Capital Gains Tax (Rates)
Gareth Thomas Excerpts(13 years, 11 months ago)
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Mr Gareth Thomas (Harrow West) (Lab/Co-op)
Yesterday’s Budget should be judged on three key tests. First, will it protect and enhance economic growth, and nurture an all too fragile recovery from the worst global recession since the 1930s? Secondly, is it fair and will the poorest and those least able to defend themselves be affected the least? Thirdly, less than two months after the general election, does it reflect the election manifestos of the coalition Government? On each of those tests, the Government’s Budget is found wanting.
It would be remiss of me not to congratulate the hon. Members for Harrogate and Knaresborough (Andrew Jones) and for Carlisle (John Stevenson) on their maiden speeches. The hon. Member for Harrogate and Knaresborough made a fluent and interesting maiden speech. Having initiated the first debate on social enterprises in this House, I welcomed in particular his interest in and support for social enterprises. He talked about his constituency being affluent and having excellent schools; perhaps at another time, he might acknowledge more generously the part played by the excellent work of the previous Government in that respect. The hon. Member for Carlisle also made a fluent and interesting speech, offering generous praise to his predecessor, Eric Martlew, who continues to be well liked on both sides of the House. I hope that the hon. Gentleman will forgive me for being unable to share his assessment that the Budget was, although tough, also fair, but I shall come to that later.
This is the Conservative party’s Budget—no one seriously thinks that the Liberal Democrats were the driving force behind it, despite the protestations of the Business Secretary and others—and to listen to the Conservatives, one would think that there had not been a global recession. One would think that there was not a need to protect families or to keep demand in the economy, and that the borrowing and other measures that the previous Government took to stimulate the economy were not needed. We took decisive action to invest in the economy and to create the demand that the private sector needed to minimise business failures and job losses.
As the shadow Chancellor made clear, the measures that we took were continuing to have a positive impact. There was a return to growth—fragile, yes, but it was a return to growth. Unemployment was stabilising and starting to fall, while tax receipts were up and borrowing was lower than expected. The Office for Budget Responsibility has made it clear that the measures taken by the last Government are the reason why the economy is growing now. Indeed, those measures were part of Government spending plans which, as the shadow Chancellor pointed out, the party opposite supported until the end of 2008.
The run-up to the Budget was marked by a remarkable level of dangerous scaremongering by the party opposite. The Chancellor has been marching from one television studio to another and, like Don Quixote, he has continued to tilt away at Greek windmills while the Chief Secretary and now the Business Secretary have been competing to be Sancho Panza, bobbing loyally along behind.
We are not remotely in the same position as Greece, yet time after time, Front Benchers and Back Benchers opposite have sought to raise the spectre of Greece to justify the approach behind the Budget. The truth is that this Budget puts at risk a fragile economic recovery. On the OBR’s forecasts, growth will be down this year as a result of measures in the Budget, and down next year too. Unemployment will be higher as a result of the measures in the Budget, which will cut jobs in the public sector and the private sector too because, as my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) noted, many companies supply goods and services to the Government. The OBR acknowledges that employment will drop by 100,000 as a result of this Budget, and it is true to say that many outside voices expect the figure to be higher still. With tens of thousands more on the dole queue and employment levels down, it is fair to say that this is a return to traditional Tory politics.
The Budget also fails the fairness test. It savages support for the poorest and most vulnerable. Child benefit will be cut, and tax credits reduced for families on low and modest incomes. Support for families with young children is being axed, and the VAT rise will hit the poorest hardest. The Conservative party promised not to balance the Budget on the backs of the poorest, yet they have done exactly that. The Financial Secretary may not yet be aware of the damning verdict of the Institute for Fiscal Studies on the fairness of this Budget, but it has said that it will
“hit the poorest hardest and…keep on hitting them more and more every year”.
The same point was made with considerable force by my hon. Friends the Members for Pontypridd (Owen Smith), for Ogmore (Huw Irranca-Davies), for Kingston upon Hull North (Diana R. Johnson) and for Derby North (Chris Williamson), and by the hon. Member for Brighton, Pavilion (Caroline Lucas).
Mr Thomas
Given the time, no. I apologise to the hon. Gentleman.
The Budget also breaks clear promises made to the British people by the coalition partners at the election. The now Prime Minister told Jeremy Paxman in an interview in late April that his party had “absolutely no plans” to raise VAT. He recognised then that VAT was regressive and that it hit the poorest hardest. He said:
“It does, I absolutely promise you.”
The Deputy Prime Minister agreed that VAT was “very regressive”. He went further, making fear of Tory VAT plans a memorable part of his election campaigning. Yet now, with the electorate having cast their votes, we have an immediate volte-face from the parties opposite.
As my right hon. Friend the shadow Chancellor made clear, in a classic effort to pull the wool over the public’s eyes, those on the Government Front Bench use Labour measures to try to pretend that this Budget is fair. The charts deployed in the Red Book to justify that fantasy claim fail to acknowledge the scale of benefit reductions that will not have worked their way through fully in the period covered. They certainly do not include the impact of looming cuts in public services that are likely to hit the poorest households the most, or of changes to housing benefit. I have a specific question for the Financial Secretary: will he publish charts showing the impact of the Budget not just in 2012-13 but in future in years, by income distribution?
It is not just Opposition Members who recognise the unfairness of the Budget. Robert Chote, the head of the IFS, has said:
“The Budget looks less progressive, indeed somewhat regressive, when you take out the effect of measures that were inherited from the previous government—when you look further into the future than 2012-13 and when you include some other measures which the Treasury has chosen not to model.”
Some Liberal Democrats—perhaps those such as the Orange Book Liberals—will be entirely comfortable with the unfairness of this Budget. Others on the Liberal Democrat Benches need to find the courage of the convictions that they had before 6 May to challenge their Front Benchers.
This is a Budget that puts economic growth at risk. It fails the fairness test. The poorest will suffer the most. The IFS analysis blows away the pretence that we are all in this together. It is a Budget of broken promises. On VAT both coalition parties broke election promises. It is a Budget that is overwhelmingly Thatcherite in tone and we will not support it.
Banking Reform
Gareth Thomas Excerpts(13 years, 11 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
With permission, Mr Speaker, I shall make a statement about the Government’s plans to reform the institutional framework for financial regulation.
The tripartite system of financial regulation failed spectacularly in its mission to ensure financial stability, and that failure cost the economy billions. The British people rightly ask how this Government will stop it happening again. That is why our coalition agreement committed us to reforming the regulatory system for financial services in order to avoid a repeat of the financial crisis. Let me now set out in detail the changes to the regulatory architecture that will make that possible.
At the heart of the banking crisis was a rapid and unsustainable increase in debt. Our macro-economic and regulatory system utterly failed to identify correctly the risk that that posed, let alone prevent it. No one was controlling levels of debt, and when the crunch came, no one knew who was in charge. For that reason, we need a macro-prudential regulator with a more systematic and detailed knowledge of what is happening not only in individual firms, but across the financial system as a whole.
Only central banks have the broad macro-economic understanding and understanding of markets, the authority and the knowledge required to make macro-prudential judgments. We will therefore place the Bank of England in charge of macro-prudential regulation by establishing within the Bank a Financial Policy Committee. We will also create two new, focused regulators: a new prudential regulator under the Bank of England, headed by a new deputy governor, and a new Consumer Protection and Markets Authority. All the new bodies will be accountable to Parliament, and their remit will be clear so that never again can someone ask who is in charge and get no answer.
First, we will legislate to create the Financial Policy Committee in the Bank of England. It will have the responsibility to look across the economy at the macro-economic and financial issues that may threaten stability, and it will be given the tools to address the risks it identifies. It will have the power to require the new Prudential Regulation Authority to implement its directions by taking regulatory action with respect to all firms.
The FPC will be accountable to Parliament in two ways: directly, as is the case with the Monetary Policy Committee; and indirectly, through its accountability to the Bank’s court of directors. The Governor will chair the new committee. Its membership will include the deputy governors for monetary policy and financial stability, the new deputy governor for prudential regulation and the chair of the new Consumer Protection and Markets Authority, as well as external representatives and a Treasury representative. An interim FPC will be set up by the autumn, in advance of this legislation.
Secondly, we will create a Prudential Regulation Authority as a subsidiary of the Bank of England. It will conduct prudential regulation of sectors such as deposit-takers, insurers and investment banks. The PRA will be chaired by the Governor of the Bank of England, and the new deputy governor for prudential regulation will be the chief executive. The deputy governor for financial stability will also sit on the PRA board.
Thirdly, a new Consumer Protection and Markets Authority will take on the Financial Services Authority’s responsibility for consumer protection and conduct regulation. The CPMA will regulate the conduct of all firms, both retail and wholesale, including those prudentially regulated by the PRA, and will take a strong proactive role as a consumer champion. It will have a strong mandate for ensuring that financial services and markets are transparent in their operation, so that everyone—from someone buying car insurance to a trader at a large bank—can have confidence in their dealings and know that they will get the protection they need if something goes wrong.
The CPMA will regulate the conduct of every financial services business, whether they trade on the high street or trade in high finance. We need to ensure that this body has a tougher, more proactive approach to regulating conduct, and its primary objective will be promoting confidence in financial services and markets. The CPMA will maintain the FSA’s existing responsibility for the Financial Ombudsman Service and oversee the newly created Consumer Financial Education Body, which will play a key role in improving financial capability. The CPMA will also have responsibility for the Financial Services Compensation Scheme, but given the important role the scheme plays in crises, it will work closely with the FPC and PRA. We will also fulfil the commitment in the coalition agreement to create a single agency to take on the work of tackling serious economic crime, which is currently dispersed across a number of Government Departments and agencies. Before we set up these new bodies in their permanent form, we will conduct a full and comprehensive consultation, and we will publish a detailed policy document for public consultation before the summer recess.
Our goal is radically to improve financial regulation in the UK, strengthening the prudential regime by placing it in the Bank of England and delivering the best possible protection for consumers. During the period of transition to the new regime, the Government will also be guided by the following four principles: minimising uncertainty and transitional costs for firms; maintaining high-quality, focused regulation during the transition; balancing swift implementation with proper scrutiny and consultation; and providing as much clarity and certainty as possible for the FSA, Bank and other staff affected during the transition. In order to do that, we will ensure the passage of the necessary primary legislation within two years.
I am delighted that Hector Sants, the current chief executive officer of the FSA, has agreed to stay on to lead transition and become the chief executive of the PRA. He will be supported in his work by Andrew Bailey from the Bank of England, who will become the deputy in the new PRA. This is a strong team to ensure a smooth transition.
We all know that the financial crisis has cost taxpayers dearly. The regulatory system needs radical reform to make the sector more stable and stronger. The last Government could not do that because they were caught up in a structure designed by the former Chancellor and Prime Minister. The fundamental flaws in that architecture contributed to the failure in the banking sector and ultimately undermined economic stability. The continuing financial and economic uncertainty across the eurozone strengthens the urgency with which we must equip ourselves with better tools and arrangements to tackle any future financial instability.
We have already paid a high price for the previous Government’s failings. We must do all we can to prevent this from happening again, and I commend this statement to the House.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
May I thank the Financial Secretary for advance sight of his statement, and as this is, I think, his first outing in his new role, may I congratulate him and welcome him to his post—and, indeed, wish him well?
While no one can dispute that a failure to regulate effectively was at the heart of the global financial crisis, the key failure by regulators in monitoring agencies and central banks across the globe was in understanding the growing systemic risks in financial services. We also should not overlook the failure in bank boardrooms to understand what was going on. This was not just an issue in the UK. Does the Financial Secretary accept that in some countries the central bank had prime responsibility for regulation, whereas in others, including ours, responsibility has been shared, and in our case between the Bank, the FSA and the Treasury, and that the Bank has always had responsibilities for financial stability?
Specifically, who will appoint the new Financial Policy Committee? Will individual members have their own vote, or will that be merely advisory to the Governor? Will FPC minutes be published, and will the Governor or the chief executive of the PRA ultimately be responsible for the decision on whether to act? Does the Financial Secretary also accept that there will be concern—not least among those who were victims of the Bank of Credit and Commerce International, of which my right hon. Friend the Member for Leicester East (Keith Vaz) has consistently reminded the House—about the record of the Bank of England in financial services supervision, and will he now consider publishing part two of the Bingham Report?
Will the Financial Secretary not acknowledge too that the Financial Services Authority today is a vastly different regulator from the FSA of 2007—as, indeed, the Treasury Committee has acknowledged? Will he acknowledge that a significant level of better trained new staff and the new activism of the FSA in its supervisory role has led to a bolder, more vigorous approach to financial services regulation in recent times?
How, in practice, will the Financial Secretary avoid the very real risk of a loss of energy as regulators now focus on their own future, given that there continues to be considerable uncertainty and instability in global financial markets? Specifically, can he clarify who will be responsible for supervision and regulation before 2012, and will he acknowledge the profound risk, given the proliferation of new bodies he has announced, of ongoing regulatory confusion—of issues falling between the cracks? Indeed, is it not right that there will now be effectively two different regulators for many financial firms?
I was surprised by the absence of any reference to the Banking Commission in the statement. Does the Financial Secretary not accept that proposals to break up banks would not have made any difference to Northern Rock, a retail bank, or Lehman Brothers, an investment bank, and that what is needed is increased capital held by banks and living wills to manage the possibility of future banking problems? Will he explain how the deliberations of this commission on a possible break-up of British banks, such as Barclays or HSBC, can be conducted in a way that reassures the markets and does not exacerbate financial instability?
Does the Financial Secretary recognise that the financial services industry employs over 1 million people and remains crucial to our economic future? Will he ensure that, whatever proposals he accepts—if, indeed, he does accept any from the commission—we do not put ourselves at a commercial disadvantage compared with other countries? Specifically, how will the proposals announced today impact on remuneration, and what ongoing effort is there to secure international agreement on banking levies again, so that Britain is not at a competitive disadvantage?
Is it not the case that while the work of each of the new bodies and the commission will be worthy of serious scrutiny on their own merits, as the shadow Chancellor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), said yesterday, the Government risk creating a system that injects more, not less, uncertainty into the City? While the architecture of the regulatory system is clearly important, is it not the skills and judgment of individual regulators that matter most at the moment? Surely, it is not where they sit; it is what they do.
Mr Hoban
I welcome the hon. Gentleman to his new role and I am grateful to him for his welcome to me. Although I listened very carefully to his remarks, I am not quite sure whether the Opposition accept our proposals or whether they are stuck in the past defending to the last the former Government’s regulatory architecture, which they put in place in 1997. It is time that the Opposition faced up to this problem: do they accept that the system put in place by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was flawed and needs reform, or are they the last people to defend the status quo in this country?
The hon. Gentleman asked a number of detailed questions. Let me address them. He recognised the build-up of systemic risk in the economy over the course of the past 13 years, but he must acknowledge that the reforms introduced by his right hon. Friend in 1997 took away from the Bank of England the power to monitor and respond to those risks.
The hon. Gentleman asked about the appointments to the Financial Policy Committee, and they will be consistent with the approach currently adopted towards the Monetary Policy Committee. He referred to the Bingham report and the collapse of BCCI and, as he will remember from the exchange between the right hon. Member for Edinburgh South West (Mr Darling) and my right hon. Friend the Chancellor yesterday, the Chancellor is going to look into that matter.
The hon. Gentleman is right to say that the FSA has made progress, and that is one reason why we are delighted that Hector Sants has agreed to lead the FSA through the transition period and then to become the chief executive of the PRA. No matter how far the FSA improves in the execution of its role, the reality is that the flawed architecture that the hon. Gentleman’s Government put in place undermines all that it does. This package of reforms ensures that we have the right regulatory architecture in place to identify and tackle the systemic risks to which he referred and ensures proper protection for consumers so that they will never again be let down.
Oral Answers to Questions
Gareth Thomas Excerpts(13 years, 11 months ago)
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Mr Gauke
Obviously, this Government will want to encourage hard work and enterprise, just as the Government in which my hon. Friend served with much distinction in the 1980s did. As for specific tax measures, I am sure that my hon. Friend will understand that with only a fortnight until the Budget, I do not intend to make any specific comments. None the less, I am grateful for his remarks.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
I congratulate the hon. Gentleman on his elevation to his post. I also take the opportunity to thank the Chancellor of the Exchequer for taking time out during the general election to come and support my re-election in Harrow West. The Opposition recognise that the new politics is not designed to help Labour Members, but I am grateful for the little bit of Tory love that came my way.
Can the hon. Gentleman tell the House who in the Government will have the final say on whether and which regional development agencies will survive? Will it be the Business Secretary—once a supporter of RDAs—or will it be the Chancellor? No one expects it to be the Chief Secretary. Is not the real truth that RDAs such as One NorthEast are playing, and could continue to play, a key role in helping to deliver new jobs in new industries crucial to Britain’s economic future, such as renewable energy and advanced engineering?