Finance (No. 4) Bill

David Ruffley Excerpts

Monday 16th April 2012 Commons Chamber

[Danny Alexander]

I am glad that the hon. Gentleman at least recognises that we made clear in our election manifesto our ambition to raise the income tax personal allowance to £10,000. We have introduced the triple lock for pensions that provides for a more generous uprating system, and some 5 million pensioners pay no income tax at all. For those reasons, many pensioners will be better off.

It is right that the richest in the country contribute a fair and growing share to our collective effort to build a balanced and sustainable economy. Clause 209 increases the bank levy to 0.105% from January 2013 to offset the tax saving that the banks would otherwise have made from a reduced rate of corporation tax. That will ensure that UK banks continue to pay around £2.5 billion in this new tax each and every year, which is more than was raised in a single year by the previous Government’s one-off bank payroll tax.

Clause 211 introduces a new higher rate of stamp duty land tax of 7% on properties worth more than £2 million. That is why next year’s Finance Bill will cap the use of tax reliefs that some wealthy people currently use to reduce their income tax rate to single figures. As we made clear on page 59 of the Budget document, however, we

“will explore with philanthropists ways to ensure this new limit of uncapped reliefs will not impact significantly on charities that depend on large donations.”

Our consultation on the detail will be published in the summer.

[Mr David Ruffley (Bury St Edmunds) (Con)]

Many charities, including the Suffolk Foundation, estimate that the cap on tax reliefs will lead to a 20% reduction in their charitable donations. Will the Chief Secretary consider exempting charitable donations to UK charities? It would be comparatively inexpensive but terribly important to the charitable sector.

[Danny Alexander]

It is important that the House is clear about what is being proposed. What we are proposing is a limit, on what are currently uncapped tax reliefs, of £50,000 or a quarter of someone’s income, whichever is the higher; so someone earning £10 million a year can still receive tax relief on donations of £2.5 million to charity each and every year. However, as I say, we will discuss this with philanthropists and charities—indeed, those discussions are ongoing. Some features of the American system, for example, may be attractive, which we will certainly examine and consider as part of that process.

The basic principle that the wealthiest in the land should pay a fair proportion of their income in income tax must be absolutely right, not least because last week we published data showing that last year some of the wealthiest people in the country had reduced their tax bills to below the basic rate of income tax. That is the system that was in place when Labour was in power. I think Opposition Members should have a bit of humility about that, because it means that some millionaires are paying a lower rate of income tax than people earning £20,000 a year. That is why it is fair that we cap tax reliefs, and, in the same way, it is right that we cap benefits. It is right and proper to ensure that the wealthiest in the country should pay a fair share of their income in tax, and that is exactly what we will do.

Amendment of the Law

David Ruffley Excerpts

Monday 26th March 2012 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

I believe in low tax. Low tax fosters personal responsibility and generates the incentives that create greater wealth and greater national prosperity, in which all can share.

I therefore welcome the tax-reducing measures in the Budget, such as reducing corporation tax to 22p by 2014, so that we will have one of the lowest corporate tax regimes in the G20. I also welcome the fact that we have reduced the 50p income tax rate to 45p, as all the evidence demonstrates that lowering high marginal rates results in the rich paying more tax. In the early 1980s, when the marginal rate of income tax was 83p, the richest 1% contributed only 10% of the income tax yield, but a 40p rate generates just under a third, so the top 1% pay more tax. This is a truth that the Labour party does not understand. The third welcome measure in the Budget is the increase in the basic personal allowance. That will protect living standards at a time when the cost of living is increasing.

Colbert said that the art of taxation is to pluck the goose in such a way as to obtain the largest number of feathers for the lowest number of hisses. The Chancellor almost achieved that trick, with the exception of the pensioner tax. I believe that he will come to think that the granny tax was a mistake. Pensioners were already angry about lower annuity rates, and about lower rates of interest on their savings, which was not the fault of this Government. They also feel that their savings income should not be taxed twice. Overall, however, this was a good Budget. It was not a Lawsonian Budget, grand in its ambition and its tax-cutting sweep, but many of us believe that the Chancellor will be able to deliver that in future Budgets.

I know that some Members, including those on the Government Benches, argue that the economic circumstances are not propitious for talking about further tax reductions. They will observe that the Office for Budget Responsibility figures suggest that from 2013 onwards the prime drivers of higher GDP will be net investment and trade. We know that they are both sensitive: trade is sensitive to EU zone growth, which is inherently uncertain; and higher business investment is highly sensitive to the easing of credit conditions, yet credit has remained at stubbornly low levels in the early stages of this nascent recovery. Given all that, how can we talk about further tax cuts? We do so for the simple reason that tax reductions will get the economy going, and we can fund them by reducing public expenditure over and above the totals in the last comprehensive spending review.

Real-terms spending in this country increased by more than 50% during the Labour years. The plans in the Budget imply a real-terms reduction of 3.4% over the five years of this Parliament. There is plenty of fat in those spending numbers, therefore, and I urge the Chancellor to reopen the spending round this year, rather than wait until next year. He will find a surprising amount of support for funded tax cuts to get the economy going, financed and fully funded by further and deeper cuts in bloated public expenditure.

Remuneration of EU Staff

David Ruffley Excerpts

Tuesday 21st February 2012 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

We should be grateful to the European Scrutiny Committee for throwing a spotlight on yet another example of an unconscionable lack of accountability on the part of Eurocrats at the expense of democratically elected Governments. Ostensibly, the determination of pay and pension contributions for EU civil servants is the preserve of the Council, in co-decision with the European Parliament and on the basis of qualified majority voting. That is what it says, but of course, as we have heard today in eloquent speeches from those on the Government Front Bench and, in particular, my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), the Commission has frustrated the will of the democratically elected and accountable politicians.

As my hon. Friend said very eloquently, at the beginning of 2011 the Council decided to invoke the exemption clause allowing for a departure from the automatic uprating of remuneration in the event of a serious or sudden deterioration in the economic or social conditions in the EU. It is fairly clear that the Commission ignored that decision but was required to publish a review after being asked to reconsider. The Commission came to the conclusion, however, that there should still be a 1.7% increase in remuneration and a cut—I repeat, a cut—in the contributions of civil servants to their pension pot. This is at a time, I hasten to add, when, in this country, owing to longevity and the rising cost of pensions, we are asking for higher contributions from public servants.

[Bob Stewart]

To my hon. Friend’s knowledge, has the European Union ever been asked to cut its own civil service—or has it done so itself—by such-and-such a percent, as we have had to do in this country?

[Mr Ruffley]

I am terribly pleased that my hon. Friend asks that question. The House of Commons Library told me, about two hours ago, that spending on remuneration and pension contributions for EU civil servants from 2005 to last year went up by a staggering 63% in cash terms. So “No cuts” is the answer to his pertinent question.

When the Commission argued in the summer of 2011 that there were no triggers under the exemption clause—it argues that there was no serious or sudden deterioration in the economic or social conditions in Europe—it came up with a couple of what I can only call classics. They are comedy gold, and with your permission, Mr Deputy Speaker, I would like to quote from the Commission’s report. It says:

“The forecasts released by DG ECFIN on 10 November 2011 show worsening trends for 2011 as compared to the Forecast released in spring both as regards economic and social indicators and that the European economy is currently experiencing a turmoil. However”—

wait for this one—

“despite short-term indicators pointing to an ongoing slowing of economic activity in the EU, the overall growth performance for this year is still relatively strong.”

You couldn’t make this nonsense up. They are meant to be economic experts in the Commission, but they can still print, publish and stand by judgments such as that, when all the evidence to any sentient human being is to the effect that the downside risks to the EU economy are very considerable indeed.

The second comedy classic in that document is where the Commission is rebutting the call from the Council to trigger the exception clause:

“General government deficit within the EU is projected to decrease further from close to 7% in both 2009 and 2010 to 4.7% in 2011 according to the Autumn and Spring Forecasts. Fiscal consolidation is forecasted to progress with public deficits set to decline”—

the Commission was talking about the annual deficit, by the way—and, wait for this:

“even though EU public debt remains a constant concern for the EU economy at least since 2007.”

Well, you can say that again. We have seen colossal debt-to-GDP ratios right across the continent, including in this country. Added to that heady brew of incompetent economic forecasting and putting a rosy glow on a fairly dangerous economic position, the Commission prayed in aid the precedent set by the European Court of Justice, as we heard earlier, referring to the fact that the Court had ruled that the EU was not facing an extraordinary situation. So our old friend the European Court of Justice intervened, in support of the Commission.

We have already heard that the circumstances in this country and other mature industrialised economies in the EU are dire, so we should congratulate ourselves on the noticeable public constraint that this Government have imposed, introducing a two-year pay freeze, followed by two years of average rises of 1%. However, we in this country are paying very large amounts of money, as part of the net EU contribution; and as we know, that figure will go up from this year to the last year of this Parliament. This will outrage members of the British public—hard-working taxpayers who are seeing their private pensions hit, perhaps with the final salary schemes or corporate plans that they are part of closing down, as they face redundancy or lose their jobs.

It is worth reminding ourselves what contribution the British taxpayer is making to the pensions that are the subject of this evening’s motion. The cost to the British taxpayer of gold-plated pensions for retired European bureaucrats is expected to double in the next 30 years unless action is taken—by the way, those are the European Commission’s own projections. If we go further out—say, 50 years—the total contribution from Britain to EU civil servants’ pensions will be a staggering £8.5 billion, which is again a EUROSTAT figure. Many EU civil servants qualify for pensions worth up to three quarters of their final pay packet on retirement. The average annual pension for a retired EU civil servant is just under £60,000 a year. The number of retired civil servants entitled to EU-sponsored pensions is expected to increase from 17,500 this year to 37,500 in 2040. These are large amounts of money which, unless we act, will go towards financing a large pension burden.

I would like to close by reminding the House of what exactly we are getting for our money. Let us remember how utterly useless those civil servants are who do work in the new EU global diplomatic corps, the European External Action Service, and how nugatory their beneficial impact on the lives of British people is. The service will have an annual budget of £5.8 billion and an army of ambassadors across 137 embassies, with up to 7,000 European civil servants who will benefit from the arrangements that we are debating this evening. The EU will have a surprising 46 full-time diplomats in the Caribbean holiday destination of Barbados. The diplomatic corps, which was set up recently, will have 29 diplomats in Tajikistan, 53 in Madagascar, no fewer than 59 in Burkina Faso, 21 in Costa Rica, 46 in Mauritania, 39 in the Indian ocean holiday destination of Mauritius, 26 in Namibia and 27 in Papua New Guinea.

[Bob Stewart]

Papua New Guinea?

[Mr Ruffley]

It gets even better: the tiny Pacific island nation of Vanuatu, which has a population of around 200,000, will have six European civil servants to look after British interests, and there will be thousands more at EEAS headquarters in Brussels, and in Paris, Vienna, Rome and—let us not forget our old friend—Strasbourg.

[Mark Reckless]

Will my hon. Friend give way?

[Mr Ruffley]

I am coming to the end of my remarks.

We have had an interesting debate today, and I am delighted to hear from the Economic Secretary about the hard line that the Government are taking. However, I shall close my remarks by asking her to explain precisely what the next step in this story will be. We know that there is a court case. We await the details from her of when it will take place and what the likely options are if for some reason the European Court of Justice does not find in favour of the Council, which, with all its faults, is—I repeat—composed of democratically elected politicians.

--- Later in debate ---

[Chris Bryant (Rhondda) (Lab)]

The Minister has just nodded towards the hon. Member with the wonderful tie, the hon. Member for Bury St Edmunds (Mr Ruffley)—

[Mr Ruffley]

Touché!

[Chris Bryant]

I think that his tie and mine are from the same shop. In fact, I know they are. The hon. Gentleman read out a long list of places where he thought there should be either no representation or minimal representation, including Papua New Guinea. Papua New Guinea has a high level of representation because it has the second largest rain forest in the world, and it is essential to climate change work. If the EU is to perform its work effectively, it needs representation there, and I hope that the Minister will not succumb to easy attacks.

Banking (Responsibility and Reform)

David Ruffley Excerpts

Tuesday 7th February 2012 Commons Chamber

[Mr Umunna]

I will move on.

Given that market mechanisms since the crash have not operated to rein in excessive pay in the banking sector, the bank bonus tax, we have argued, should be repeated, on top of the bank levy, in recognition of the fact that the banking sector owes a responsibility to society in general. If the claim that we are all in it together is to mean anything, the reintroduction of that tax is a must. It would create 100,000 youth jobs and 25,000 affordable homes. It would do immeasurable good to the reputation of the sector and support jobs, growth and business in the UK economy.

[Mr David Ruffley (Bury St Edmunds) (Con)]

I agree with some of the things that the hon. Gentleman has said, but the last Labour Chancellor said that

“it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things”.

Those were the words of the right hon. Member for Edinburgh South West (Mr Darling) in autumn 2010. What has changed since?

[Mr Umunna]

I would say to the hon. Gentleman that they were not that good at getting out of it, because the bank bonus tax was expected to raise about £500 million, but in the end it raised £3.5 billion, which is a sizeable sum.

Financial Services Bill

David Ruffley Excerpts

Monday 6th February 2012 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

It is a pleasure to follow the right hon. Member for Newcastle upon Tyne East (Mr Brown), most of whose comments I endorse. The regulators failed to see the crisis coming and were asleep at the wheel, so it is entirely right that the Bill abolishes the Financial Services Authority. In so doing, however, it gives new extensive powers to the Bank of England, and that poses a problem: will the newly created bodies—the Financial Policy Committee and the Prudential Regulation Authority—be as accountable as possible? In that respect, the right hon. Gentleman was right to touch on the democratic deficit.

I had the privilege of sitting under the chairmanship of my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) on the Joint Committee, and I also sit on the Treasury Committee. Those two bodies have one thing in common: in respect of the Bill, both are concerned more than anything with the accountability of the Bank in its new form and with its new powers.

I want to raise three points that the Government have not yet taken on board—they have taken on board some good points raised by the two Committees, but some are outstanding. First, to whom exactly will the PRA and the FPC be accountable? Let us remember how important and powerful these two bodies will be. The FPC will have an overarching responsibility to maintain financial stability, and it will be chaired by the Governor of the Bank of England. The PRA, also chaired by the Governor, will have macro-prudential responsibility for supervising significant financial institutions, particularly the banks. They will also have all sorts of macro-prudential tools, the details of which are yet to be designed—but they will include things such as loan-to-value ratios for mortgage lending, leverage ratios and so on. Those are hugely important tools that will affect the livelihoods and household finances of all our constituents.

We are vesting that great power in two bodies, both of which will be sub-committees of the court of the Bank of England. The Treasury Committee was concerned about that and suggested that the court was not fit for purpose when it came to scrutinising the work of the FPC and the decisions of the FPC and the PRA, and it suggested abolishing the court and replacing it with a supervisory board with a greater spread of technical expertise on monetary and fiscal policy. At the moment, the court—I do not wish to be rude or impolite—is a rag-bag of industrialists, trade unionists and consumer champions, most of whom, frankly, do not have the skill, expertise or background knowledge to judge whether the FPC and the PRA are making sensible decisions. That is why we need a supervisory board to replace the court.

As the Chancellor said in his opening speech, there will be a new oversight committee for the FPC and the PRA. However, that does not meet the concerns of the Treasury Committee, for one simple and stark reason. The terms of the oversight committee to which the Chancellor referred make it quite clear that it cannot pass judgment on, or conduct ex-post reviews of, the decisions that the FPC and PRA have made. All that the members of the oversight committee can do under the Bill is see that the FPC and PRA arrived at their decisions in a proper fashion. They cannot make a judgment on their merits. That point was returned to again and again in the evidence taken by the Joint Committee on the Bill and the Treasury Committee, and the Bill does not answer it.

The second point that I wish to raise is about the role of the premier Committee in Parliament, the Treasury Committee, which is charged on behalf of Parliament with scrutinising the new bodies, the FPC and the PRA. The Treasury Committee has made it quite clear that there should be a statutory responsibility for either the court, if it remains, or, as we would prefer, a new supervisory board, to respond to any request for information made by the Treasury Committee, on behalf of Parliament. The Bank’s record on responding to requests from the Treasury Committee is not bad, but it is not perfect. I adduce as evidence for my proposition the fact that at the end of last year the Governor—quite wrongly in our view—did not think it appropriate to produce the minutes of the court of the Bank of England for the Treasury Committee, to show us what it was saying and doing at the time of the RBS meltdown.

My third and final point relates to the composition of that terribly important body, the Financial Policy Committee. The Treasury Committee strongly recommended—and still recommends—that a better balance must be found between the internal and external members of the nine-person Financial Policy Committee. My Committee proposed that the ratio of internal to external members should change from 5:4, which is what the Bill says it should remain, to 4:5—in other words, that a majority on the Financial Policy Committee should be external members. Why? For one simple reason. One of the besetting sins of the regulatory regime and the regulators who worked in it up to and during the crisis was that they were subject to group-think. They were all reinforcing each other’s prejudices and established views. It was disastrous for UK regulatory management. My Committee believes that one way of countering that propensity towards group-think is to have externals who are not full-time executive members of the Bank of England, such as we have at the moment. Of the six professionals—so to speak—all of them except the chairman of the FCA are Bank of England officials. Many of us think that that is simply not a sustainable proposition.

The Government have made concessions and done some thinking since the first publication of the Bill, as well as listening to the two Committees, which have made some powerful suggestions about the better accountability that the two powerful new bodies in the Bank of England must demonstrate to Parliament and the British people. Progress has been made, but there are three issues, which I have highlighted, that are still on the table. The Government have not taken them up, and the Treasury Committee insists that they need to be recognised in the new regime and new settlement. It is in that spirit that I make those points—speaking, I might add, for my Treasury Committee colleagues who are in the far east on an important fact-finding mission and who would make these points if they were here. Those points need addressing, and I am sure that in the Public Bill Committee they will be, but it is important that the record should show that the Treasury Committee is still not satisfied.

[Mr George Mudie (Leeds East) (Lab)]

May I first align myself with the remarks that my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) made about the Chairman of the Joint Committee on the Bill, the right hon. Member for Hitchin and Harpenden (Mr Lilley)? The fact that I was still on the Committee at the end of its sittings shows that he was indeed tolerant and patient. I would like also to put on record my admiration for, and thanks to, the Chairman of the Treasury Committee, who is in China at the moment. We have had an arduous 18 months on the Committee going through the regulations. The fact that there are three members of the Committee here today is nothing to do with our being unable to get on the plane to China; it is more that we are so dedicated to regulation that we chose to be here.

I want quickly to raise three matters. I welcome the Chancellor’s open-mindedness—it was not a U-turn; that was an unfair description—in accepting the point about secondary legislation being inappropriate for the macro-economic tools. I hope that he will show the same open-mindedness on the three matters that I will raise, because so far the Government have not accepted the Joint Committee’s or the Treasury Committee’s views on them.

The first issue is the objective of the Financial Policy Committee, which is to ensure the financial stability of the financial sector. One difficulty raised by many of the witnesses before the Treasury Committee and the Joint Committee was that no one can come up with a definition of “financial stability”. That clearly presents those responsible for oversight of the FPC with obvious difficulties. On what basis do they judge the committee’s activities and performance? Is the issue stability alone? As the Chancellor himself stated in evidence, we should not be seeking the “stability of the graveyard”. I think of the unfortunate individual in hospital who is seriously ill in the high-dependency unit, but whose relatives are assured that he is in a stable condition. Just as in that example, stability in economic terms does not equal a healthy economy.

Arising from that—and equally important—the relevant question for all sectors to emerge from our witnesses was: in exercising its power to seek financial stability in the financial sector, will the Financial Policy Committee ignore the effect that that might have on the other sectors, in the real economy? To be fair, the original suggestion that the Government advanced was that the Financial Policy Committee could not take decisions to achieve financial stability if it believed that those decisions risked medium to long-term economic growth. An interesting and important point is that it was originally left to the FPC to make that judgement itself, with no mechanism for the Chancellor to have his say. The negativity of that formulation led HSBC, the British Bankers Association and several other witnesses to the Joint Committee to suggest that the relevant clause be redrafted, to give the FPC a positive duty to support economic growth.

I would like to put on record what was said by Stuart Gulliver of HSBC and Bob Diamond, neither of whom would immediately be recognised as friends of mine, or otherwise. Stuart Gulliver said:

“the…Treasury should be setting out what the Government’s goals are for growth, employment and job creation and saying to the FPC, ‘Use your macro-prudential tools to ensure that you achieve the Treasury’s goals.’”

Just as interestingly, both he and Bob Diamond cited the experience of the Pacific economies that actively manage the flow of credit and even its sectoral allocation, using a variety of macro-prudential tools. The people in small businesses and medium-sized enterprises would be very interested in that. The Joint Committee agreed a recommendation that the Bill be redrafted so that, like the MPC, the FPC must have regard to the Government’s growth objectives and other economic objectives. The Government have responded to the Joint Committee’s points on other related items in this area, but have not responded in favour of the more positive and widely supported suggestion that the FPC should be given a brief to have regard to the Government’s growth and economic policies. That is a real worry, and I hope that the Government will approach it with an open mind in Committee.

[Mr Ruffley]

I am following the hon. Gentleman’s argument closely. Does he agree that it is imperative for the Governor of the Bank of England to return to Parliament to explain in detail the indicators that he thinks should be used in the attempt to get a handle on the definition of financial stability, and that we need a full and frank debate on what those indicators should be?

[Mr Mudie]

That is an important point. I think that it was Charles Goodhart who raised the question of indicators. They are certainly interesting, but on a wider scale, I think it more important to establish that, given that the Monetary Policy Committee is linked to a target of 2% inflation, the Financial Policy Committee should be linked to growth employment measures that ensure that there is no “safety low level” of stability, and be forced to have a look at the problems of the real world out there.

Youth Unemployment and Bank Bonuses

David Ruffley Excerpts

Monday 23rd January 2012 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

Youth unemployment and bankers’ bonuses are both too high, and the Opposition hope that by taxing the latter they can help the former. Let us first agree that help for the young unemployed is vital. The scar of joblessness destroys self-respect and will also damage the long-term economic growth rate of this country. What are the Government doing about it? They have already announced a record number of apprenticeships—440,000 in this Parliament—as well as a £1 billion youth contract and more than 250,000 more work experience places. The proposal for a tax on bankers’ bonuses is what I want to focus on. My starting point is that crony capitalism and big financial rewards for failure not only are morally offensive but they subvert the principles on which successful capitalism depends.

[Jake Berry]

Let me pick up on the point about things being morally offensive. We have heard about the Leader of the Opposition calling for Fred Goodwin’s knighthood to be removed. Does my hon. Friend agree that if that happened it would also make sense for former Labour Cabinet members who were part of the Government who led to this bankruptcy for Britain to give up their peerages in the other place?

[Mr Ruffley]

That is an interesting suggestion. I also think that the former Prime Minister should make a personal apology when our Prime Minister, who is an infinitely better one, strips Sir Fred Goodwin of that ill-deserved knighthood.

Currently, there are excessive bonuses within the sector that give capitalism a bad name. They have fostered the belief that there is a class of people who pay themselves pretty much what they like while the rest of the country has to deal with the consequences of what many of those people served up to this country by way of financial crisis. The idea that this is something that Conservatives are casual about is utterly false. The speculation by the Mayor of London about what the greatest pro-enterprise Prime Minister of the previous century would have thought of today’s sorry state of affairs was interesting. He said that we should ask

“what Margaret Thatcher would have thought of a system where directors sit on each other’s “remcoms”—remuneration committees—and defend each other’s expanding awards, even when the directors in question have presided over commercial disaster of one kind or another. She would have thought it was absurd.”

All Conservatives think that is absurd and that something must be done about it. We think that two things should be done. First, we want to encourage people of talent to come to the UK, stay here and make the City of London the greatest financial capital on planet Earth. The second thing we need to do is foster a regime in which performance is more closely tied to reward. Quite frankly, that is not extant.

I suggest that a new blanket tax on bankers’ bonuses would undermine those aims, or at best do nothing to advance them. It would do nothing to distinguish between cases in which an executive had genuinely earned a reward by turning around a failing organisation, increasing profitability or increasing returns to shareholders, and cases in which executives had taken advantage of lax scrutiny to take excessive rewards for their failure. There is a distinction between the rich and the undeserving rich, of whom Sir Fred Goodwin is a terrible exemplar.

[Geraint Davies]

The hon. Gentleman talks about bankers, but he will be aware that among the FTSE 100 companies, there has been an average 49% increase in directors’ pay, and many of those companies have not had a proportionate increase in share value or profitability. Is he saying that his Government should introduce specific measures to cap pay increases for non-banker directors of FTSE 100 companies? If he is not, he is saying nothing.

[Mr Ruffley]

I am not suggesting that for a minute, and if the hon. Gentleman bothered to read the motion, he would see that it relates to excessive bankers’ bonuses.

The fact remains that we have to be careful when we talk about a tax on banking. My right hon. Friend the Chancellor sensibly introduced a levy on bank balance sheets, something that the Labour party was not prepared to do. We were one of the first countries in the world to do that, and it will raise more than £2.5 billion a year. Instead of introducing another tax as the motion proposes, we should do more to discourage the granting of excessive bonuses in the first place. That would have a very happy by-product. When Robert Jenkins gave evidence to the Treasury Committee last week—for those who have not been initiated into these affairs, he is a member of the interim Financial Policy Committee, and a former banker—he said something very interesting:

“Every £1 billion of less bonus would support £20 billion of additional small business lending.”

I defy anyone on either side of the House to deny the wisdom of that.

I am talking about the unjustifiably excessive bonuses paid to executives in banks that have failed or are failing. Stephen Hester is, we are told, looking to accept a bonus for 2011, despite the fact that his bank’s share price has fallen out of bed. Eric Daniels, who was the chief executive of another failed business—Lloyds-HBOS—took seven-figure bonuses before he was booted out. What the Labour party needs to understand is that that culture, which we all deprecate, did not grow up in the past 18 months. I hope that Labour will show a bit more humility in this debate than it has done so far. It did not regulate the banks properly; it sat by while these bonuses were being paid, year after year; and it gave knighthoods to the miscreants who accepted them. Incidentally, it was the Labour Government who allowed some private equity bosses to pay very little tax—less tax than the cleaners in their offices. We shall therefore take no lessons from Labour on regulation and on what we do about a state of affairs that I think we all agree is unacceptable.

Shareholders are not doing their job sufficiently well; that is why I urge the Government to change the law so that the threshold for shareholder approval of remuneration packages is shifted from 50% to 75%. I know that Fidelity, one of the largest holders of shares in UK banks, strongly supports that. Also, fund managers do not have much incentive to think in a long-term fashion; that is why I hope that the Financial Policy Committee, when it is up and running, and the Prudential Regulation Authority—the new regulator—will ensure that the Financial Services Authority’s remuneration code, which covers only 2,500 firms, covers very many more. Bonus clawback—clawing back money given to executives who depart in disgrace and failure—is something that the Government need to talk about. Lloyds is apparently looking into that.

More tax is not the answer; better regulation, under this Government, is.

Royal Bank of Scotland (FSA Report)

David Ruffley Excerpts

Monday 12th December 2011 Commons Chamber

[Mr Hoban]

As the hon. Gentleman will know, RBS was regulated by the retail division of the FSA, while Hector Sants was managing director of the wholesale division. He took charge of the FSA about three months before the ABN AMRO acquisition, and one of the things on which he should be commended is the way in which he has led its implementation of a more intrusive and intense programme of supervision. I think that that has yielded dividends during the last two or three years, and that it is an important part of his record that we should recognise.

[Mr David Ruffley (Bury St Edmunds) (Con)]

The Government’s proposed new regime will be judgment-based, not rule-based, and will therefore require banking supervisors of much higher quality than we have seen hitherto. What steps will the Financial Secretary take to ensure that such people are in place under the new regime?

[Mr Hoban]

My hon. Friend is right to recognise that the quality of supervision needs to be higher than it was in the pre-crisis days. The need for much more engagement by better qualified banking supervisors is a priority not just for the FSA but for the Bank of England, which will be introducing measures for precisely that purpose.

Amendment of the Law

David Ruffley Excerpts

Monday 28th March 2011 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

The business of the Government is not the government of business. The growth that this country needs, which will provide jobs and higher living standards for all our citizens, is generated by businesses, not by the Government. This Budget takes a modest step towards setting enterprise free in this country. I welcome these measures, but I also wish to sound a note of caution.

I want to talk first about the fiscal squeeze and the way in which inflation is squeezing Britain’s businesses. The Chancellor of the Exchequer is rightly lionised for being the deficit reducer of the western world. Contrary to what the Opposition might think, we do have the biggest peacetime borrowing requirement in the history of this country, and national debt was doubled under the Labour Government. It is also the case that £120 million a day is being spent on debt interest, which is more than we are spending on schools, the armed forces, criminal justice and police. Those are the facts.

The Chancellor’s rules are clearly correct, and he is setting about implementing them with real purpose and due ruthlessness to eliminate the structural deficit in five years, and thereafter to ensure that debt as a share of national income falls. The Chancellor’s excellent fiscal policy is in safe hands but, sadly, monetary policy is not. The good work done by the Budget will be threatened by monetary policy. We all know that the Bank of England has let inflation out of the box. It has lost control of inflation. Consumer prices index inflation is now 4.4%, and retail prices index inflation, which many people feel is a truer measure of the cost of living, is now 5.5%. Too many letters have been sent to the Chancellor by the Governor of the Bank of England explaining why, yet again, he and the Monetary Policy Committee have missed the inflation target.

Our higher-than-expected inflation has had the following consequences. Our debt interest payments are £4.6 billion higher than forecast in November for the simple reason that inflation has fed through to gilts, one third of which are index linked. We have also seen increases in the spending totals for social security and public sector pensions. This has led to an overshoot in the public sector borrowing figure, not for this year but for next year, of £4 billion. For 2012, there will be an overshoot of between £10 billion and £12 billion on the borrowing numbers that we forecast last autumn.

Higher inflation has another pernicious consequence. It will make cuts in public spending deeper, assuming that the Chancellor sticks to his cash totals, which I have every confidence he will. The Office for Budget Responsibility has forecast that average earnings will not grow faster than inflation until 2013, but the real worry in the OBR report is that inflation will not be tamed, and that the Bank of England does not tighten monetary policy in such a way as to get inflation under control. The report sets out a very gloomy scenario. It is that, in 2012-13, inflation could be stubbornly trading at around 4%. In those circumstances, real earnings would need to tick up. They will tick up, and there will be upward pressure at that stage for the Bank to jack up interest rates. According to the OBR’s gloomy scenario, it could be as bad as having a 6% base rate by 2013. That would result in the mother of all squeezes—much worse than the one we are already contemplating. That is why I suggest that, when we look at the macro-economy, we pay more attention to what the Monetary Policy Committee is doing. It is the duty of this House to scrutinise exactly how the committee is ensuring that monetary policy works together with, and supports, fiscal policy. At the moment, it is not doing so.

Because of the pressure on living standards, I am particularly pleased that the Chancellor has decided to lighten the burden on ordinary hard-working families. Taking 1p a litre off fuel duty, abolishing the escalator and introducing a fair fuel stabiliser are at least a nod towards helping household finances and giving some stability to the cost of fuel for each household. By 2012-13, the allowances for income tax will rise so that the average cash gain will be in the region of £326 a year for every working household. Those measures will take 106,000 people out of tax in the east of England, and they will benefit more than 2 million in the region. There is also the council tax freeze, which will be worth about £72 for a band D property.

We seem to have made a sensible start on unleashing the forces of enterprise in this country, but it is my contention that we need to keep a watch on inflation. We need more deregulation, and quickly, and we will also need deeper tax cuts when the economy can afford them.

HM Revenue and Customs

David Ruffley Excerpts

Wednesday 2nd March 2011 Commons Chamber

[Ian Swales (Redcar) (LD)]

I speak as a member of the Public Accounts Committee, which has held a number of hearings with Her Majesty’s Revenue and Customs over the past few months. HMRC collects about £440 billion, but its estimate of the tax gap—the amount it thinks it could collect compared with what it actually collects—is £42 billion. Others, notably public sector trade unions, have produced even more ambitious estimates of that gap, putting it as high as £120 billion, although a lot of those numbers are more controversial. To put those figures in context, the entire cost of running HMRC is less than £4 billion.

As we have heard, huge systems changes and headcount reductions have taken place in recent years, and they have led to poor morale. As my hon. Friend the Member for Chichester (Mr Tyrie) said, HMRC came a lamentable 96th out of 96 on staff morale in the previous civil service staff survey. It also came 95th, 95th and 94th on “Leadership and Management of Change”, “Understanding My Work” and “Learning and Development” respectively. Those are shocking statistics.

I recently visited an HMRC office close to me to meet groups of staff, and their comments confirmed the survey’s findings. Despite being generally low paid and having their job security and pensions under threat, they did not even mention those issues. They talked not only about pride in the service, and their experience and professionalism, but about their frustration at the chaos they could see all around them and, above all, about the “process as seen” mentality. It means that they have mindlessly to process data they know to be wrong. Examples of that can be as simple as not being able to use data from a P60 where they have been omitted from a tax return, which leads to erroneous tax bills or refunds. In the private sector the mantra “Get it right first time” has been around for at least 30 years.

In the same staff survey, damning verdicts were given under almost every heading, as we have heard. Only 13% of staff gave a positive response to the statement, “I feel HMRC as a whole is managed well”, and only 12% agreed with the statement, “Overall I have confidence in the decisions made by HMRC’s senior managers”. Despite those shocking results, the results on other headings still showed that the staff have the appetite and drive to do a good job, so they remain a very good resource for sorting the situation out. It appears that rock-bottom morale and a lack of faith in the management is blighting the department, but that the majority of staff are still interested, engaged and proud of their work.

As has been well reported in the media and in this place, the changes in HMRC have led to chaotic services being provided to clients, and the huge burden of work has led to a higher level of write-offs. For example, just increasing the threshold for claims from £50 to £300 for the past two years has led to the loss of £160 million in revenue. Moreover, each year local caseworkers refer some 4,000 cases of suspected serious evasion to specialised teams for investigation, but the centralised referral system has not been used consistently across the department, despite being mandatory. In 2008-09 just 20% of referrals were taken up by investigation teams, with the rest being returned to the originating officer to pursue.

The department does not analyse the reasons for rejection, which would help to judge the quality of referrals, nor does it know the result of returning those cases to the originating officer. Not only does that lead to caseworkers becoming disillusioned by the low rate at which referrals are taken up, but it has a serious knock-on effect on the tax gap. The average time taken to complete dealing with a case of serious fraud in 2009-10 was 25 months, whereas the internal target is 18 months. Some 75% of cases exceeded that target, and a substantial number took more than three years to deal with. Of course some cases are more complex than others and will take a lot longer to investigate, but it is clear that the department needs to improve the speed and efficiency of investigations in future, to increase the number of cases and bring in more revenue. Inefficiency is clearly causing revenue to be lost.

New structures, such as the penalty regime in force for tax returns relating to the past two years, have been blighted by recurring top-down problems. The new regime was designed to set tougher penalty rates for deliberate errors. It is obviously good practice that such penalties should be recovered promptly, but the department does not routinely monitor whether they have been collected. An analysis revealed that it could not trace payments for 27% of the outstanding tax due on completed civil investigations of fraud. Of the £58 million that could be traced, only 84% had actually been collected. The Treasury is therefore losing tax not only through evasion and legal avoidance but through systematic inefficiency in HMRC. This lends credence to the statistic mentioned earlier that only 13% of staff feel they are managed well. Given that the total cost of HMRC is less than 1% of what it collects, it should not be treated like a normal spending department—judged partly, at the moment, by its ability to slash costs.

[Mr David Ruffley (Bury St Edmunds) (Con)]

Given his experience on the Public Accounts Committee, what is my hon. Friend’s view of HMRC’s claim that it made £1.1 billion-worth of pure efficiency savings between 2005 and 2009-10 without any negative impact on performance? Is that a credible claim?

[Ian Swales]

I can express a personal opinion, which relates to what I was just saying: we should not judge efficiency savings at HMRC without reference to the tax that is collected. We cannot judge it simply according to headcount reductions and those sorts of changes.

--- Later in debate ---

[Gregg McClymont]

Now that the hon. Gentleman has provided that important point of information, I will conclude with a final observation that pertains to his previous intervention and that of my hon. Friend the Member for Edmonton (Mr Love).

Only with a cadre of well-paid, trained and skilled staff who enjoy a status commensurate with the important job they do will a more effective, efficient and productive HMRC become possible, and those staff have to be the foundation stone as we go forward through this decade. Does the Minister think we have that cadre as things stand?

[Mr Ruffley]

The return from the autumn survey of civil service staff at HMRC says that 14% think that the organisation inspires them to do their best in the job and 12% that it motivates them to help to achieve its objectives. Can the hon. Gentleman say, from his constituency experience in Cumbernauld, whether any work has been done with the senior management there? It seems on the basis of these figures that there is a problem with motivating and inspiring the work force.

[Gregg McClymont]

I thank the hon. Gentleman for that intervention. I am not able to give him a definitive answer, but I have met the senior management at Cumbernauld, who struck me as dedicated and professional, and its work force.

We need to take a—I hesitate to use the word “holistic”—panoramic view of the functions of HMRC. One can always make reforms and efficiencies, which, compartmentalised, seem to save money, but in fact, in the broadest possible context, will be a false economy and a short-term saving at the cost of a long-term sense of professionalism. I suspect that someone doing the job of tax collector needs a sense of pride in their job because at times there will be ups and downs during the course of the day.

Financial Assistance (Ireland)

David Ruffley Excerpts

Monday 22nd November 2010 Commons Chamber

[Mr Osborne]

I am not going to give a specific figure today, because it simply has not been agreed as part of the overall package with the Irish. In these situations, it is perfectly normal for the sovereign Government, in this case the Irish, to invite the IMF and the EU in and to ask for their help, and for that to be negotiated over the following week or two. Of course, we will be part of that, but as I say, I expect the UK’s support to be in the billions, not the tens of billions.

[Mr David Ruffley (Bury St Edmunds) (Con)]

If it requires a treaty change to create a new permanent bail-out mechanism, will the UK Government be prepared to use their veto?

[Mr Osborne]

We have made it clear that we would accept a treaty change—of the kind that, for example, Germany is talking about—only if it created a eurozone bail-out mechanism that we were not part of, and of course a treaty change requires unanimity.