The Economy
David Rutley Excerpts(12 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Anne Marie Morris (Newton Abbot) (Con)
The Office for Budget Responsibility has shown clearly that productivity is slowing, and our recovery therefore depends on getting productivity moving forward faster. I suggest that one of the key barriers is over-regulation, which I think is borne out by many of the surveys that the Federation of Small Businesses and the Forum of Private Business have carried out.
The sector of the economy that is perhaps most affected by over-regulation consists of the very smallest of our businesses: the micro-businesses. A micro-business, for the most part, suffers from the same level of regulation but has less resource, by virtue of its size, to deal with it.
So why should we worry about micro-businesses? Because research has indicated that 90% of new jobs after a recession come out of that sector, and because it is in our rural communities that many of those micro-businesses exist. They are critical to the economic viability of our rural communities. We should also be concerned about the existence of micro-businesses in deprived urban communities, where, again, they play a key role in terms of cohesion.
What is a micro-business? The EU defines it as an organisation with fewer than 10 employees, but in fact, 90% of our businesses have fewer than five employees. Therefore, they have very little managerial support and expertise.
The Government have done their level best to help small and medium-sized businesses, and specific provision has been made to help the micro-business. So why do micro-businesses feel unloved and, in the words of one, invisible? Perhaps I may make some suggestions to the Treasury on how we can rectify that and support the sector better. We have given a three-year moratorium on new regulation for our micro-businesses, but the challenge is that they are still subject to existing regulation, a lot of which comes from Europe, and if they have only two or three people in the business, that is a very heavy burden. We need a “keep it simple” system for micros.
On employment, the Government have helpfully provided a national insurance break for start-up businesses. We have also examined the tribunal system and considered a simplified system for smaller businesses, but we must remember that businesses with no employees comprise 70% of all our businesses—or about 3 million businesses altogether—and if we gave those very small businesses national insurance relief, we would go a long way towards solving our unemployment problem.
On finance, I am delighted that we have the new seed enterprise investment scheme, as it will make a big difference. The point I would make to the Treasury is that we need to examine who is going to use that type of support. It will be the fast-growth entrepreneur who is looking for external investment, but what about social enterprises and what about the plumber who is setting up, having just been made redundant? Some of the money that they will be seeking could be offered by their families, but they are excluded from the scheme.
David Rutley (Macclesfield) (Con)
My hon. Friend is a passionate advocate for micro-businesses and I commend her for her extraordinary efforts. Does she agree that it is vital that our micro-businesses are better at articulating the problems they are facing, so that the Government can more effectively strip back the regulation that she and I both want removed?
Anne Marie Morris
I agree with my hon. Friend absolutely, and that brings me nicely to the challenge that we face in getting some of the main schemes to assist with finance. Project Merlin, the enterprise finance guarantee scheme and the regional growth fund have all been aimed at the smaller business. The problem is that in practice, because there is no carve-out and no requirement that any percentage of those schemes goes to our very smallest businesses, these businesses by and large get left out. That is because they are perceived to be invisible, too difficult or too small, or it is perceived that they cannot write a business case or are not after a big enough loan. I hope that when we examine the new credit easing arrangements, we might consider a carve-out specifically for micros.
Even some of our institutions that are supposed to be looking at our small businesses exclude them. I have spoken to officials in UK Trade & Investment, and it appears that a small business of fewer than five employees is, unfortunately, beyond its notice. I have talked to those in the National Apprenticeship Service, which now has a small business unit, and they say that a micro-business with fewer than five employees is, again, outside its remit.
May I suggest to the Treasury that the solution, is, first, that we should properly recognise this group for what they are? Let us define them properly as organisations with four or fewer employees, as is happening around the world, and let us devise a scheme specifically for this group. That is perfectly possible, as the French have come up with such a scheme for their smallest micro-businesses. It provides limited liability, a very simple form of establishing a business, simple accounting procedures and a very simple tax system, and it also provides for very simple sets of regulation, particularly in respect of employment. So something simple for our smallest micro-businesses is just what we need.
In the last minute available to me, I suggest also that, because much of the regulatory burden comes from Europe, there is a case to be made for considering an exclusion for micro-businesses from European regulation. I commend that to the Treasury and the Chancellor, if and when we come to treaty negotiations, as something that might be usefully traded.
David Rutley (Macclesfield) (Con)
It is an honour to follow the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), a member of the “rowdy” Bench, perhaps better known as Snow White and what were four grumpy Members.
In the current economic climate rebalancing the economy is a critical task, and I am pleased that the Government are taking urgent action in this direction. We need to create the conditions in which sectors vital to the nation’s growth have the best possible chance of success. Yesterday’s launch of the UK’s strategy for life sciences was an important step in improving the competitiveness of life sciences and pharmaceuticals, which are vital to the UK and to the local economy in Macclesfield, where AstraZeneca employs some 2,000 people. Across the country, those sectors employ about 160,000 people and have a combined turnover of roughly £50 billion.
The launch set out important positive policies for the life sciences sector: it will create new research partnerships with companies such as AstraZeneca to cut the time between the development of new treatments and their application; it will introduce a £180 million catalyst fund for the most promising medical treatments; it will reduce the time for the first recruitment of patients for clinical trials to 70 days from a staggering 600 days; it will ensure that medicines approved by the National Institute for Health and Clinical Excellence are automatically approved for use in hospitals; and it will establish an early access scheme that will allow thousands of seriously ill patients to get access to cutting-edge drugs up to a year earlier than they can now. Those steps will not only help to reaffirm the competitiveness of the UK’s life sciences industry, but will encourage major pharmaceutical businesses to stay based in the UK and materially help to rebalance the economy. But the approach goes further, because it will enable patients who have simply been waiting for far too long for new medicines to get them earlier. The Government are absolutely right to tackle that unacceptable situation.
Our approach is not just about rebalancing the economy, because we need to rebalance our skills set too. There has never been a more important time to prepare a generation of young men and women for a future in business and enterprise.
Charlie Elphicke
Does my hon. Friend agree that apprenticeships have been a real step forward and have made a massive difference to our young people?
David Rutley
I completely agree with my hon. Friend, and I will come on to talk about the impact in Macclesfield, and no doubt in Dover too. Apprenticeships have been a phenomenal step forward.
A crucial priority for us now is getting to grips with reshaping the life chances of millions of young people and helping to improve the long-term economic prospects of the United Kingdom. There is clearly a lot to do. A recent survey of 3,000 parents with children aged 11 and under found that the top career aspirations for their children were: first, being a sports star; secondly, being a pop star; and thirdly, being an actor or actress. Going into business did not even feature in the top 10. More worryingly, those aspirations are increasingly reflected in the subject choices in school, with business-related subjects lagging far behind in the popularity stakes.
Pat Glass (North West Durham) (Lab)
Does the hon. Gentleman believe that the Government’s policy of putting a hierarchy of subjects into their English baccalaureate, so that classical Judaism comes above subjects such as business studies and IT, will help that situation?
David Rutley
It is good to hear that, and the hon. Lady makes an important point. Of course vocational skills are important and, as my hon. Friend the Member for Dover (Charlie Elphicke) was saying, the Government have taken important steps on vocational training. But it is also important to raise academic standards across the board in education, which is why it is vital that the English baccalaureate is being put in place.
To return to the theme that I was discussing, it is vital that employers get confidence in the education being given to our young people; in a recent survey, 70% said that not enough business awareness was demonstrated by school leavers. In June an Ofsted report on business education went further, saying that students taking part in business-related education often had
“only vague ideas about the economy, interest rates and their impact”.
That is clearly concerning and it will be an important spur to addressing business-related subjects in the much-needed national curriculum review in the months and years ahead.
The focus on business education needs to be improved in universities as well. Management, economics and accounting were much less popular than media studies and sociology in 2010, and the growth in media studies—15% over the past five years—continues to outstrip the growth in both management science and economics, the figures for which were 5% and 12% respectively. At a time when companies are crying out for commercial talent, it is troubling that the upcoming generation is not demonstrating an interest in business education, which is clearly growing in other countries.
So how can we begin to address those long-standing trends? Much can be done back at school. That same Ofsted report highlighted the fact that more than a third of schools failed to provide sufficient opportunities for students to engage directly with businesses.
Mrs Chapman
How can the hon. Gentleman possibly square that point with the dramatic nose-dive this year in applications for education from kids in the north-east post-16? What does he put that down to?
David Rutley
I am not familiar with circumstances in the north-east; I am making the point that too few students want a career in business because until now they have not had the right education, and we need to get them back on to a better path. [Interruption.] Apprenticeships are clearly one of the ways forward.
One of the key things we have to do is expose young people to more local business leaders. We have to get those people into the classroom to make the case for business, and we have to make sure that they provide positive role models. Work experience programmes go further, acting as an important way of helping children to apply and develop skills learned in school. In Cheshire, Bentley has created a successful work experience scheme with local schools; more than 850 pupils have gone through the programme over the last five years. We need more such schemes. KPMG, Tesco, Morrisons and others are starting to sponsor students at university. More needs to be done to engage businesses at university level.
As my hon. Friend the Member for Dover pointed out, it is vital to look at alternative ways for young people to get business skills. Apprenticeships are one of those ways, and we are seeing real success not just in shop floor disciplines but across a wider range of business skills, such as accounting apprenticeships. Macclesfield college is working with Elior, a French catering group, achieving real success not just for the business but for the young people involved. The Government are doing well in putting forward the case for apprenticeships, and I commend them.
Although it is vital to rebalance the economy and our skills base, the most important thing we need to do in the long term is to rebalance and raise the ambitions of future generations. I encourage the Government in those efforts.
Autumn Statement
David Rutley Excerpts(12 years, 12 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
It will be up to the devolved Administration to choose how to spend the money that is allocated to them, but of course as it is one-off money—being capital spending—they will need to think carefully about how they spend it. On aviation, the Department for Transport will set out an aviation strategy, but it is confirmed in today’s document that we were able to take the decision that saved the long-haul flight from Belfast to north America.
David Rutley (Macclesfield) (Con)
I welcome the Chancellor’s statement and the announcement today that the Manchester airport A6 link road will be brought forward. That will be a real boost for Manchester and north-east Cheshire. Does my right hon. Friend agree that capital investment is the right way to strengthen our regions, rather than relying on the increases in public sector spending that we saw from the last Government?
Public Service Pensions
David Rutley Excerpts(13 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
David Rutley (Macclesfield) (Con)
According to reports in today’s press, only 40% of private sector workers receive pension contributions, while 85% of public sector servants receive not only a pension, but a more generous one. Does my right hon. Friend agree that it is time to address these differences, rather than engage in irresponsible strike action?
Danny Alexander
I wholeheartedly agree that it is time to address these differences, but not by trying to get public sector involvement in pensions down to the level in the private sector. What we need to do is what we have done today: set out an offer that combines affordability for the general taxpayer with proper pensions as a reward for a career in the public service, along with steps to encourage more private sector workers to involve themselves in pensions. That is precisely the basis of the new NEST scheme, which the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), is taking forward.
Eurozone Crisis
David Rutley Excerpts(13 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
David Rutley (Macclesfield) (Con)
Following the deal on the eurozone, I understand that Italian media and Italian businesses are calling on Mr Berlusconi to copy this Government’s approach to deficit reduction. Does my right hon. Friend agree that Italy and other eurozone countries would have been far better off if they had followed that course of action long before now?
Mr Osborne
I think they would have been in a better position if they had got ahead of the pressure from the markets rather than being pursued by them. That is precisely what this Government did in Britain. The markets are, for many people, an abstract idea, but as we have discussed, we are talking ultimately about the decisions of many millions of investors and people with pensions, life insurance policies and the like about where they put their money. If they do not have confidence in a country’s ability to pay its way in the world, that money disappears almost overnight.
Jobs and Growth
David Rutley Excerpts(13 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Stewart Hosie
That is absolutely right. I heard the Chancellor say this week that he has considered how the Government might fund business investment directly. There is merit in that. I am prepared to give this term of QE and the credit easing a chance to work, but I tell the Chancellor that if the £75 billion-plus of new electronic money goes to the banks or is used to buy back Government debt and does not hit the real economy, neither the banks nor the Government will be forgiven this time if it fails. Too many businesses are hurting due to a lack of business finance.
Stewart Hosie
No, I shall stick to the same adage as everyone else and give way twice.
The third thing that needs to be done is to restore consumer confidence and economic security. Fundamentally, that means keeping people in their jobs, and Government and their agencies remain responsible for plenty of jobs. That means that pay policy in the public sector should bring down the salaries of senior people, bonuses should be removed from senior public servants, there should be temporary pay freezes for those on average incomes, help should be provided for those earning under £21,000 and specialist systems and a working wage should be introduced for those earning least of all. However, it also means delivering a no-compulsory-redundancy policy for staff employed by Government, the NHS and the other public bodies when agreement can be reached. We know that this plan—a mix of direct capital investment, confidence, and improved business finance or taking some of the burden off businesses—can work. We have seen it in Scotland, where even with the unemployment figures published today, unemployment is lower, employment is higher and economic inactivity is lower.
We know that such a mix of activity can work and, of course, it is broadly in line with what Christine Lagarde called for in September, when she said that
“countries must act now—and act boldly—to steer their economies through this dangerous new phase of the recovery”.
It also mirrors her comment in August to the Financial Times when she said that
“short-term measures must be supportive of growth, yet economical in terms of the impact on fiscal sustainability, and can include policies supporting employment creation, advancing planned infrastructure and easing adjustment in housing markets.”
There is no reason, other than dogma, not to follow the ideas laid out by those on the Opposition Benches today to kick the economy out of its torpor. I urge the Chancellor to use his autumn statement to do just that. He can call it plan A-plus, he can call it plan B, but he must change, develop and deliver quickly.
David Rutley (Macclesfield) (Con)
Thank you, Mr Deputy Speaker, for giving me the chance to speak in this important debate.
Our economy continues to face challenging times, with the crisis in the eurozone and ongoing problems in the global capital markets. The Government’s plan for recovery is therefore more important than ever, and entrepreneurs play a vital role in taking it forward. Our everyday entrepreneurs are critical to the agenda of innovation, job creation and economic growth; it is not just down to the Government.
In Macclesfield we have been doing all we can to support our vital small and medium-sized enterprises, with bi-monthly breakfasts at which up to 130 businesses come together to work out what can be done to strengthen the local economy. We also have an economic forum to implement the action plans that are needed, but it is clear that what entrepreneurs in Macclesfield and across the country want is a sound economic framework and sound economic policies to support them in their work.
Sadly, entrepreneurs are living with the legacy of not just the previous Government’s deficit but the £90 billion a year cost of new regulations on businesses that have been put in place over the past 13 years. That additional cost makes the difference between profit and loss for small businesses. My hon. Friend the Member for South West Norfolk (Elizabeth Truss) has already pointed out that our regulatory burden puts us 89th out of 139 countries in the perception of the weight of regulation. That has to change.
It is not just domestic regulation that is entangling our entrepreneurs, because the European Union has become a major source of red tape. Since 1997 the EU has produced 100,000 pages of new regulations that tie the hands of our SMEs and damage our economic potential. That must change.
There are several important priorities in building the entrepreneurial economy that Government Members want to see. We want to see a reversal of the regulatory tide, the simplification of UK employment law and the realisation of our SMEs’ export potential. The Government are already working very hard in those areas and have introduced a one-in, one-out approach to regulation, which will be vital. We have already seen the removal of 257 regulations in the retail sector alone. The new three-year moratorium on new regulation for the smallest firms will help to protect start-ups during their most vulnerable phase, and the red tape challenge will encourage businesses to identify the regulations that are preventing them from doing the things they need to do. Those are positive steps in stemming the tide of regulation.
In addition, we need to do more to simplify employment law, which, given that job creation is vital to our economic recovery, is a huge priority. As has been said, the Chancellor has done a great job in introducing an extension of the qualification period for unfair dismissal. That is a way of reducing risk for employers when they are taking on new staff, and it has been welcomed by many SME trade bodies.
Another area that needs to be worked on is realising the potential abroad of our entrepreneurial talent. A report by the Select Committee on Business, Innovation and Skills found that only one third of our SMEs are involved in international trade. Germany has a much higher percentage. The role of UK Trade & Investment is vital in that respect. It is extending its reach to more businesses, but when we look at the potential and the entrepreneurial flare of the 5 million SMEs in this country, it is clear that more needs to be done in communicating those great opportunities in overseas markets. We need to do more to help small businesses to do that.
The Government are working to improve the conditions for economic growth, but, as in a human body, not all growth in the economy is good, which the record of the previous Government shows very clearly. We had unprecedented growth in the deficit, the burden of debt and the weight of business regulation. In the good times, they could have created the economic equivalent of an entrepreneurial athlete, but they instead created an economy that was more like a couch potato, bloated on debt and ill prepared for the downturn. We are changing that.
The Government clearly cannot and should not seek to build an entrepreneurial economy by themselves. They are working with small businesses to create the conditions that will unlock the potential of our entrepreneurial, everyday heroes. Our SMEs also have a responsibility in that task. Now is the time for them to demonstrate the same energy, commitment and creativity that is required in the marketplace to help constructively to shape Government policy.
Global Economy
David Rutley Excerpts(13 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
It is because of the global lack of confidence in Governments’ abilities to deal with their deficits. We have not seen turbulence in our bond markets precisely because we have in place a credible deficit reduction plan. I note that I have been answering questions for more than an hour and it has almost been an hour since the shadow Chancellor said that the Labour party needed a credible deficit reduction plan, but has a single Labour MP got up and proposed any component of that reduction plan? No, they have not.
David Rutley (Macclesfield) (Con)
I welcome my right hon. Friend’s statement and the fact that over the past year we have seen the private sector create four times more jobs than have been lost in the public sector. Does he agree that this is a better approach to job creation than the overreliance on the public sector, which was all too prevalent over the past decade in regions such as the north-west under the previous Administration?
Mr Osborne
My hon. Friend is absolutely right. First, I should take the opportunity that I did not take in answer to the previous question—as my hon. Friend, too, is a Cheshire MP—of praising the work of the Cheshire police, who have shown outstanding bravery over the past few days. My thoughts go out, as the hon. Member for Ellesmere Port and Neston (Andrew Miller) said, to the injured officers.
My hon. Friend is absolutely right. Surely we have learned something from the past decade, which is that relying on an unsustainable housing boom, unsustainable Government spending and unsustainable bank lending is not a model of growth that this country can pursue again. We have to get off this country’s addiction to debt, not just in the Government but in banks and households. That is what we are doing and it is a difficult adjustment that many western economies are having to go through. Unfortunately for us, given that we were the most enthusiastic participants in the debt boom, that adjustment is particularly difficult here in the UK.
Finance (No. 3) Bill
David Rutley Excerpts(13 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Chris Leslie
An excellent statistic from my hon. Friend. We are often told that the reason we cannot take any action is that complex descriptor “regulatory arbitrage”. It is a term that belies what it actually means—people fleeing the country, usually because they want to pay lower taxes. Actually, there are good reasons for the financial services sector to stay and thrive in this country, and they are not just about tax and regulation. They are not always financial reasons. We have Greenwich mean time, and we have a great rule of law that can ensure that businesses succeed and thrive. I believe that that is ample for our financial services sector to be rejuvenated and sustainable. The talk of “regulatory arbitrage” is in many cases the last refuge of the scoundrel.
The Government are letting the banks off the hook. They are taking a light-touch approach on taxing the banks by failing to repeat the banker bonus tax that the previous Labour Government levied, which brought in £3.5 billion.
David Rutley (Macclesfield) (Con)
Is the hon. Gentleman not aware that this Government’s banking levy raises £2.5 billion, compared with the £2.3 billion one-off net yield of the bonus tax that the previous Government levied? The bank levy is a proactive statement by this Government—action that will lead to the raising of more than £10 billion over the course of this Parliament.
Chris Leslie
The problem is that we should have not either/or, but both. The bank levy and the banker bonus tax would be a fair contribution from the banking sector—[Interruption.] The Minister disagrees, but that is his opinion. The OBR says that the yield of a bonus tax could be £3.5 billion, but even a conservative estimate of, say, £2 billion would mean significant money that could eat into youth unemployment.
David Rutley
Might not the Government’s position have something to do with the fact that the International Monetary Fund does not endorse a financial transaction tax and that there is a stronger case for an activities tax? Should the hon. Gentleman not consider that more fully?
Chris Leslie
I know that the Government have such a close relationship with the IMF that they take their policy lead from it on almost every issue, but I am sure that they can think for themselves on this issue. Given that there was discussion at the G20 about exploring many of those things, I would have thought that the Government ought to keep the issue on the table and under review because it has potential, as most hon. Members seem to recognise.
David Mowat (Warrington South) (Con)
The hon. Lady is making a case for the higher taxation of banking bonuses and salaries. Does she think that high salaries in other professions such as the oil industry, financial services, insurance—
David Mowat
Indeed. Does she think that higher salaries in all those professions should be taxed more? If that is the case, the most logical option would be to have higher income tax.
Finance (No. 3) Bill
David Rutley Excerpts(13 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Neil Parish
I agree with the hon. Lady to some degree, but I say to her bluntly that charging 4,500% interest, whether it is done legally or not, is theft. As a farmer, perhaps I have slightly jaundiced views about bankers, who offer an umbrella when the sun is shining and want to take it away when it starts to rain. We cannot go on letting vulnerable people be exploited—it does not matter whether it is being done legally.
David Rutley (Macclesfield) (Con)
My hon. Friend makes a powerful point. The challenge is that people always say that we have to do something about this issue, but it is never clear what that thing is. For me, the vital thing is awareness. The issue is not just loan sharks but extends to organisations such as BrightHouse. Does my hon. Friend agree that people need to understand the true cost of what they are borrowing?
Neil Parish
I share that view entirely. At the start of my speech, I spoke about a financial health warning on a loan, including what the rate of interest will be. There should also be an example, perhaps showing what the principal amount would be to repay if one started with £100.
Stella Creasy
I hope that the hon. Gentleman is not being complacent about the cost of living, its impact on people in his constituency and the fears of many about what an interest rate rise would mean for their monthly mortgage payments. One thing that worries me is that a lot of people are borrowing just to make ends meet; they are borrowing not for investments, holidays or fancy televisions, but to pay their rent and mortgages and to put food on their families’ tables. His complacency about interest rates not rising any time soon is misplaced.
David Rutley
I have heard the hon. Lady speak with passion in this debate and others, and I respect the point being made. However, some of the points being made by Government Members are important, particularly those concerning fiscal constraint and household spending constraint. The gap in her argument is that it is vital that households bear down on their spending. It is not just about the cost of financing a television or whatever else; it is about not going for it in the first place. There is a wider scope for this argument. This debate is not just about the cost of the debt, but about people avoiding it in the first place by lowering their expectations of what they need.
Stella Creasy
I would be interested to hear the hon. Gentleman’s advice to the nearly 500,000 Londoners who are having to use their credit cards to pay their mortgage or their rent. Right now, people are borrowing to pay for everyday essentials, and I fear that he sounds a bit like Marie Antoinette saying that people should just eat cake. That is very misplaced, given the dire financial situation that many people are finding themselves in, certainly in my constituency and, I will wager, in his as well.
Indeed, Shelter’s research shows that it is not only people in London who are using their credit cards to pay their mortgages. There are 2 million people in this country who are doing it. It is horrifying to think of the situation that those people are getting themselves into, given the interest rates that they are paying on their mortgages, let alone the rates that they are paying on their credit cards.
We also know that changes in the cost of living affect some more than others. The Resolution Foundation points out in its low earners audit that those on low to middle incomes spend a higher proportion of their incomes on the goods and services that are hard to cut back, such as their housing, their fuel, their transport to work or the food that they put on their children’s plates. That is what the hon. Gentleman is talking about. Those low to middle income earners spend 40% of their spending on those everyday essentials, compared with the 26% spent by higher earners. One in five pensioners have had to cut back on essentials such as food because of the rising cost of living.
This is not just a demand-side issue; it is also about the way in which the high-cost credit market is stacked against the consumer. That is why I believe that the market merits regulation. In order to make its profits, the high-cost credit market makes use of a number of the attributes of the people who have to borrow from it and of the way in which the market is structured. As has been mentioned, a quarter of the customers of high-cost credit companies cannot access any other form of credit. Indeed, Consumer Focus’s research shows that many users of payday loans are unable to access mainstream credit such as overdrafts because they have already maxed them out. That means that they have no choice; they have no power to shop around for a cheaper loan. Also, they cannot build up a credit history that would show a mainstream lender, who might lend at a lower rate, that they could be trusted to pay a loan back.
Because high-cost credit companies have fixed costs, they make their money by repeatedly lending to people. That means that their business strategy is geared towards encouraging repeat borrowing and the rolling over of loans. Friends Provident has found that 29% of payday loans are refinanced, with the refinancing rolling over on an average of two occasions. Some 15% of home credit loans are refinanced and rolled over into a new loan before the end of their term. It is worth explaining what that means for the cost of borrowing from these high-cost credit companies.
One person who got in touch with me took out a loan of £650 with Wonga, in two instalments, to be paid back within a month. When the repayment date arrived, he found that he could afford to pay only the interest that had accrued on the £650, which was £163. The original £650 loan was then rolled over for another month. At the end of that month, he paid off the loan, which cost him another £858. That was the original £650, plus interest of £208 accrued in the second month. The clock starts ticking in the first month of these interest payments, which is how 4,500% interest rates are reached. The longer a loan is rolled over, the closer it can get to the 4,500% APR that Wonga charges. The process of rolling over meant that he had paid £1,021 for borrowing £650 over two months. It is difficult to see what level of cap on the number of roll-overs would make a difference in this market, because the industry consistently refuses to release information about its business model. We can therefore only guess at the impact that the number of roll-overs has on people’s debts.
Furthermore, we know that the rates charged by high-cost credit companies often do not reflect an economic rate, due to a lack of competition in the market, a lack of regulation to drive down costs, and the absence of any ceiling being set. I recognise that using APR is problematic in understanding the cost of borrowing, especially in the payday loans industry, but as a yardstick it can help us to illustrate the issue. We know that payday loans can cost 4,500% from Wonga. They can cost 2,100% from Uncle Buck, 1,200% from Payday UK, and 1,700% from KwikCash.
The Economy
David Rutley Excerpts(13 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
David Rutley (Macclesfield) (Con)
The emergency Budget will certainly be remembered for robustly tackling the record Budget deficit, but I believe that its reputation will become much bigger, because it started a shift in the debate on public finances away from spending and cuts to how real value for money must be delivered for taxpayers. That is why it will be seen as a rare game changer in how Government expenditure is measured, managed and even talked about.
We have seen other big Budgets before: Geoffrey Howe’s in 1981, which tackled the rapid inflation that was wreaking havoc in the economy at that time; Nigel Lawson’s 1988 Budget, which significantly lowered the burden of taxes on individuals and created greater incentives for businesses to invest in the UK.
Mr Denis MacShane (Rotherham) (Lab)
In my constituency, according to the National House Building Council, building started on just four new houses in the first quarter of this year. Is it part of the game change to destroy for ever housing construction in our nation?
David Rutley
No, it is part of the lamentable legacy of the Labour party. We are cleaning up the mess; you are just talking about it. [Interruption.] Does the right hon. Gentleman want to intervene again?
However, no other Chancellor of the past 50 years had to face a budget deficit of the scale that confronted the current Chancellor after the election. He was bold and did not duck the challenge. The comprehensive spending review in September last year built on the foundation, and set out the details of how the Government would bring spending under control and achieve their fiscal mandate. As we have heard in the debate, the Government’s action has won plaudits from the IMF and OECD among others. More importantly, on the doorstep during the local elections, I found a pragmatic acceptance that strong action is needed. One year on, the principles underpinning the emergency Budget continue to win the argument about how the deficit should be tackled.
Clearly, in facing the nation’s finances, the opportunity and the Chancellor’s ambitions go well beyond reducing costs. The economic imperative and the tangible change in public mood represent an important moment in time that must be seized. The Government have a once-in-a-generation opportunity to put the spotlight on value for money and bring about a cultural change in the way in which it is delivered to taxpayers, and in confronting that task they are actively learning from positive role models in the public sector. When I worked as a senior executive at ASDA, the aim of lowering the cost of living for customers motivated colleagues throughout the company. Cost control was a vital part of the culture that was committed to delivering value for money to our shoppers. At board meetings, customer outcomes and the return on investment were what counted, not how much money should be thrown at a problem. That commitment creates value for money for hard-working families day in, day out.
Earlier Governments have found it difficult to engender a similar culture in the civil service and our public services, but the sad fact is that the last Government did not even try. Their ill-conceived experiment with “big government” backfired, and despite a period of unprecedented economic growth, the United Kingdom was left with a structural deficit—before the economic crisis—that was consistently bigger than the eurozone average for five years. Just as worrying, but not so often talked about, is the fact that public sector productivity fell by 3.4% between 1998 and 2007, at a staggering annual cost of £58 billion, which equates to 41% of last year’s deficit. That is a legacy that will continue to haunt the Labour party in its struggles to rebuild the credibility of its economic policy.
The coalition Government, however, are committed to putting value for money at the centre of fiscal policy and creating a new yardstick by which future Governments will be judged. They are driving major changes in three main areas: institutions, management tools and, most important, the hearts and minds of both the public and our public servants. They are making strong progress in each of those areas.
The creation of the independent Office for Budget Responsibility is one institutional change that will constitute a lasting legacy from the present Chancellor. The creation of an independent body to forecast and analyse public finances means that Government will no longer be able to cook the books or indulge in what Lord Turnbull, giving evidence to the Treasury Committee, described as “wishful thinking”. The OBR will give both Parliament and the public greater confidence in Government spending plans, and a greater ability to hold the Government to account.
Beyond institutions, change is needed in the way in which public finances are managed. That requires new objectives for civil servants, in which value for money is a critical factor in the judging of their performance and their ability to achieve their promotion objectives. I am pleased to note that the Government are raising the bar in terms of the minimum standard of financial understanding that is required for civil servants. In the past, senior civil servants have been more concerned about avoiding bad headlines or the size of their budgets than about finding more effective ways in which to deliver public services. Those days are now long gone.
Sir Philip Green’s review of expenditure showed that Government need to improve dramatically the way in which they gather information on spending across Departments, and the new efficiency and reform group in the Cabinet Office is identifying ways of tackling that task. It plans to improve the co-ordination of procurement across Government, which will lead to savings of about £3 billion a year. Initiatives like those will help to reverse the downward trend in public sector productivity that we saw under the last Government.
However, the focus on value for money must not be only about the things that Government buy. Public sector pay and benefits represent the largest cost for any Government, and the present Government have had little choice other than to focus seriously on public sector pay and push ahead with much-needed pension reforms. That must happen if a more level playing field is to be created between the public and private sectors which will encourage business-led job creation while also making the taxpayer’s bill more affordable.
The ultimate test of whether value for money has become a real focus of attention lies not in institutions or management tools but in whether there has been a fundamental change in the way that people talk about public funds. I am pleased that the debate is now turning to results and outcomes and not just to the price that is paid for them. Government Members want to move away from and beyond the tired debate about cuts and spending to focusing on value for money for taxpayers.
In the motion, the Labour party looks forward to what it calls “strong” economic growth. Personally, I prefer to think about sustainable economic growth as a far better objective. We saw what happened under the Labour Government when they pressed for strong economic growth fuelled by uncontrollable spending. Labour seems to believe that return to growth is an automatic certainty or a God-given right. One year on, it has completely failed to articulate a credible alternative to explain how it would address the economic crisis. It is as though it has taken a leaf out of the Tommy Cooper school of economics and believes that growth will return magically, “Just like that.” [Interruption.] I will work on it. We on the Government side know that growth will be earned through the hard work and dedication of thousands of businesses across the country. The Government’s deficit reduction plans are creating a platform for the sustainable, private sector-led growth that the country so urgently needs.
Regulatory and Banking Reform
David Rutley Excerpts(13 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Hoban
As I said earlier, re-mutualisation is an option. The advice we have received is to proceed with the sale process, which could be to a proprietary business or another mutual. Once that process is under way, we will be able to compare that outcome with the other two possible outcomes, which are an initial public offering or a stand-alone re-mutualisation. I am keen that United Kingdom Financial Investments engages with this, as it has done already, to see whether that is a viable option.
David Rutley (Macclesfield) (Con)
I welcome the Chancellor’s move to put an end to the failed tripartite model. What steps will be put in place to enhance the working relationship between the Treasury and the Bank of England, given the Bank’s enhanced role?
Mr Hoban
My hon. Friend makes an important point, and one that the hon. Member for Nottingham East (Chris Leslie) noted in his remarks. It is absolutely vital that the Bank has a good and robust relationship not only with the Treasury, but with this House. I think that we all agree that the relationship between the Treasury Committee and the Monetary Policy Committee, for example, is one of the most transparent between any central bank and any legislature across the world. We want similar standards of transparency and openness to apply in the relationship between the FPC and the House.
The White Paper sets out how the relationship between the Treasury and the Bank will be strengthened and how the Governor will meet the Chancellor to discuss the outcome of the financial stability review. We are also in the process of developing a crisis memorandum of understanding to ensure that the proper channels of communication are open between the Treasury and the Government. That is a much better set of arrangements that will ensure that the House is kept informed and that we can hold the Bank to account for its new responsibilities.