of state aid?

[Ian Swales]

The hon. Gentleman makes an extremely good point, which I will return to later. When I see the UK’s attitude to these sorts of policies, I often feel like we are playing cricket, while other countries are playing rugby, boules or other sports that we do not recognise.

At the first meeting of the Energy Intensive Users Group, I was stunned not just by the number of outside attendees from industry, but by their seniority. We quickly realised that it was a huge issue that faced many industries, some of which have been mentioned. I do not think that paper has been mentioned. That is yet another industry that sent a representative from its trade body. As a result, there has been a great deal of representation to the Government. I am pleased to see at least some bending in response.

UK businesses that are involved in the generation and consumption of energy are saddled with up to seven different carbon taxes from the UK and Europe. Interestingly, even the senior executives of those businesses cannot always describe clearly what all the taxes are and what they do. Despite the action that the Government are taking, the trends are not great. It is estimated that political costs will increase the electricity bills of industry by a third by 2019-20. Policy makers do not seem to understand that if a company spends millions of pounds a year on energy, it already has quite an incentive to use less. It does not need to be beaten with a stick by the Government to persuade it to use less energy, let alone seven sticks. These companies know that they are spending a lot of money on energy, and are already doing a lot about it. They know that energy costs are a competitive issue, whether there are taxes or not. The irony of a heavy tax burden is that it removes cash from those companies that they could otherwise devote to energy-saving initiatives. Many companies work on thin margins or in commodity businesses that do not have high margins. The more taxes they pay, the less likely they are to be able to invest in reducing carbon consumption and generation.

A Minister from the Treasury rather than from the Department of Energy and Climate Change is responding to this debate, and I wish to ask about the attitude of the Treasury towards these taxes. Does it take the broad view about business competitiveness, look at the overall picture, and compare the taxes being rendered with those rendered from Europe, or is it just a way of raising money? These businesses are almost all competitive and traded internationally, so in this regard the UK is no more an island than the EU is. Our policy decisions affect these businesses on an international basis.

The hon. Member for Warrington South (David Mowat) mentioned the EU. The minute we want anything done, the standard response from civil servants is “State aid”. That is a perfect method of obfuscation and delay, which, in many areas, we as politicians are buying when we should instead be fighting a lot harder. I know there are specific issues with the steel industry and the EU, but many other industries are not as limited. Politicians should not allow state aid to be used as an excuse for delay or for no action, particularly given that some of the things we are talking about are, ironically, UK-only initiatives. I cannot see how the European Union can interfere with initiatives such as the carbon price floor, which are taken only in this country. I would like Ministers to be a lot more aggressive with civil servants, not just about whether state aid issues apply, but if they do, about how quickly they can be removed. Some of the issues I am thinking of have been washing around for most of the four years that I have been in this place.

Europe has the emissions trading scheme, which has not totally met its objectives, as the allowances originally given to companies were fairly generous but the tight market that was expected to lead to carbon trading has not occurred. Ironically, however, Sahaviriya Steel Industries in my constituency has a specific problem because it was virtually out of business during the reference period when the allowances were decided. It now pays $1 million a month in carbon cost to the EU, because it does not have enough allowances to operate. It is also expanding, so carbon costs are yet another handicap.

Businesses can do many things to reduce energy use, but as the hon. Member for Newcastle upon Tyne Central said, there are physical and chemical limits. I do not disagree with some of the EU moves on best available technology, or with new moves to look at what is technically feasible and ensure that companies in the EU move towards that best available technology. I hope that we do not get regulatory regimes that drive everybody else out of business if they are not the best, as that will not help anybody. However—I hope the Government will take notice of this—when the best available technology frameworks are established for different businesses, that will at least show what is possible with regard to reducing energy consumption and contribution to climate change. If a company is doing something in another country, we can do it here; if it is not being done anywhere, we must ask whether it is sensible to try to drive a company to use 50% less energy, for example. I would like to see constructive work with the EU on that, ensuring that we are as bold as we should be when dealing with its requirements.

Investment has been mentioned, and the manufacturing industry has been declining. During the previous Government, it went from being 19% of the economy to 10%, although some growth is occurring. I worry about these businesses because there is capital investment inertia. It is not about whether company A is operating today, tomorrow or next year; it is about what investment decisions are being taken. Are the plants being kept up to date and maintained? Above all, would the company concerned re-invest in such a business?

I remember my experience as a financial director in the chemical industry. We decided to get out of a business, but 24 years later that business is still running. It has never been renewed, but it has been patched up and sold three times since then. Those are the types of decisions taken. If we have an unattractive climate for investment in this country, things will close down not overnight but steadily, and we are seeing some of that.

The Engineering Employers Federation, which covers all the businesses we are talking about, says that energy costs are its No. 1 issue for growth and investment. Many of these companies are foreign owned. The biggest employers in my constituency are Singaporean, Thai, Indian, Saudi Arabian and Korean. Decisions are being taken not in the north of England or London, but in Seoul, Riyadh, Bangkok and so on. If our energy infrastructure costs do not look competitive and sensible, companies do not need to come here or re-invest.

Despite sounding somewhat critical, I welcome the Government initiatives. The mitigation moves that they have mentioned are helpful for big energy users in my constituency. I hope the initiatives will take place with due speed—that has been an issue—that there will be certainty and that they are not a one-off. We are talking about long-term businesses taking long-term decisions. If the Government believe that throwing a carrot towards a business for 12 months makes a difference—well, obviously it makes a difference to its cash flow in those months, but it will make no difference to its strategy. Uncertainty does make a difference in the wrong direction.

I welcome the fact that the UK Green Investment Bank is majoring in investing in industrial energy reduction, as well as renewable technology, and I welcome the renewable heat incentive, which should help. The regional growth fund has put money into such businesses—most recently, £9 million went into a huge project at Sabic in my constituency, which will result in the petrochemical cracker being able to crack gas. I am pleased about the Tees valley city deal, which I helped to push for and even construct. It will get carbon capture and storage around Teesside, which I still regard as the No. 1 location for investment in carbon capture and storage for industries outside the energy sector, although we have the energy sector as well.

[Ian Swales]

I agree with the hon. Gentleman. Such a technology will create an infrastructure that will benefit all those sectors, and they do not compete that much with one another. The Tees valley can be a hotbed of competitive steelmakers, chemical producers and so on. Strategically, the country should get on with that.

All hon. Members have mentioned the importance of energy-intensive industries. They are important to the economy, to the development of green industries—let us think of the amount of steel involved in tidal power—and to the security of the country. We should not kid ourselves when we count carbon. In a debate a while ago, the hon. Member for Warrington South asked, “Is the carbon for my Volkswagen car mine or the Germans’?” We are kidding ourselves if we think we are doing the right thing by de-industrialising this country, exporting jobs and importing carbon. That is one point on which I depart from the hon. Member for Newcastle upon Tyne Central.

[David Mowat]

I agree with the sentiment the hon. Gentleman expresses, but I do not recall saying that. I have a Volvo, not a Volkswagen, so I might have talked about Swedish carbon.

[Ian Swales]

I think he mentioned Volkswagen in the context of chiding the Germans for their carbon emissions. I made the point that a big manufacturing exporter such as Germany is probably bound to have higher carbon emissions on a production basis.

It looks as if I will be fighting the hon. Member for Newcastle upon Tyne Central for the first copy of Hansard tomorrow, because I, too, must leave the Chamber, to join the Government’s rail electrification taskforce. I apologise in advance to the Minister. I will look closely at her remarks tomorrow.

--- Later in debate ---

[David Mowat (Warrington South) (Con)]

It is a pleasure to follow my hon. Friend the Member for Monmouth (David T. C. Davies). I seem to recall that I had the opportunity to follow him in the energy debate two weeks ago, so perhaps we are getting to be a bit of a double act. My premise is that we do need to decarbonise, but he makes a valid point about the hiatus: it is true that the climate has not changed, certainly in the last 15 years. There are statistical reasons why that might be possible and the balance of science is still that there is probably an issue. I am not a scientist—nor is any other Member present to the level of being able to interpret these data—but my position is that, at least on the precautionary principle, it is right that we decarbonise.

My remarks in respect of this industry, in which, as we have said, there are 800,000 jobs, will focus on the increasing dichotomy of approach between us and other countries—between us and the EU, the United States and the rest of the world. These taxes are designed to prevent a free market in electricity and energy. A free market in both, particularly at the moment, would involve massive amounts of coal and depreciated nuclear, I guess, and we have decided for policy reasons that we do not wish to do that. We are, however, out of step.

The shadow Minister, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), said that the debate was about the carbon price floor. It is not just about that. It is about carbon taxes in general. I do not support what happened on the carbon price floor. I think it was an error, and I am glad the Chancellor took the opportunity to fix it. It is a little bit hard to take the Labour party lecturing us on that. We talked previously about what happens whenever we debate an energy measure— through which we can tangibly affect energy prices—in this Chamber. There is always a judgment to be made between speed of decarbonisation, how we act unilaterally, costs and jobs. Whenever we have to make that judgment, however, the Labour party has always, during my time in Parliament, belligerently taken the view that the Government are not being green enough and we need to go further. I remember the debate of three years ago on the reduction of solar PV from six times grid parity to four times grid parity. That was a perfectly reasonable proposal, but the Labour party resisted that and fought it in a striking way.

The key date, however, in terms of the Labour party’s position was 4 December last year when, although we are switching off our coal stations anyway and are going further and faster than others in Europe in doing so, there was a Lords amendment to require existing coal stations to be switched off more quickly than had been planned in terms of the emissions performance standard. Labour Members voted for that, so for them to lecture us on this stuff is a little bit rich. Finally, let me point out that in 2010, at the end of the last Parliament, this country ranked 27th out of the 29 countries in the EU in the amount of renewables. I have no problem with renewables; it is the cost of them that is an issue.

We are now out of sync with the EU. In a good speech, the hon. Member for Penistone and Stocksbridge (Angela Smith) told us about Germany and France having forward energy prices that are 40% and 70% lower than ours. That is not a sustainable position from which countries can agree to invest in industry. The odd thing about EU energy policy is that it has not emphasised reductions in carbon. What EU energy policy has done is emphasise renewables, which is not quite the same thing. The consequence of an energy policy that is about not reducing carbon but having more renewables is that we get behaviour such as that in Germany. Some 40% of its electricity comes from renewables, which is a huge and difficult thing to achieve, yet it now burns so much coal that its carbon usage per capita and per unit of GDP is a third higher than ours. The consequence of EU policy is that we have not decarbonised and we have misallocated revenue that should, perhaps, have gone to carbon capture and storage, which is not a renewables technology. We have not decarbonised. Instead, we have misallocated capital to renewables. I am not against renewables, but I am for—this is the policy—decarbonisation. The hon. Member for Redcar (Ian Swales), who is not in his place, talked about state aid and the fact that the Germans in particular, but also the Belgians and the Dutch, cross-subsidise industrial jobs in order to keep these foundation industries going.

A great deal of marginal foundation industry is reshoring to the eastern seaboard of the United States. There, chemical feedstocks, and electricity, are one third of their price in Asia and here. That is a massive differential. People talk about shale and ask, “Is shale going to happen?” Shale has happened. It is transforming, and transforming quickly, the economy of the United States, while we continue doing feasibility studies while marginal jobs move. It is true that it is not as if whole industries are moving. What is happening might involve, for instance, an investment decision about a bit of marginal kit possibly in Teesside or the north-west—a new cracker, a new process. That marginal decision is looked at in its own right. Increasingly, the decision is made to put it in EU countries, with their cheaper electricity, or on the eastern seaboard of the United States.

We are out of sync, too, with the rest of the world. Every Member who has an interest in this policy area should know this key statistic: this year is a big year for carbon emissions per head, because it is the year in which—per head, not as a country—China will pass the UK in carbon emissions, for which the UK is one of the lower countries in the EU. That is a big number, and it shows the need not only for international action, but for us to stop acting unilaterally unless we can bring other countries with us.

On that point, although the world increased its renewables—our renewables—by a reasonable chunk, the increase in coal was three times greater than the increase in renewables in absolute terms. We must take account of such issues when setting our own carbon taxes and our own policies, reflecting on the 800,000 jobs that exist in the industry, and which we all would agree we want to continue to exist.

The Climate Change Act 2008, passed by the last Government, contains a requirement for us to reduce carbon emissions by 80% by 2050. The issue, however, is that the world has not followed us. Some people might say, “Ah, isn’t it good that we are out in the lead on all this stuff? Isn’t it good that we are demonstrating soft power? Isn’t it good that we are setting an example for the rest of the world?” That might be true—I do not have an argument with that—but the world has not followed us. Nobody else has passed anything like a Climate Change Act, and nobody else, as far as I can see, looks as if they are going to. The consequence is that, rightly, we have the Committee on Climate Change, which produces carbon budgets, and carbon budgets produce behaviour and all that goes with that.

Let me leave the House with this point. I had what I thought was a very scary conversation, in which I mentioned our penalising our energy-intensive industry, with somebody who works for the Committee on Climate Change. He said to me, “Ah, it’s all about comparative advantage.” Comparative advantage means this: if Britain wants to be an industrialised economy into the future, we need to be thinking about which industries we are in, and we need to be choosing—this was the position of this person from the Committee on Climate Change—and prioritising other industries over these foundation industries because they are not the future. I do not agree; I disagree profoundly. Those 800,000 jobs are very important and the number can grow, but that is the atmosphere in which part of this debate is being conducted and for me at least it is quite scary.

Finance Bill

David Mowat Excerpts

Wednesday 2nd July 2014 Commons Chamber

[David Mowat]

Does the hon. Lady not think it right that we incentivise these renewables projects through contracts for difference and all the mechanisms the Department of Energy and Climate Change has brought forward rather than these sorts of EIS schemes? Therefore, it is rational to do what the Government have done, and that of itself should not make any difference to the propensity to go ahead with these things.

[Catherine McKinnell]

We would always hope that the Government would behave rationally in respect of these matters. I am pleased that the hon. Gentleman has absolute confidence in that, but I would be grateful if the Minister could provide some reassurance because the Government’s record on these issues has not always been entirely rational and I do not share the confidence of the hon. Member for Warrington South (David Mowat) in this regard.

On follower notices and accelerated payments, amendment 2 inserts subsection (8A), which provides that if a tribunal finds that a penalty should not have been charged because it was reasonable for the taxpayer to continue his dispute, the follower notice on which it was based remains valid, as does any accelerated payment notice or partner payment notice related to it. Concerns have been raised that if a penalty is cancelled on the grounds specified in clause 207, the validity of the follower notice—or related accelerated payment notice or partner payment notice—is not affected by the cancellation of the penalty. HMRC has confirmed that the intention is that if the penalty is cancelled on other grounds specified in subsection (2A), the follower notice, and any related accelerated payment notice or partner payment notice, would be cancelled. That is clearly the logical result of a successful appeal against the penalty. However, a few questions have been raised about this, so will the Minister say in what circumstances the grounds of appeal in clause 207(2A)(d) might be used, and why if successful, the FN and related APN or PPN would not be cancelled? When will guidance be published on this and the rest of the legislation on FNs and APNs, bearing in mind how important the guidance will be in helping taxpayers and their advisers to understand how this legislation is intended to operate? When will HMRC be publishing a list of the disclosure of tax avoidance schemes that will be issued with an APN, as we know that there is a lot of concern about the implementation of some of the Government’s proposed changes? On that very technical note, I conclude my queries to the Minister and I look forward to receiving reassurances from him in his response.

--- Later in debate ---

[Mr Gauke]

I will do so, Mr Deputy Speaker, because my hon. Friend makes an interesting point. I have set out the definition of touring. We think that the right approach is to use that definition, for the sake of simplicity, rather than to try to come up with something more complicated.

A question was asked about how a business not subject to corporation tax can qualify for relief. The new relief is available only to companies subject to corporation tax: it is a corporation tax relief. As I have said, it is modelled on the successful reliefs that already exist for the creative sector, and it is designed to give the relief to producers while minimising the scope for abuse. The Government recognise that not-for-profit companies make up a valuable and substantial part of the theatre industry, and we are confident that the sector will be able to access the relief without significant additional administrative burdens. A concern was expressed about whether setting up a trading subsidiary is complicated for charities. As I have said, we have tried to minimise complexity, and we have based the relief on what is already in place. We believe that charities will get the support they need.

[David Mowat]

Will the Minister give way?

[Mr Deputy Speaker]

A man who has been here all the time.

[David Mowat]

I have, indeed, been here all the time, Mr Deputy Speaker.

The hon. Member for Bishop Auckland (Helen Goodman) asked whether the relief will apply to blockbuster successes, such as “Les Misérables”, on which massive amounts of money are made. Indeed, the return on capital for such ventures is far higher than that for contractors in the North sea. Can the Minister give us any assurance that the relief will not be disproportionately skewed towards such companies?

[Mr Gauke]

The point is that the relief is designed to support the range of theatre productions across the UK, in both the subsidised and commercial sectors. We worked closely with the subsidised sector when developing the policy, and we are confident that it will benefit from the relief.

Let me turn to the points made about measures to deal with tax avoidance schemes, including the accelerated payments regime and follower notices. My hon. Friend the Member for Tamworth (Christopher Pincher) asked whether taxpayers who have not used a true tax avoidance scheme will be caught, perhaps with a precautionary notification having been made under the DOTAS regime. Any unintended consequences for compliant taxpayers will be minimal. Where the taxpayer has used a relief correctly, but a DOTAS disclosure has been triggered, there would not normally be any tax in dispute, and there will therefore be no accelerated payment. If a taxpayer has used a relief largely as intended, but some elements are disputed, then an accelerated payment—if one is required—would be confined to the disputed elements. Let me be clear that the accelerated payment is the amount of tax that the taxpayer can expect to pay if their avoidance fails, taking account of their overall tax position. It is not some arbitrary amount, as has been alleged by those who have tried to discredit the measure.

My hon. Friend asked whether the measure will be retrospective in effect, as did my hon. Friend the Member for Cannock Chase (Mr Burley). We had an extensive debate on that point in Committee, and the Committee reached a sensible conclusion, but let me set out the issue again. The measure is not retrospective. The rules about whether the taxpayer’s scheme does or does not work and about the amount of any tax liability will not be changed. The taxpayer would have already paid the money had they not entered an avoidance scheme. The taxpayer can continue to dispute the case, and will be paid back with interest should they win. We are not restricting people’s rights. Prudent taxpayers should recognise that tax avoidance carries a significant risk of not working and that the tax might become payable, so they should make plans for such an outcome.

Office for Budget Responsibility (Manifesto Audits)

David Mowat Excerpts

Wednesday 25th June 2014 Commons Chamber

[Jesse Norman]

My hon. Friend is absolutely right, and I will move on to that point shortly.

The OBR is a new institution. Would it be right to put its recently created reputation at risk by inserting it into the political process in the run-up to an election? The answer is obviously no. These issues need to be calmly and soberly addressed, not patched together late in a Parliament. The proposal would require primary legislation, which will take time and consideration. It should not be rushed into on this timetable. The Institute for Government was perfectly clear that it should not be adopted as a hasty change to the OBR’s remit at this point in the Parliament.

The second question is this: would such a new role compromise the OBR’s key functions? There is an obvious danger that it might. The remit would require careful amendment. Clear rules would be needed on how many policies could be costed, if not a full manifesto, and on which political parties would be eligible. The OBR could not be expected to invigilate in hard cases or act as judge on these issues. It would undoubtedly be attacked by parties that were ineligible to have their policies costed.

[David Mowat (Warrington South) (Con)]

My hon. Friend has referred two or three times to policies being “costed” by the OBR. In fact, the motion refers to auditing, which has a precise meaning. I think that is the weakness of the Opposition’s case. What does an audit opinion mean? It would be qualified, true and fair, and in reality there would be several caveats, which we would end up arguing about.

[Jesse Norman]

That very important point speaks better than I can to my hon. Friend’s expertise. I suspect what the Opposition mean is “costed,” so their failure to understand the difference is reason alone to reject the motion. “Costing” was the word used by the Treasury Committee and that is what I would call it, too.

There is some risk of bias against insurgent parties that were growing in public support but did not have many MPs, or in favour of declining parties for the opposite reasons.

I remind the House that there are deeper questions to be addressed. Is it actually possible to have all policies costed in a genuinely authoritative and independent way? The answer is far from clear. Many policies are non-financial, many are vague and many have complex interactions with other policies that may themselves not have been costed, and many have implied costs that will not be captured by a direct costing exercise. It may be that the OBR will not enjoy the relative immunity from political controversy enjoyed by the civil service when it ends up costing Government and Opposition policies. Parties may try to gain the OBR, as they have attempted to do in Holland.

My final question is this: is it wise for the state to be pushed further into the political process? My hon. Friend the Member for South West Devon (Mr Streeter) has made this point, but let me reiterate it. It is a far bigger question than we have time to debate today, but just as there are perfectly proper concerns about the state being dragged into funding political parties or into press self-regulation, so there are proper concerns that the state should not be pulled into costing party policies. After all, parties have been producing policy ideas, themes and, indeed, platforms, if not manifestos, for more than 200 years, ever since the time of Burke, Fox and Pitt. The British public have found themselves able, mirabile dictu, to make judgments for that period, even without the wisdom of the Office for Budget Responsibility.

This very debate shows how this topic has already become bogged down by partisanship. Why does the Labour party now seek to have manifestos audited? The reason is that its polling data overwhelmingly demonstrates that Labour is hopelessly short of economic credibility. The shadow Chancellor himself is specifically responsible for—indeed, he incarnates—that lack of economic credibility. He was a key figure in the previous Government, who left our country so vulnerable to financial crisis. He had to be dragged kicking and screaming to accept his mistakes in office as a soft-touch regulating City Minister. He is still in denial over the success of plan A. The irony is that his performance on this very issue perfectly exemplifies the reasons for his diminishing authority: first, he was against costing policies, but now he is for it. For naked short-term advantage, he is prepared to politicise the OBR and its head, amid a lot of pious words about cross-party consensus from one of the most divisive figures in politics of the past two decades.

In conclusion, this is an important issue, but the shadow Chancellor embarrasses himself twice over: first, by placing it in such a party political context, and secondly, by ignoring the real problem for him, which is the catastrophic failure of trust in politicians and political parties today—a failure to which he himself has been no small contributor. The causes of that loss of trust have little to do with politics. They run much deeper to the decline in Britain’s influence around the world; the loss of standing of Parliament over so many recent scandals; feelings of powerlessness among the general public; an apparently increasing sense of outrage fanned by parts of the media; and a general unwillingness to grasp the complexity of Government or to give those in power the benefit of the doubt.

The time has passed when the shadow Chancellor could expect to be heard on this or any issue. He has thrown that right away. He has lost what authority he ever possessed. Today’s debate shows precisely why he will never, and should never, regain it.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

I agree with some bits in the speech the hon. Member for Hereford and South Herefordshire (Jesse Norman) has just made.

[David Mowat]

The last bit!

[Debbie Abrahams]

Certainly not the last bit. Last month’s elections were a wake-up call for all of us, and if we do not heed it, the future of politics will not look good. Far too many people feel completely disfranchised from politics and do not trust politicians. Too many people either stayed at home or cast their vote for a protest party. That is why I fully support the motion for the OBR to independently audit the spending and tax commitments of the main political parties in next year’s general election.

Undertaking that analysis would be a major step forward to help increase openness and transparency in politics. It would enable proper scrutiny and debate on the spending plans of all political parties, and enhance the democratic process. Ultimately, it would contribute to informed decision making, which is surely what we should all want. We are here as public servants to reflect issues in our constituencies and to develop policies that respond to those issues. Communicating our policies is part of our job. That is certainly the form of politics that Opposition Members want to develop.

This proposal is part of a process of addressing the major power imbalances and associated inequalities in our country, and we are absolutely determined to tackle it. We will continue to stand up to powerful vested interests, from media barons to the big energy companies. Information is power, and having information about how the Government or political parties intend to spend public money is very powerful.

--- Later in debate ---

[Cathy Jamieson]

The IFS’s role is slightly different from the one that has been proposed. This is about scrutinising and certifying the policies and plans for government. One hon. Member mentioned the difference between costings and audit. We are saying that the costings should be looked at. That role is slightly different from the one that the IFS fulfils.

We are confident that our policies will stand up to that scrutiny. We are confident enough to say that we want the OBR to run the rule over all the spending commitments in our manifesto. As Members have rightly said, we recognise the need to restore trust in politics. The public want assurances that our policies add up. They want the OBR, having done the work, to be in a position to give them the quality assurance that they seek. We strongly believe that the other major parties should be prepared to do the same thing. That will enable the electorate to make an informed decision based on facts. That is important.

[David Mowat]

Will the hon. Lady give way?

[Cathy Jamieson]

I am very short of time, unfortunately.

It is important to recognise that a number of people—Members have referred to this—have shown support in principle. The Government’s argument is twofold. First, they want to preserve the independence of the OBR. My hon. Friends have advanced a number of arguments as to why the Government seem to be the only people at this stage who are bringing party politics into the debate on the OBR. It is not Members on the Opposition Benches who are doing so. Secondly, it is important to recognise that the Government’s other objection is that there is insufficient time. However, we have the information and discussions have taken place with the head of the OBR. If we do not make a decision quickly and put measures in place, we will run out of time, but there is still a window of opportunity.

I hope that when he sums up the Minister will be able to answer some of the questions that the Financial Secretary to the Treasury was unable to answer earlier. What discussions have Ministers had with the OBR since the plans were first mooted? Our integrity, why we are making the proposal and what we have done about it has been questioned, but it is also the responsibility of Government to take these matters forward. I hope that the Minister will be able to give us information on that.

As far back as 2010, the Chancellor himself said that this was a

“legitimate matter for the House to debate and decide.”“—[Official Report, 12 October 2010; Vol. 516, c. 142.]

It is unfortunate not only that in the intervening years he has not seen fit to address the issue, but that he has not seen fit to turn up today to give us any more information. That leaves Opposition Members with no option but to draw the conclusion that the only reason why the Government do not adopt a consensual approach today and embrace the opportunity to take this proposal forward is that they have no wish to do this whatsoever, and I am sure the public watching will also draw that conclusion. The public will then also draw the inference that those of us on the Opposition Benches draw: that the Government do not wish to have their policies put under the same scrutiny as we are prepared to have our policies put under.

Finance (No. 2) Bill

David Mowat Excerpts

Wednesday 9th April 2014 Commons Chamber

It is worth repeating the figures from the Institute for Fiscal Studies. Families will be £974 a year worse off by the time of the next election, which will be a real problem for people who are doing their best to look after their children, keep a roof over their heads, maintain a decent standard of living, and ensure that their kids have the same things as their schoolmates and other friends. These people are not necessarily leading lavish lifestyles; they are simply trying to get by without getting into debt. Some are even trying to put aside a small amount of savings for a rainy day, but many who have done that are now finding that it has not just rained but poured, that their savings are gone, and that they are literally living from one week to the next. I do not need to repeat everything that has already been said about those who are struggling most and are resorting to payday lenders, and the increasing number of people who are using credit cards to pay their utility bills and buy household items that all of us here take for granted.

[David Mowat (Warrington South) (Con)]

There is a perfectly good case to be made for reducing the difference between high and low salaries, and the hon. Lady is making it. What I do not understand about Labour’s policy is that it seems to be concerned with variable pay but not with fixed pay. Labour Members appear to be quite sanguine about a pay level of £2 million a year, but not about a pay level that consists of a £1 million basic salary and a £1 million bonus. That strikes me as rather odd.

[Cathy Jamieson]

I think that a separate debate could be had about pay levels overall, but for the purposes of the debate on new clause 5, we are focusing specifically on the question of bonus payments. It has been argued that if we follow this line the banks will find an increasing number of ways of paying bonuses, such as deferring them, and we have not said that is necessarily a bad thing. However, for the purpose of longer-term economic stability, it is surely better for people not to be rewarded for failure, but to be held to account over a longer period.

[David Mowat]

Of course that is right, but if we are trying to reward people for success, it seems logical to assume that variable pay provides a better and more valuable way of doing that than very high fixed pay. I do not understand why the Labour party is so relaxed about very high fixed pay but wishes to tax variable pay, which can be associated—I agree that this is not always the case—with success or failure.

Budget Resolutions and Economic Situation

David Mowat Excerpts

Wednesday 19th March 2014 Commons Chamber

[David Mowat (Warrington South) (Con)]

It is a pleasure to follow the hon. Member for Wrexham (Ian Lucas).

There are four tests of a Budget that we could reasonably apply. First, is the cake growing? Secondly, are we distributing it fairly? We will come to that. Thirdly, did the Budget get tempted by short-term electoral considerations or was it long-term and structural? Fourthly, when the Chancellor had an opportunity, was he radical and reforming? On all four measures, this Budget is a success.

First, on growth, as we have heard, we are the fastest-growing country in the OECD—that is a tremendous statistic—and growing faster now than even the United States and Canada. In particular, we are growing faster than France, the country on which I believe the Opposition base their policies. Secondly, are we distributing the results of that growth fairly? We just heard a speech about fairness from the hon. Member for Wrexham. Income inequality in our society is at its lowest level for 28 years. Why is that? Because this Government increased capital gains tax by around 40% when they came in and have increased stamp duty by more than that. Both measures are bringing in significant amounts of revenue.

The Opposition are caught up in the debate on the 45% and 40% income tax rates. That is not how to achieve more equality in society. People are getting rich because of capital gains. Five years ago I knew people who were paying 10% capital gains tax under the previous Government when they sold their businesses. We have fixed that, which is why income inequality is much lower now. A further reason is that we are getting a great deal more in revenue from sorting out tax avoidance.

The third test is whether the Budget was designed for short-term electoral gain or whether it introduced long-term structural change. Some measures will kick in fast. The £500 extra on the personal allowance will come in quickly, but the Chancellor has spent just as much money as he spent on that on the carbon price floor, support for energy-intensive industries and the investment allowance. None of those things will take effect in the short term and all of them are important to the structural rebalancing of the economy.

[Sheila Gilmore (Edinburgh East) (Lab)]

I do not know whether the hon. Gentleman has had time yet to look at the OBR report. The comment on the investment allowance in that report is that it will make very little difference to economic growth.

--- Later in debate ---

[David Mowat]

I have not had a chance to read the report. According to the Red Book, the cost of that allowance will be £1.2 billion next year, an awful lot of money. I will not respond to the hon. Lady’s point about growth, because my point was that the Chancellor has introduced medium-term structural measures into the economy, which is a responsible approach.

The fourth test is whether this is a radical and reforming Budget. The measures on pensions, ISAs and particularly annuities are genuinely reforming, genuinely radical and potentially genuinely transformative.

I want to talk a bit about all those things, but first I want to say something about the support the Chancellor has been able to give the Foundation for Peace—the peace centre in Warrington. There was an issue to address, as it was funded from the lottery and that funding will run out in April. The work the centre does for victims, both of the troubles in Northern Ireland and of 7/7, was under threat, and the support that has now been given will fix that. It is also true—I know Colin and Wendy Parry agree with this—that the funding must be put on a sustainable basis, as the centre needs to do more projects over time with the Home Office and the Foreign Office and all that goes with that.

[Guy Opperman]

I totally endorse what my hon. Friend said. Does he also welcome the use of the LIBOR funds to support the scouts, girl guides and emergency services, and the waiving of the VAT for air ambulances, which is much welcomed after a long campaign in this House?

[David Mowat]

I support that, and I just reiterate the words the Chancellor used: those who have the worst values in our society are being used to fund those who have the best values in our society. That just about sums it up.

[Jim Shannon (Strangford) (DUP)]

rose—

[David Mowat]

I have given way twice already, so I am sorry but I am not going to do so now.

I wish to say a little about the carbon price floor, because I was delighted that the Chancellor has acted on it. The action makes no difference to our commitments on the overall carbon reduction profile that this country has made, but it makes a great difference to the potential carbon leakage we are facing in our great energy-intensive industries, particularly in the north-west and north-east. Some 900,000 people work in energy-intensive industries in our country, and I sometimes think they are forgotten in our dialogue about energy prices. It is worth understanding that what the Chancellor has done is remove the straitjacket on costs, which would have put a great deal of those jobs at risk. For example, we have already lost primary aluminium smelting in this country—it has moved out of the UK—and we are losing marginal chemicals capacity from this country. I am surprised that a number of Opposition Members are not more exercised about this issue in general, given that they represent parts of the north-east, where there is heavy chemical manufacturing, and there are a lot of energy-intensive industries and a lot of jobs, because we cannot rebalance our economy back towards manufacturing if we have differentially high energy prices in this country. We just will not be able to do that—it will not happen.

This issue is not just about what is happening in the United States on shale gas and shale prices; it is also about what is happening on mainland Europe. It is an inconvenient truth—to use a known phrase—in this whole issue of carbonisation that we produce not only considerably less carbon per head than the EU average, but less carbon per capita. We produce 30% less carbon per head and carbon per capita than Germany, yet Germany is pursuing a policy of building unabated coal power stations at scale. We are being left behind in all that, and what the Chancellor has done on the framework is absolutely spot on and will make a difference to those 900,000 jobs. I predict that we will be revisiting this issue at the next Budget and certainly into the next Parliament, because there is a great deal of unfinished business in this area.

Before I leave the field of energy, may I say in passing that the infrastructure plan is very welcome? Two big parts of the national infrastructure plan are Hinkley Point C and Wylfa—together they make up about a quarter of it. They are both vital to our country and our economy. Both are currently under EU state aid investigation, which is holding up the projects. I have heard Ministers saying that they are confident that they will have that agreed, and I very much hope that is the case, because it would be a great paradox if those low-carbon projects, which are essential to our energy security and to our decarbonisation efforts, are held up within the EU at the same time as our EU partners are building unabated coal power stations at scale in countries such as Holland, Germany and Belgium.

I want to move on now to tax avoidance and tax evasion. The Red Book shows incremental revenue of £2 billion over the next two years from the anti-abuse legislation that we introduced. I very much welcome the Chancellor reducing the level of corporate avoidance of stamp duty from £2 million to £500,000. The closure of that tax loophole has brought in hundreds of millions of pounds. It is an example, as I said at the start of my remarks, of why income equality is so much better now than it was under the previous Government.

I also welcome the up-front taxation of tax schemes, which means that if people get involved in controversial schemes, they will not be saving tax and cash flow as they wait to go to tribunal. Her Majesty’s Revenue and Customs is also able to act more quickly than it has hitherto been able to do.

There were four tests today, and the Chancellor has passed them and any reasonable expectation of this Budget. I am happy to support it.

Currency in Scotland after 2014

David Mowat Excerpts

Wednesday 12th February 2014 Westminster Hall

[Stewart Hosie]

No. I have only five minutes.

The hon. Member for Edinburgh South suggested that so much money had been put into Scottish banks. I draw his attention to chapter 1, paragraph 1 of the report by the Parliamentary Commission on Banking Standards. The cash cost at peak is reported to be £133 billion—that was £47 billion to Royal Bank of Scotland in return for 82% of the stock, around £25 million into Lloyds, and smaller amounts to the Icelandic and other financial institutions. Where taxpayers are still on the hook is the near £50 billion owed to them from Northern Rock and Bradford and Bingley, which may be many things, but they are not Scottish banks. The notion that the argument was ever about Scottish banks bad, English banks good, must be knocked on the head.

The old chestnut about Scotland in a sterling currency zone being like Greece was also raised. Greece’s problem had nothing to do with being in a currency union and everything to do with appalling productivity. As we know, Scottish productivity is nigh on identical to that of the rest of the UK. That would avoid such problems entirely.

[David Mowat (Warrington South) (Con)]

Will the hon. Gentleman give way?

[Stewart Hosie]

No. I do not have time.

The hon. Member for Edinburgh South rightly and understandably prayed in aid Dr Carney’s recent speech, which he said did not pass judgment on the relative merits of the different currency options for Scotland, but instead drew attention to the key issues. However, Dr Carney did point out that any arrangement would be negotiated and that the Bank of England would implement whatever monetary arrangements were put in place. That is to be welcomed, not just by me, but by the 71% of people in the rest of the UK who support the continued use of sterling after Scottish independence. The same proportion—71%—of Labour voters in Scotland also support the continued use of sterling after independence.

The hon. Member for Edinburgh South and the no campaign seem to fail to understand what Scotland brings to the table. Of course we recognise the constraints—I will come on to them—but we bring export revenue receipted in sterling. The impact on the sterling balance of trade would be immediate and significant were Scotland somehow—impossibly—forced not to be able to use sterling. The same applies to trade—the rest of the UK sells £60 billion into Scotland. If we were forced to use a foreign currency and transaction costs were applied, that would imply a catastrophic loss to English businesses: additional costs that the no campaign never mentioned.

Let us put the matter into context. In 2012, the rest of the UK sold into Scotland more than it did into Brazil, South Africa, Turkey, Russia, India, South Korea, China, and Japan combined, yet we hear from the no campaign that they do not want us to use sterling, even though that is impossible, which would imply massive transaction costs and the loss of jobs in the rest of the UK. I am sure that is not something they intend to do.

--- Later in debate ---

[Mr McKenzie]

The right hon. Gentleman makes the point clearly and we have been highlighting that throughout the debate on Scotland’s future.

If Scotland carried on using the pound regardless, we would have no control over our economy and we could lose our central bank, which acts as the lender of last resort. The nationalists are now suggesting that Scotland should default if they do not get their way on a currency union; the Deputy First Minister has said that Scotland might not take its share of national debt if it is not agreed. That is wildly irresponsible and would jeopardise an independent Scotland’s creditworthiness. The people of Scotland have every right to worry about the future of the money in their pocket, when they hear bullying threats, such as the threat of reneging on our share of the debt. What tone would that bring to other negotiations about separation? It is hardly the way to make friends and impress people.

[David Mowat]

The hon. Gentleman is right to say that the Scottish Government cannot default on the debt, but can only refuse in the negotiation to take their share; the debt is already underwritten by the UK Treasury. What I do not understand about that position is that all the cash collection systems operating in the UK—Her Majesty’s Revenue and Customs, benefit systems and all the rest—will continue to be operated centrally. It is a mess.

[Mr McKenzie]

The hon. Gentleman makes some good points; but the main thing is that the Scottish Government believe they can do anything they want.

Losing the pound would mean a higher cost of living, with higher mortgage repayments, higher credit card and store card bills and more costly loans, because Scotland would start out as a separate state with no credit rating. There would also be an unnecessary threat to jobs: what would the exchange rate be? The cost of changing money every time Scottish firms were to buy from or sell to our biggest customer—the rest of the United Kingdom—would be an issue. There would be deeper cuts or higher taxes as the Scottish Government paid more to borrow money, leading to more debt and lower public spending. There would be risks to benefits and pensions as payments were converted into a different currency. Many people worry about what currency they will be paid in and what their savings will be worth.

There would also be risks to the economy. Without the back-up of the rest of the UK following the world banking crisis, Scottish banks would have gone under and families and businesses would have lost everything. Let us remember that billions were pumped into our banks following the world banking crisis. In my constituency alone, more than 400 jobs were saved. Time is running out for those who want a separate Scotland to give an answer and provide an assurance on currency. The Scottish people cannot be expected to go on any longer with “Don’t worry—it will be all right on the night.” It is not scaremongering to want a direct answer from the nationalists, incorporating a guarantee on currency in Scotland after 2014.

Banking

David Mowat Excerpts

Wednesday 15th January 2014 Commons Chamber

[Alison McGovern (Wirral South) (Lab)]

I am sorry that the hon. Member for Spelthorne (Kwasi Kwarteng) appears to be leaving his place, as I want briefly to say that I am worried about what he said. He seems not to have heard the message from the public that they are still dissatisfied with our banking industry. I do not think that our financial services industry should be about wealth accumulation; it is there as a supporting act to this country’s industry for wealth creation. I hope that he might consider his remarks in that light. I thank him for pausing to hear what I have said.

I want to speak about two matters—first, about co-operation versus competition in regulation, and secondly, about rebalancing our economy. I thought that those would be cross-party matters, but having heard what some Government Members have said so far, I am no longer sure.

On global co-operation in the regulation of financial services, we in this House must recognise that we are part of an international global marketplace. That has been pointed out by British citizens since Adam Smith sat on the promenade at Kirkcaldy and watched ships going in and out of the port. As a Merseyside Member of Parliament who sees very large ships coming in and out along our River Mersey, I am also acutely aware of that point.

Fundamentally, in the face of a global international marketplace—financial services are undoubtedly such a marketplace—we have two choices. We can either work with our partners to regulate the industry, given the risk that it might pose to all our economies, or we can take part in a global race to the bottom and allow global corporations to play one Government off against another. The bank bonus cap introduced by the EU is a classic example of that dilemma.

I argue that there are strong moral reasons to be internationalist, but there are clearly economic reasons too. This is a classic economic prisoner’s dilemma: we either work together and everybody benefits, or we work against others and in the end we work against our own interest. The G20 resolved in 2009 to introduce new global rules on supervision. Since then, the UK has acted unilaterally and has blocked global co-operation. If we do not co-operate, we are doomed to compete against our own interests in the long term.

I do not think that the British people are supportive of a Chancellor who has rushed to defend bankers bonuses that can be several times the size of an annual salary. The high level of variability in remuneration is leading us into the kind of cycle that we were in before. I am worried that we are dooming ourselves to make the mistakes of the past. I therefore ask the Minister to say what intention the UK has to work with its partners across the world to realise the promises that were made in 2009.

[David Mowat (Warrington South) (Con)]

I agree completely on the need for global co-operation, as do the Government. That is why the Basel agreements are being implemented in the UK, with everything that that involves. However, there is a distinction between global co-operation and European co-operation. Why does the hon. Lady think that we should not follow global rules on bankers bonuses, which the Government would be much happier to do if they existed, rather than European rules?

[Alison McGovern]

We seem to be hearing that argument more and more from the Tory party. I am sorry to hear it from the hon. Gentleman, who has previously spoken sensibly about working with our European partners. It is as if Europe is the great problem and that Britain can be part of a world that does not involve Europe. However, Europe is one of the world’s biggest trading blocs, along with the United States, so if we are not influencing Europe, where should we be influencing?

The second question that Ministers need to answer is where is their plan for rebalancing the economy. Given the way in which they have acted in relation to the City, coupled with the way in which they have acted in relation to the housing market, I suspect that we are getting the same old story from the Tory party. I would happily have debated the points that were made by the hon. Member for Spelthorne about 1986 and the influence that that moment had on our economy. However, I ask the Minister what the Government’s plan is for the City. Do they just want to reflate it all over again? Are we back to Tory economics as usual—the so-called FIRE economy of finance, insurance and real estate—leaving us open to the same worries that we faced in the past? Let the City of London rip and never mind the risk to the rest of the country!

The way to deal with the risks that we face is to consider proposals for proper regulation, such as establishing a full reserve power to split banks into retail and investment arms if necessary. We need to keep our eye on the ring fence, as was suggested by the Independent Commission on Banking. There should be a review of the ring fence to check that it is working and, if it is not, we should use the full reserve power for splitting the banks.

We must also not take our eye off the issue of remuneration. The regulator needs more powers to reform the rules if it is necessary. The British public are not comfortable with bank bonuses running away at two times people’s annual salaries. I would invite any Member of the House to talk to my constituents about how they feel about the incomes that are earned by people in the City of London. They do not feel that it is in the best interests of this country to have such a concentration of high earners. That creates risks for which they pay the price. The cuts that we have seen to local authorities have hurt communities up and down this country, but they were brought about by the actions of a very few people in the City of London.

If Ministers do not take rebalancing seriously, people in this country, and certainly those in Wirral and Merseyside, will not forgive them. If they are serious about rebalancing, I simply ask them to say what steps they will take to regulate the City properly. Will they explain to this House—I am not sure that they will, but I would like them to do so—how they think an ever-expanding City of London that imports ever more risk into this country is helpful to the ordinary businesses and companies that I represent in the Wirral?

Annuities for Pensioners

David Mowat Excerpts

Tuesday 7th January 2014 Westminster Hall

[David Mowat (Warrington South) (Con)]

I congratulate my hon. Friend the Member for Gloucester (Richard Graham) on securing the debate and on his chairmanship of the all-party parliamentary group on pensions, which has aired these issues on a number of occasions.

Over the lifetime of this Parliament, we have discussed the pensions industry a number of times. To date, the discussion has mostly been of the accumulation part and not, to use the jargon, the decumulation part, which we will talk about today. However, the issues are similar. I am a little less sanguine than some hon. Members who have spoken about the fact that we have fixed the transparency problems in the accumulation part of the industry—I believe we have not started to do so yet. The same problems of market failure, asymmetric knowledge and lack of transparency exist in the industry. Whether hon. Members represent the party of the cost of living or the party of hard-working people—Conservatives seem to have won in terms of numbers, at least in today’s debate—the issue really matters.

The fact that annuities are talked about so little compared with, say, energy prices, is a function of the point my hon. Friend has made. People understand annuities so little—annuities take people outside their comfort zones. That is a terrible thing when 400,000 people a year sign up for such products. This morning, during the time of the debate, 250 people will have signed up for an annuity. By lunchtime, a constituent of every Member in the Chamber will have signed up for an annuity. Approximately a third of them will have bought the wrong product within the market, even by the terms of the market. In my opinion, the market is inappropriate and a great disincentive for people to be part of the pensions industry. It is one of the reasons why so many people who should be investing in pensions would rather bite their arm off than get involved in either the accumulation or decumulation part of the industry.

Let us step back and think about the structure of the industry, because my solution responds a bit to that. It is an artificial industry, fed by tax relief. We have made the decision in the UK to have a pensions industry that is predicated on the relatively low basic state pension—it is low compared with the rest of Europe—but one that is supplemented by tax relief and private sector provision, of which the annuity is one of the final products. The tax relief that we pump into the industry is about £30 billion a year, which clearly behoves the Government to get involved. With auto-enrolment, that urgency is becoming much greater. It is not acceptable for us to leave it as an industry that has failed, on any measure, at any time when it has been looked at. It is reasonable that the Government get involved.

There are two parts to the failure. The one that gets most attention is the failure of people to shop around—the open market option—notwithstanding the progress that the ABI has made with its code of conduct. It is in that context that one third of people are currently making the wrong choices. However, that is not the only aspect of the failure. The industry is not subject to the market pressures that would cause better performance. Within the context of the industry, one third of people are choosing wrongly, but the whole industry is failing to provide products that are competitively priced and transparent.

The industry has fairly viciously applied the term “caveat emptor”. It is playing it long, because it is only a matter of time before a Conservative Government or a Labour Government take the matter more seriously and start to fix things. In discussions of energy companies, in which I have also been involved, it has been said that they operate a cartel. I do not like to use words such as “cartel” lightly, but we have to look at the return on capital employed in industries and at transparency. Anybody who compares the pensions industry with the energy industry will know where the evidence of a cartel, such as it is, exists.

The National Association of Pension Funds and Cass business school report estimated that about £1 billion a year was being misappropriated, or at least was not going to the pension holder, because about one third of people buy the incorrect product. We could fix that through the application of the OMO—more attempts to make the market transparent—but the view I took as I was doing research for the debate is that that is not actually the solution for annuities market. The solution is that the Government should offer annuities. People will say, “You want to nationalise the industry.” I do not want to nationalise the industry—I am a free marketeer. I was about to say that I am as much of a free marketeer as anyone in the debate, but then I saw my hon. Friend the Member for Wycombe (Steve Baker), who possibly would challenge that. However, I really do believe in the free market. I believe that the free market is a panacea and a great mechanism for allocation of capital and all that goes with that, but the annuities market is not working. When a market does not work, particularly a market that is at the centre of Government policy on retirement and incomes in old age, and all that goes with that, it is reasonable that we look at what we might do about it.

Our national savings organisation in Glasgow offers interest rates as the Government sell gilts. I see no reason why an organisation like that cannot offer annuities in the same way. It is basically a very simple product. Because of the interest of the industry in developing the asymmetry and all that goes with it, the product has been overly complicated.

[Sheila Gilmore (Edinburgh East) (Lab)]

I apologise for missing the initial part of the debate because I was in a Select Committee.

The market is not completely free. The Government have already intervened to say that people should be contributing to pensions. People do not have a choice or increasingly will not have a choice not to take part. The Government have a responsibility to the people they have placed in that position.

[David Mowat]

That is absolutely the point that I am making. It is not a free market, and it behoves Government to do more than they have done so far to get it right.

One approach is to try to make the market work better—that was the subject of some of the points that have been made already. The other way of dealing with it is more dramatic. I believe it is reasonable that the Government think very hard and seriously about providing products that would compete in the market with the industry guys, because, in any event, the principal thing that annuity providers do is match Government bonds. One reason why QE has been an issue is that the industry is buying Government bonds in order to match income and liability. It is a classic middleman thing. It is entirely reasonable for the Government—a Government of either complexion—to look long and hard at that suggestion. I believe that will happen, because we cannot continue with the market abuse that has occurred over the past two decades.

[Richard Graham]

My hon. Friend makes an interesting point on which we will no doubt hear more from the Opposition spokesman, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont). Does my hon. Friend really believe that nationalisation of the annuities sector is in the overall interest of large numbers of taxpayers, who will in effect see the risk for their product transferred to them?

[David Mowat]

The point that has been made, I think, is that that risk is currently with the annuity providers; that seems to be the implications of that point. If that is my hon. Friend’s belief, it would be reasonable to say that their profits should be transparent, understood and not abusive.

[Richard Graham]

Does my hon. Friend not see that that is precisely the argument for reform? The case I have made is that the opportunity is there. The initial research by the consumer panel provides enough light to justify a more detailed investigation, which is happening. The Government can then make decisions to reform the industry. The mortgage sector was reformed, but the Government are not providing the country’s mortgages.

[David Mowat]

My hon. Friend is right that the Government do not provide mortgages, but they do provide people with interest rate products. There is an analogy with annuities, which are an extremely important transaction. In any event, the industry is an artificial one, because it is driven, as I have said, by tax relief. Annuities are not optional—we can draw down, but, broadly speaking, until very recently, everybody has had to buy an annuity.

By the way, I did not advocate nationalisation. I am advocating that the Government offer a product. They can compete with the existing market, rather like the National Employment Savings Trust competes with the existing market. That is not nationalisation. If the existing market is pricing things in a certain way and making very clever decisions on longevity and actuarial things and so on, it will win, and so be it; good luck to it. However, I suspect that that may not be the case. We must bring trust back. I agree that it is important to make the market work. I floated the point about national insurance because I think that that proposal will have to happen, but I also think that there are a number of things we could do to make the market work better.

[Mr Hoban]

One objective of the FCA is to promote competition. It is currently undertaking a thematic review of the annuities market. That would be a very good starting point for it to undertake a market study to look at the economics of the annuity industry, to see whether it is making excessive profits, and to understand the charging structures in order to help to inform what the next stage of the reforms of the annuity market should be.

[David Mowat]

I have absolutely no problem with any of that. In fact, the next point in my notes is on the Office of Fair Trading. We should try to make the annuities market work better, in the same way as we should make the accumulation market work better. The fact that NEST has been introduced is not a reason not to have that happen. My proposal on the Government offering annuities alongside the market is not a reason not to make the market work better.

The point was made earlier on education in the market, the retail distribution review and all the rest of it. I do not agree that the charging structure is a disincentive, if that was the point made by my hon. Friend the Member for Vale of Glamorgan (Alun Cairns), who has left the Chamber. It might be a disincentive, but it is no worse than a charging structure that pays people to recommend products based on commission and all that that means. That is not a solution in its own right, but I agree that we should try to make the market work better. We should hold the ABI to account on the application of the OMO.

We could try other things. If one third of people continue to stay with their existing supplier and buy inappropriate products as a consequence, there is a case for enforced separation, meaning that people buy the decumulation product from a different provider from the one from which they buy the accumulation product. That is entirely reasonable if the OMO code of conduct does not work better—it is currently rather patchy.

Another thing we could do to make the market work better is enforce the simplification of annuities, exactly as we have done in the energy industry, with bands to allow the comparison of products from different providers. The case for that is even stronger in the pensions industry than in the energy industry. I want recognition that draw-down might be used on smaller pots than at present, so that it receives wider application. When I speak to anybody who is about to make a decision on whether to use an annuity or a draw-down, I recommend that they think long and hard before they go down the annuity route. We could do more on that.

We need to make the market work better. The point I made about national insurance also applies to accumulation. NEST is working quite well, and it will be an incentive for reform in the industry. We could do the same with the decumulation part of the industry.

I have a couple of final points. It is interesting that a Treasury Minister is replying to the debate and a pensions spokesman is speaking for the Opposition. In a way, the issue has suffered because it has not wholly been owned by either Department and has tended to fall between the two. I hope that that does not continue. I also hope that people in the industry listen to the debate—I see that a couple of them are in the Public Gallery—because it is not right for the current situation to continue. It is not right that the industry response is to play it long. In the time I have been speaking, 40 people will have signed up for annuities, 15 of whom will have bought the wrong ones. We owe it to all our constituents to get that fixed.

--- Later in debate ---

[David Mowat]

Since we are discussing the point I made, I feel I should chip in. Of course it was about participation. Two of my hon. Friends have made points about risk. The state already carries risk of inadequate pension provision, which is manifested daily. To talk about further risk in that context is disingenuous.

[Gregg McClymont]

That is clearly a matter for Conservative Members to debate among themselves after we leave the Chamber.

We face a broken market; the question is what to do about it. It seems to the Opposition that the way forward is increasingly to involve pension schemes in—I am wary about using this term, as I try not to use the jargon—“decumulation”. Pension schemes are involved in building up savings pots for members. They should also be involved in turning those savings pots into retirement income, which is what the process is all about, after all. Moving to a system in which pension schemes ensured that their members got decent, well regulated brokerage advice would mean bigger pension schemes, because many very small pension schemes do not now have the ability.

We have mentioned NEST. What does it do about annuities? It has sealed panel bids from annuity providers for each cohort coming to retirement. That is not the whole of the market, because NEST must annuitise for people with very small pots, as part of its public service objective, but that is the road we must go down. The Royal Mail pension scheme is another one that recently announced that it would provide an in-house brokerage service for its members.

The hon. Member for Gloucester was absolutely right in his analysis of the market. The problem—it is not his problem; he is an august Back Bencher, but not on the ministerial team—is that so far the pensions Minister and, I assume, the Treasury have not come up with anything concrete. Until they do, the hundreds of people who are annuitising as we speak and the 400,000 people who annuitise every year will surely look at the Government and ask when they will end the rip-off and the excess profits. If the pensions Minister says that insurance companies are profiting excessively from annuities, when will the Government act? Surely it must be sooner rather than later.

I make this point again to the Government, in the hope that they might listen. Any solution that depends solely on increasing individual consumers’ engagement in the process of buying an annuity will not succeed. The whole thrust of Government pensions policy since Turner, which this Government have continued, is that inertia is a reality that we must make work in the public interest, rather than in the interests of pension company shareholders. That has been the thrust of pensions policy for a decade now. Any solution to the annuities market dysfunction must start from that assumption. In the spirit of the Turner consensus and co-operation on auto-enrolment, I urge the Government to take heed of that reality in the annuities market.

--- Later in debate ---

[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.

Financial Services (Banking Reform) Bill

David Mowat Excerpts

Wednesday 11th December 2013 Commons Chamber

[Sajid Javid]

I have listened to my hon. Friend carefully, and others have made that point previously, but I do not share those concerns. I think that the regulator will move on that swiftly. The changes that have so far been made to payments, such as the switching service, are already making a real difference.

Ultimately, if the payments system regulator determines that the current ownership structures need to be broken up to achieve adequate competition, it will have the power to require disposals of interests in operators of the regulated systems. It will also have the power to enforce Competition Act 1998 prohibitions against anti-competitive agreements and abuse of dominance and to make market investigation references to the Competition and Markets Authority.

The amendments create a competition-focused regulator in this key market.

[David Mowat (Warrington South) (Con)]

I very much welcome the role that the payments regulator will have. For the avoidance of doubt, though, can the Minister confirm that part of its scope will be credit interchange fees and that it will have a role in potentially regulating their level over time?