Oral Answers to Questions

George Kerevan Excerpts

Tuesday 17th January 2017 Commons Chamber

[Mr Speaker]

The hon. Member for East Lothian (George Kerevan) always looks so happy. We will make him happier by calling him.

[George Kerevan (East Lothian) (SNP)]

Thank you, Mr Speaker; it is your presence that makes me happy.

While the Chancellor has been answering questions, the Prime Minister has said in her Lancaster House speech that the UK will most likely continue to pay into EU budgets. Will the Chancellor acquaint the House of that?

[Mr Hammond]

We have always said that if, as part of our future arrangements with our former European Union partners, we continue to collaborate in certain areas, such as scientific and technical research programmes, we will of course have to expect to contribute. All this is for the negotiations ahead. The Prime Minister has today set out a 12-point plan for Britain’s future relationship with the European Union, which is exactly what our partners have been demanding from us. I hope that this will now signal the beginning of serious engagement on Britain’s future relations.

Commercial Financial Dispute Resolution Platform

George Kerevan Excerpts

Thursday 15th December 2016 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

I beg to move,

That this House notes the statement presented to the Treasury Committee on 20 July 2016 by Dr Andrew Bailey of the Financial Conduct Authority (FCA); endorses his statement that the ad hoc creation of a compensation scheme within the FCA was not entirely successful and lacked perceived authority to treat customers with fair outcomes; believes that the recent headlines and allegations in the press against RBS will lead to pressure for a similar scheme; notes that many debates in this House over the years have focused on similar subjects with different lenders; believes that what is needed is not ad hoc compensation schemes, but a long-term, effective and timely dispute resolution mechanism for both regulated and unregulated financial contracts; and calls on the FCA, the Department for Business, Energy and Industrial Strategy and the Ministry of Justice to work with the All-Party Parliamentary Group on Fair Business Banking to create a sustainable platform for commercial financial dispute resolution.

In time-honoured fashion, I thank the Backbench Business Committee for allowing us to bring the motion to the main Chamber. I expect that many hon. Members will wish to raise constituency matters. Many constituents have experienced mis-selling by banks and had loan dealings with them. Today, we are trying to move beyond individual cases, serious as they are, to try to find a broad permanent resolution system.

I would also like to thank the hon. Member for Aberconwy (Guto Bebb) and my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (Calum Kerr), who were my predecessors as chair of the all-party group on fair business banking. The all-party group rose out of the interest rate hedging product mis-selling. We can lay that at the door of many different banks—Clydesdale, Royal Bank of Scotland, HBOS, HSBC and so on—but today I want to direct the Minister to the point that, after eight years of dealing with this problem, we need to look to the future and a more permanent resolution. I suspect many hon. Members will have cases, as I have, where it is not just that an individual’s business has been affected or that money has been lost; the impact on an individual’s mental health is also a very serious issue.

[Norman Lamb (North Norfolk) (LD)]

I thank the hon. Gentleman for raising this incredibly important issue. Does he agree that along with all the people who suffered the horrendous loss of their business and livelihood, we need to think about whistleblowers, the incredibly brave people who risk everything to expose wrongdoing? They need to be properly treated, too.

[George Kerevan]

The right hon. Gentleman makes a fair point. In my experience, it has been those very whistleblowers who have suffered most in terms of mental stress. They started off trying to present justice to the community, the banking world and small businesses, and ended up losing their job, their family and their partnerships. They are still suffering to this day.

The issue is also economic. We have had eight years where, although there has been economic growth, levels of productivity have been poor, if not flatlining. A lot of that is due to the underperformance of the small business sector. It is not just individual businesses that have been affected by mis-selling and the lack of resolution. It has carried on to a lack of investment in new businesses, and it has been an additional factor in important entrepreneurs withdrawing from the business process. Unless we find a permanent resolution, we will not be able to create the economic growth that I know all of us in this House hope to see.

[Patrick Grady (Glasgow North) (SNP)]

My hon. Friend is right that a number of Members have constituency cases. He will be aware of my constituent, Mr Neil Mitchell, whose business was forced into administration by the RBS Global Restructuring Group. He finds himself almost in the role of whistleblower by trying to take private legal action. Does my hon. Friend share my disappointment at the lack of willingness of RBS to engage in dispute resolution, in particular the unwillingness of the chief executive to meet my constituent personally? Does he share my hope that the proposals in the motion, which I was glad to sponsor, can be taken forward?

[George Kerevan]

I take my hon. Friend’s point. There are so many individual cases. They cut across all the nations of the United Kingdom and Members of all parties. My plea to the Minister is that we desperately need to find a permanent resolution.

[Stephen Gethins (North East Fife) (SNP)]

My hon. Friend made a good point about encouraging small businesses. It is important that we get a fair deal for small businesses. He will be aware of the case of my constituent, Mr Jim McGrory, who was looking to refinance at a preferential rate, but was faced with high exit fees and termination clauses that had not been made clear in the terms and conditions. That is crucial for small businesses, and it was crucial for Mr McGrory.

[George Kerevan]

Indeed. That brings us to the nub of the issue: the imbalance in power between an individual small business and a bank.

[Mike Weir (Angus) (SNP)]

I have a constituent in a similar situation to the constituent of my hon. Friend the Member for North East Fife (Stephen Gethins). My hon. Friend the Member for East Lothian (George Kerevan) is right to talk about an imbalance. My constituent’s business was put under by the Royal Bank of Scotland. He found that taking legal action was almost impossible, because RBS, bailed out by the taxpayer, was in a much stronger financial position than he was. My hon. Friend’s suggestion of an alternative mechanism gives at least a real chance for these businesses to take on the massive banks, which the public have bailed out.

[George Kerevan]

Indeed. It is clear in Scotland—it might be true of other parts of the UK—that the major banks have signed up many solicitors, making it almost impossible for someone to find a lawyer to represent them, even if they want to take action against a bank, difficult as that would be, given the financial ability they wield in court.

[Norman Lamb]

Does the hon. Gentleman also agree that the absence of a clear dispute resolution process actually incentivises bad behaviour and sharp practice? If the banks know that there is no proper mechanism to challenge wrongdoing, it encourages that bad behaviour.

[George Kerevan]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I just want to remind hon. Members that opening speeches are usually up to 15 minutes long—there is some flexibility—and to warn them that I will be applying a formal limit of up to eight minutes so that everyone can get a fair shot.

[George Kerevan]

For that reason, having been reasonably accommodating, I will press on to the nub of my argument.

For a permanent resolution of the problem, we need three different mechanisms. First, we need a shift in the legal onus on banks to provide a duty of care or good faith in how they deal with customers, particularly business customers. That is open for broad debate—over the years, the banks have been unwilling to accept a narrow duty of care—but we need to redress the balance between major banks and small business clients by providing a mechanism around the legal onus on banks. I would even accept it, initially, if the banks collectively were prepared to come forward with a solution themselves. Secondly, given that many small companies end up insolvent, we need a more balanced insolvency practice to remove the possibility of banks or lenders being tempted to force small and medium-sized enterprises into unnecessary or premature insolvency. Finally, we need a new permanent and effective redress system for banks and small businesses in dispute. In effect, putting those three together, we need to change bank culture.

In order, I hope, to build some common ground with the Minister, I should acknowledge that the Government have already moved some way in recognising this issue. The Government’s impact assessment on the establishment of a small business commissioner in the Enterprise Act 2016 reads:

“The Government is concerned that for small firms, negotiating a contract with a larger business can be challenging… Government has been told that small businesses often feel intimidated and accept such terms (rather than walking away from a proposed contract or refusing to agree to a change) and there is concern that larger firms”—

for that, read “banks”—

“sometimes use their market power to impose unfavourable terms.”

That, I think, is what lay behind the issue of the hedging products sold to small businesses during the economic boom in 2006 to 2008. The Government have recognised the general problem, therefore; it is just a matter of how we resolve it.

Just to show that there is a broader political agreement on this, from right and left, I want to quote the Minister of State, Department for Environment, Food and Rural Affairs, the hon. Member for Camborne and Redruth (George Eustice), who wrote a piece for the Free Enterprise Group three years ago, entitled “Defending the rights of those who take risks”, in which he wrote:

“Over the years...the banks have contractually extended their rights through their ‘standard terms and conditions’ to give LPA”—

the Law of Property Act 1925—

“receivers general powers of sale, to set aside the limit on the fees that a receiver may charge and to load all associated costs on to the borrower. They have even moved to grant themselves the right to peaceably re-enter properties over which they have a charge without any recourse to the courts. The contractual extension of power taken by the banks goes well beyond what was originally envisaged in the Law of Property Act 1925.”

In other words, the banks have gradually extended their powers of receivership, making it increasingly difficult for small companies in financial difficulties to get redress, and leading to the situation with RBS’s Global Restructuring Group, which has now re-entered the public domain with the initial report from the Financial Conduct Authority.

I expect the Minister to tell us that ultimately, if there is to be a change in the redress process, it has to come from the FCA. To that end, the all-party group on fair business banking has been consulting the FCA, and subsequent to that, I raised the matter with Mr Andrew Bailey, its new chief executive, when he appeared before the Treasury Committee. I asked if he drew any relevant conclusions from the FCA’s experience with the banks in drawing up ad hoc processes of redress for the various mis-selling schemes, and he said that he did. He said that the problem arose where schemes lay “outside the regulatory perimeter”—much of the mis-selling was of unregulated products—but that the FCA had learnt from the experience, having come late to it, that businesses felt they had not had their day in court. He went on:

“Now, they do not want to have a literal day in court because that is obviously very expensive. However, what I conclude from this is that it”—

the ad hoc procedures—

“is not satisfactory from the point of view of the FCA, because the FCA has been involved in creating a lot of bespoke processes. We discussed this on the board a number of times. Were there to be a mechanism that could substitute for these—let us loosely call it a tribunal, for the sake of argument—rather like the ombudsman but for more complex cases, because corporate cases often are more complex, this would be a big step forward. From the point of view of the things that come out, we are creating a lot of work for ourselves. However, I am very sympathetic to the people involved, so we have to do it. However, if there were to be a process that could substitute for this…I think this would be a big step forward.”

We are proposing the idea of a tribunal. At this stage, it is a generic proposal, and there are issues to be discussed. It would, for example, cross the boundaries of the devolved Administrations, so if we went down this road, there might have to be separate institutional tribunal procedures in Scotland. There are also financial issues, but since we are dealing with redress where the FCA has decided that a bank has been involved in mis-selling—in other words, since we are already in the territory where a bank is going to pay—any permanent tribunal system could be funded by the banks. The all-party group is open to a general discussion with the Government about how to proceed, but the general backing from the FCA is there; it is just a matter of the detail.

This is important because the issue has not gone away. The situation with RBS GRG is coming back into the public domain. RBS has put forward a new ad hoc procedure for dealing with complaints from small businesses put into GRG. We have advance notice of a report, not yet finalised by the FCA, in which, having taken technical advice, it has clearly found a conflict of interest in how RBS handled the cases of companies put into GRG: the part of the bank taking over and reselling properties from the insolvent companies was part of GRG. In effect, therefore, the bank was putting companies into insolvency, taking their property and handing it over to another part of the bank, and generating cash that way.

Given that this issue has reappeared and that there is a public debate over the nature of the redress system, we are not looking at legacy items; we are looking at a future situation in which the Royal Bank of Scotland is creating an ad hoc redress system that we need to ensure is a correct one.

I know that other Members want to participate in the debate. The bottom line for the Minister is that there is now an ongoing process of debate and a general consensus, even from the FCA, that we need a more permanent resolution system and that we need to go beyond just looking at insolvency law. The door is open for the Government to join the rest of us on both sides of the House to ensure that that resolution process is provided.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

As I said, we will have a voluntary limit of up to eight minutes. If it is not voluntary, it will have to be imposed.

--- Later in debate ---

[Philip Boswell]

I wholeheartedly agree with that excellent point.

As mentioned in today’s motion, the Financial Conduct Authority has set up several ad hoc schemes to address systemic misconduct by financial institutions. The schemes have been widely criticised, and, as others have mentioned, even Andrew Bailey, the new chief executive of the FCA, has said that they have left those affected by bank misconduct feeling unfairly treated. The recent review of the mis-selling of interest rate hedging products demonstrates the shortfall of the ad-hoc compensation schemes and their inability to reach fair outcomes for customers.

Last year, just before Christmas, I was approached by a constituent who had been mis-sold an interest rate hedging product. In 2001, my constituent and several co-investors used their retirement savings to create a small business that would purchase commercial property in Glasgow. However, they had insufficient capital to purchase their first property outright and therefore sought a loan from a bank. Despite the banks involved with the mis-selling claiming that customers were under no pressure to purchase the product, my constituent informed me that he could not find a single bank that would lend the money without including the interest rate hedging product. My constituent was told that this was to protect the customer in the event of interest rates continuing to rise. Having no other choice, my constituent’s business took out a 25-year loan that included the aforementioned product.

Many in the Chamber will be aware that interest rates fell during the financial crisis. The inclusion of the product in the loan resulted in my constituent’s business—set up on pension scheme earnings—owing £30,000 per quarter in interest alone during the biggest financial crisis in modern history. When it became apparent to my constituent that his business had been mis-sold the product, he began the complaints process in the hope of receiving some sort of compensation. However, the bank with which he took out the loan continually refused to provide him with the relevant paperwork for the loan, making it difficult for my constituent to continue the process.

[George Kerevan]

Does my hon. Friend agree that a fundamental problem with the current ad hoc redress system is that it does not allow the complainant access to the information they need? A tribunal system would put the complainant and the bank on an equal footing and allow that information to be made available.

[Philip Boswell]

I entirely agree. Such a practice is entirely undesirable and not befitting of any bank, particularly one in public ownership, as has been mentioned before.

The delay and avoidance tactics used by the bank, combined with the FCA’s own recommendation that claimants should not take legal action, meant that my constituent's case surpassed the six-year time limit on taking court action. His business did not receive any compensation from the bank as a result of the ad hoc scheme overseen by the FCA. Unfortunately, my constituent’s experience is far from rare, as many Members have shown. The compensation scheme for the mis-selling of interest rate hedging products was bank-centric and lacked sufficient FCA oversight. The review was set up in conjunction with the banks and allowed them to make redress offers that did not reflect an objectively fair outcome. The case of my constituent and the experiences of others who have been treated unfairly by banks clearly demonstrate the wide scope of financial disputes, particularly those between small businesses and financial institutions.

After hearing about the experiences of constituents from across the UK shared by Members today, it is apparent the ad hoc schemes set up by the FCA have lacked sufficient clarity and that the creation of a commercial financial dispute resolution platform is necessary. I am happy to support the motion presented by my hon. Friend, and I welcome the support that has been expressed in the House today.

--- Later in debate ---

[Norman Lamb (North Norfolk) (LD)]

I am very pleased to support this motion, and I congratulate the hon. Member for East Lothian (George Kerevan) on bringing this vital issue to the attention of Parliament.

There is a very clear gap in the framework of protection which needs to be addressed. This amounts to a significant injustice for very many people, and it would be intolerable if that injustice was allowed to go unchallenged. There is a need, clearly, for an effective and timely dispute resolution mechanism. As the hon. Gentleman said, central to any process of delivering justice must be full disclosure. Unless a person has access to all the information, they cannot properly bring their case and achieve justice. It must be a mechanism that is there for both regulated and unregulated financial contracts. The abuse of a proper process incentivises bad behaviour. If the banks know that there is no proper mechanism in place to achieve justice, they are encouraged to behave badly and to engage in sharp practice.

At the heart of current concerns is the Global Restructuring Group, which was set up by RBS. The stated intention was to put companies into intensive care to turn them around and to restructure their debts if necessary, but many small firms accuse the bank of deliberately forcing companies into distress, as the right hon. Member for Delyn (Mr Hanson) said, so that RBS can strip their assets and profit from their failure. That allegation in itself is akin to theft. On top of that, there is the serious allegation that there was a misuse of public money through the Government’s enterprise finance guarantee scheme. Lawrence Tomlinson, the former adviser to the Department for Business, Innovation and Skills, said:

“My fundamental concern is around what businesses were told before being brought into GRG and whether this reflected the true purpose of the division. Many businesses believed that they were in GRG to be helped, when it fact it appears to have been an exercise in restructuring the bank’s balance street, often in conflict with the best interests of that business.”

That is really serious. When he was in front of the Treasury Committee, he referred to

“unnecessarily engineering businesses into default in order to move the business from local relationship management to turnaround divisions such as GRG.”

He alleged that the purpose was to generate revenue through

“fees, increased margins and devalued assets.”

That is scandalous. They are incredibly serious allegations that must be properly addressed by the Financial Conduct Authority. It seems blindingly obvious that there must be an effective process for delivering justice.

I want to touch on the human cost. We have heard about owners of small businesses who have lost everything that they have worked for. They are in exactly the same position as any private consumer who has recourse to justice, but these people do not achieve justice. Just imagine what it is like for someone who has lost everything due to the sharp practice of a bank, but who cannot achieve any justice. It destroys people. It is impossible for them to move on. It is incumbent on this House and this Government to ensure that the matter is properly addressed.

I also wish to address the wellbeing of whistleblowers. I have a constituent, who wishes to remain nameless, who was a highly successful former employee of RBS and who raised concerns repeatedly over a sustained period about improper practice within RBS. It destroyed his health. He ended up leaving on agreed terms simply to end the nightmare that he was going through, but his concerns were not diminished in any way. The whole saga has destroyed this man’s life. He cannot move on, and he has been met by a brick wall. I have written on his behalf to RBS and, on five occasions, I have asked for meetings. I have written to Stephen Hester, Ross McEwan, Baroness Noakes and Sir Howard Davies, and on every occasion my reasonable requests for meetings have been turned down. They hide behind the compromise agreement reached with this man to say that they are not prepared to engage with him at all any further. It seems to be an arrogant and cavalier way to treat a former, highly successful employee. They have a total disregard for the impact on this man’s health.

My constituent’s conclusion is that it is not safe to blow the whistle. We should be celebrating whistleblowers; they risk everything to expose wrongdoing. They expose awful things that happen in our major financial institutions and they should be protected. I am horrified by the shameful treatment of this man.

[George Kerevan]

It may help the right hon. Gentleman if I tell him this: RBS has told me that the adjudicator in its new redress system, Sir William Blackburne, will have “unfettered access” to all the bank records in the cases that are brought up. The right hon. Gentleman might want to use that in his future dealings with the bank.

[Norman Lamb]

I am grateful to the hon. Gentleman for that suggestion. The FCA needs to take decisive action to provide justice to business owners who lost everything, establish an ongoing mechanism that is available for future cases of misconduct, and provide protection for whistleblowers destroyed by arrogant, dismissive behaviour by a bank owned by the taxpayer—that is the scandal. The need for justice is overwhelming and it is incumbent on the Government to respond properly to this call.

--- Later in debate ---

[George Kerevan]

I thank all Members who took part in the debate. It has been very good and I think that we have progressed matters. I will take the Minister’s reply as saying that the door is still open. We will certainly want to come through it.

I particularly thank Heather Buchanan and Fiona Sherriff, who are the brains and hard work behind the all-party group, and deserve to have their names on the record.

The next stage is to have an inquiry, which will be conducted jointly by the APPGs on fair business banking and on alternative dispute resolution, in conjunction with the Chartered Institute of Arbitrators and with the support of the Federation of Small Businesses. I hope that the Minister, if he nods his head violently enough, will give evidence at that inquiry.

[Simon Kirby]

I would be delighted.

[George Kerevan]

Thank you.

Question put and agreed to.

Resolved,

That this House notes the statement presented to the Treasury Committee on 20 July 2016 by Dr Andrew Bailey of the Financial Conduct Authority (FCA); endorses his statement that the ad hoc creation of a compensation scheme within the FCA was not entirely successful and lacked perceived authority to treat customers with fair outcomes; believes that the recent headlines and allegations in the press against RBS will lead to pressure for a similar scheme; notes that many debates in this House over the years have focused on similar subjects with different lenders; believes that what is needed is not ad hoc compensation schemes, but a long-term, effective and timely dispute resolution mechanism for both regulated and unregulated financial contracts; and calls on the FCA, the Department for Business, Energy and Industrial Strategy and the Ministry of Justice to work with the All-Party Parliamentary Group on Fair Business Banking to create a sustainable platform for commercial financial dispute resolution.

UK Sovereign Wealth Fund

George Kerevan Excerpts

Wednesday 14th December 2016 Westminster Hall

[John Penrose (Weston-super-Mare) (Con)]

I beg to move,

That this House has considered the UK Sovereign Wealth Fund.

It is good to have you looking after us this morning, Mr Owen. The title and subject of this debate come from a proposal I published recently, with help from the good people at the Social Market Foundation, called “The Great Rebalancing: A sovereign wealth fund to make the UK’s economy the strongest in the G20”. It is available in all good book stores; failing that, the Library refers to it in a good deal of detail in its excellent debate briefing note. For anyone who is sufficiently riveted to want more details, it is available on my website with a slightly pithier summary alongside it, written for The Times’s “Red Box” column.

The reason for writing the proposal was simple. This is a crucial moment for Britain. Brexit creates an inflection point—an opportunity to ask ourselves fundamental questions for the first time in many years about what kind of country we want to be once we leave the European Union. How can we best use the spur of our newly won freedoms to change the way our country works? What do we want our economy, our society, our cities and our countryside to look like? “The Great Rebalancing” is an attempt to answer at least some of those questions.

For years, economists of all kinds, of left and right, have said rightly that Britain is worse at long-term planning than other countries. We save less, invest less and build less economically vital growth-promoting infrastructure, such as roads, railways and ports, than they do. Other oil-rich countries such as Norway have built up large sovereign wealth funds, but we have not. We have a rock ’n’ roll economy that lives for today and depends too much on consumer demand, unlike more sobersided countries such as Germany, which are much better at investing for tomorrow.

The result is that we lag behind the United States, Germany, France and even Italy in productivity. It takes a German worker four days to produce what we Brits make in five, so we work longer hours for lower pay than other countries, and we will not be able to raise our living standards sustainably or to build an economy that works for everyone unless we fix that fundamental underlying issue.

Even worse, we have huge national debt, partly as a hangover from the 2008 financial crisis, but mainly because the promises we have made in our pay-as-you-go pensions and benefits system create long-term liabilities that are, financially, effectively the same as debt. That is not fair to our children and grandchildren, who will have to repay the money we have borrowed. We are handing them the bills for our lifestyle, rather than paying for it ourselves. These are long-term structural problems that are deeply ingrained in our economy and in our politics. They have taken decades to build up, and they will take just as long to solve.

Part of the answer is to invest more in crucial economic infrastructure such as roads, bridges, railways and ports, and to keep doing it consistently and predictably. To my mind, the most important and least noticed bit of the Chancellor’s autumn statement was not the £23 billion investment pledge for innovation and infrastructure, although that was certainly welcome and valuable. It was the instruction to the National Infrastructure Commission to plan for a future where, every year, we spend between 1% and 1.2% of GDP on this stuff, rather than 0.8%, as we do today. That is not a one-off; it is a permanent change that he proposes. It stops the infrastructure boom and bust that we have suffered for decades, in which Governments postpone critical growth-promoting projects whenever money gets tight. Making our investments boringly predictable really matters, because stop-start spending does not only delay growth; if there is not a smooth pipeline of projects, taxpayers get less value for money, and we cannot build as much with the money we have.

But what about that huge national debt? How do we make things fair for our children and grandchildren? First, we have to stop adding to the debt, which means stopping borrowing. The autumn statement said the deficit will be down to 2% by 2020, cyclically adjusted across the business cycle, which is a vital step in the right direction. My proposal goes one step further and asks for an annual public declaration by the independent Office for Budget Responsibility to ensure the Government’s budget stays balanced across the economic cycle in future. That is a small but crucial piece of fiscal rule making.

We gave the OBR responsibility for the financial forecasts to stop Chancellors using fairytale projections to cover up problems when they were under pressure. Once we have finally balanced the budget, sometime during the next Parliament, we should extend that same mechanism a little further, to shine a harsh and unforgiving spotlight on any future Chancellor who is not prepared to live within the country’s means. We have not, after all, endured years of austerity and belt-tightening just to have a future financially irresponsible Chancellor toss it all away.

[George Kerevan (East Lothian) (SNP)]

Does the hon. Gentleman envisage a permanent budget surplus?

[John Penrose]

At this point in my remarks, I envisage a consistently balanced budget across the economic cycle. That would be a major step forward and, given this country’s history since the second world war, it would produce a welcome degree of certainty for businesses, Government and everyone else. I will come on to how we might then build up the sovereign wealth fund; the hon. Gentleman might like to come back at me at that point if he thinks I have not covered the issue properly.

Once we have stopped borrowing, we can start saving, which is the point the hon. Gentleman just made. That is where the sovereign wealth fund comes in. Most of that huge national debt comes from our pay-as-you-go state pension and benefits scheme, so paying off Government bonds—gilts—will not be enough on its own. Even worse, we cannot just grow our way out of trouble, because the pension and benefits scheme’s liabilities will just grow with us. Instead, we need a sovereign wealth fund to pay for what we owe in our pensions and benefits system.

--- Later in debate ---

[John Penrose]

That is a crucial point. As I said, we need to start building the fund soon. It is an urgent priority that we should begin it when the budget hits balance, but once we have begun, we need to save a little for a very long time, and that needs to last over several generations, so that the burden of setting the thing up does not fall unfairly on the current generation of taxpayers. The hon. Gentleman is exactly right: for it to be stable over such a long time, it needs to be politically stable. That means two things. First, I hope that it has cross-party consensus behind it, so that it will have some degree of political longevity; secondly, it will need institutional bulwarks to prevent Chancellors of whichever party, when they are under pressure—facing a general election or a cyclical recession—from interfering, meddling or trying to get their sticky fingers on the money. The hon. Gentleman is absolutely right: the fund will need very strong institutional safeguards around it. Those are laid out in some detail in my paper. I did not plan to go into huge detail about that here. I am happy to, if anyone wants me to, but I thought that I would spare everyone the detail at this stage, simply because of pressure of time and because other hon. Members want to add their thoughts.

If we could do what I propose, we would be a fairer, more generationally just country, because we would not be saddling our children and grandchildren with the bills for our lifestyle. We would be more socially just, because low and high taxpayers would all own the same personal stake in the fund that underpins their state pension and benefit payments.

I hope that all of us in the debate, including my hon. Friend the Minister, will deal with three issues. First, can we all agree that rebalancing our economy is necessary and important? A number of Members have suggested in interventions that there may be consensus on that, but it would be good to get that on the record from hon. Members on both sides of the House if we can. Secondly, can we all acknowledge that once we have the budget in balance, reducing the bits of our national debt that we happen to have issued as Government bonds will not be enough to achieve rebalancing on its own? Thirdly, can we all accept that a sovereign wealth fund to underpin the state pension and benefit system is at least one valid way of solving the deeply ingrained imbalances and problems in our nation’s economy and finances, even if there may be other ways as well?

Think of it: if we can agree on some or all of those issues, cross-party, we could launch a new Britain—a socially just, generationally just, asset-owning democracy on a scale that no other developed nation could match. The post-war Governments created new institutions such as the NHS and the welfare state, which had little relevance to rebuilding homes and cities damaged in the war, but everything to do with forging a new society and nation. The post-Brexit Government is our generation’s chance to do the same—to leave a mark, to mould and weld our fractured society into a new and better shape. This will be a brief political moment in which, if we grasp it without fear, whether we are from the political left or right, we can create a legacy for our children and grandchildren to remember us by with pride, so let us think big and long term, and let us do this together.

[George Kerevan]

There might be broad agreement on what we are discussing, but the hon. Gentleman has premised much of his case on a surplus being run. As I understand it, the three fiscal rules that the new Chancellor has introduced have moved away from the previous budget surplus rule, and nothing in the current fiscal rules says that we will run a permanent surplus.

[John Penrose]

What I propose would take effect once we had got the budget in balance. The Chancellor’s new set of fiscal rules is designed to take us through the next few years before we get the budget in balance, but once we do get it in balance, any Chancellor—as we are talking about the period after the next general election, I hope that it will be the current Chancellor, but I will not prejudge the results of that election—will need to rethink and reset fiscal rules. What I argue, as the hon. Gentleman will have heard, is that there should be a national debt charge, initially just to carve out what we are already committed to paying in terms of interest on the debt, but as the economy grows, that would slowly start to yield a very small surplus, which could be used to pay into the sovereign wealth fund. That is a very long-term process, but we need to start it soon.

--- Later in debate ---

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I apologise to the Front Benchers: because of other commitments, I will have to read their responses to my contribution and others in Hansard.

I want simply to re-emphasise the proposal that the Co-operative party floated some three years ago: that the Crown Estate, which holds some £8.6 billion of land and property, should have changes made to its regulations to allow it to invest overseas and so essentially become the beginning of a sovereign wealth fund. It is appropriate to have a degree of realism about the size of other sovereign wealth funds and, therefore, about the task for a future Government who want to set one up. As others have suggested, one has to start somewhere if one thinks a sovereign wealth fund is a good idea.

For all intents and purposes, the Crown Estate acts like a sovereign wealth fund by investing in property—usually retail centres—and paying the surplus it generates back to the Treasury to help offset the costs of our royal family. We should encourage the Crown Estate to be a little more ambitious by lifting the restriction that says it can invest only in UK assets and by allowing it to invest in assets overseas, as other sovereign wealth funds do. The Crown Estate clearly has a track record of expertise in the retail sector, and one might therefore expect it to continue with that approach. I see no reason for the Crown Estate not being allowed to contemplate, under the Treasury’s watchful eye, investment in similar ventures overseas. The Crown Estate could then hopefully generate sufficient surplus not only to pay for the royal family, but to invest in the types of infrastructure projects that all Members want to see.

The Crown Estate has a comparatively smaller asset base than the funds held by Norway and a number of middle eastern countries. Nevertheless, I see no reason for not advocating a more ambitious strategy, with the hope and aspiration that the Crown Estate might begin to become a sovereign wealth fund. I have had no clear explanation from the Treasury of why it opposes changing the law to lift the restrictions that limit the Crown Estate’s investments to the UK market. I hope that the Minister—if not in this debate, then perhaps by way of letter—will think about that, because if the restriction were lifted, the Crown Estate would begin to act like a sovereign wealth fund.

[George Kerevan]

Does the hon. Gentleman accept that some of the Treasury’s reservations might be overcome if we followed the Norwegian example and had limits for classes of investment that a sovereign wealth fund could make? If we went down the route of investing in foreign equities or bonds, only a proportion of that investment would then qualify for the overall fund.

[Mr Thomas]

That is a helpful suggestion. If the Treasury could be persuaded to allow the Crown Estate to dip its toe in overseas markets, it might initially restrict how and where, and in what type of assets, the Crown Estate invests. The hon. Gentleman, cautious Scot as he clearly is, might wish to encourage the Treasury both to be open-minded about investment overseas and to carefully restrict such investment. I do not oppose such a restriction if it allows the Crown Estate to be a little more imaginative.

With that pithy contribution, I encourage the Minister and my Front-Bench colleague to embrace the Co-op idea with enthusiasm and consider how we might begin a UK sovereign wealth fund.

[George Kerevan (East Lothian) (SNP)]

I begin in time-honoured fashion by thanking the hon. Member for Weston-super-Mare (John Penrose) for securing this debate. I say that genuinely because we do not get enough chance to think long term or to debate issues in detail, and this is a practical issue on which to do so.

This has been a limited debate, and I begin my summing up by agreeing with many of the hon. Gentleman’s reasons for having some kind of sovereign wealth fund. In the current context, the most important reason is that a sovereign wealth fund would provide inter-generational justice. There have been discussions about a UK sovereign wealth fund since the 1970s; the issue has come and gone. There have been many arguments for a sovereign wealth fund and, in the ’70s, the North sea oil money had arrived and we needed to do something sensible with it.

Such reasons are episodic. On both sides of the House, we have all come to understand that inter-generational fairness is an issue. Successive generations have repeatedly used up available funds, often making a mess of the economic situation, and left it to future generations to pick up the pieces, as the Women Against State Pension Inequality Campaign is at the moment.

In the absence of any inter-generational mechanism for creating such fairness, we have to consider some kind of sovereign wealth fund. The Government are on record as seeking some form of inter-generational justice, and this is the only mechanism currently under discussion that has any chance of success. Without prejudging how we do it, a sovereign wealth fund is worthy of discussion because it exactly fits the kind of programme that the Government have suggested.

The hon. Gentleman did not examine in any great detail the other argument for some kind of sovereign wealth fund. During a periodic economic crisis, a sovereign wealth fund, provided we do not touch the capital, would give us an emergency revenue stream that can be put to use without unbalancing the broader fiscal mix. Since 2008, at the same time as building up the equity base of their sovereign wealth fund, the Norwegians have been able to tap some of the income stream temporarily, to offset lower tax revenues as a result of the global economic crisis. Again, that would seem to recommend itself to the Treasury.

[Ian Blackford]

I applaud what Norway has done, but one of the weaknesses of the Norwegian model is that it invests primarily in equities and bonds. If we get this right, there is an opportunity to invest in infrastructure. My hon. Friend is right that we should draw down only on the income streams, but there is a real opportunity to invest in infrastructure to build capacity and growth opportunities, as well as investing in financial assets.

--- Later in debate ---

[George Kerevan]

I could not agree more. I will come on to that, but the Norwegian example is slightly skewed by the fact that Norway is a relatively small country and, when its sovereign wealth fund was being built up, it had an excess of inward investment in the oil industry. Norway therefore did not need to tap the wealth fund for domestic infrastructure expenditure. Norway has also been canny in making significant investment in infrastructure anyway. There is a glaring gap in the UK’s infrastructure investment, and infrastructure would be one of the primary places to secure a positive income stream; it is therefore somewhere we would want to invest.

Just to finish on the Norwegian example, there is never a good time to start a sovereign wealth fund. It is interesting that the Norwegians did not start their wealth fund until the early 1990s, just as oil prices collapsed. They set up a spanking new sovereign wealth fund, and they chose to persevere after oil prices nosedived. Oil revenues built up again during the 1990s and the wealth fund powered away. On whether we should wait and whether there is a right time to start, there is never a right time. The Norwegians started their sovereign wealth fund at the worst possible time for the income streams that they were tapping, namely oil revenues, but they persevered. It is about perseverance and long-term thinking. The hon. Member for Weston-super-Mare made the key point that this works only if we think long term.

We must look at some of the counter-arguments, because as enthusiasts we tend to let our ideas run away with us. The fundamental argument that is always made, especially from the Conservative Benches, is “Why should the Government—or some Government agency, even at arm’s length—keep the revenues and invest them? Surely we should cut taxes and let people spend the money themselves, because they are better judges of how to invest for the long term.” It is a compelling argument, but the trouble is that historical experience does not bear it out: look what happened to North sea oil revenues back in the 1970s.

It has not yet been mentioned today that a prototype sovereign wealth fund, in the shape of the National Enterprise Board, was set up in 1975 by the then Labour Government to invest in domestic infrastructure. As I remember, it had £1 billion a year from North sea oil. It began by building up a portfolio of British industrial companies. There was a Scottish equivalent, the Scottish Development Agency. That was all abolished in 1979 when the Conservative Government came in under Margaret Thatcher. The argument was, “Individuals and private companies are better able to spend the money, so why not cut taxes?”

The 1980s were the decade of maximum inflow of funds from North sea oil. What happened to investment in that decade? Industrial investment fell—indeed, by the end of the 1980s, the UK turned out to be one of the lowest spenders on private industrial investment in the OECD. So it did not go into private sector investment; what about public sector investment? We started the 1980s with something like 2% of GDP being spent in net public investment in infrastructure, which is quite good by today’s standards. By the end of the decade, that had been reduced to something like 0.2% of GDP. There was a catastrophic fall in investment throughout the 1980s. Whatever the huge influx was of funds from North sea oil, it was not passed on in investments.

What about tax cuts? I always like to remind Conservative Members that during the 1980s the share of taxation in GDP did not fall. Yes, Mrs Thatcher cut income tax quite considerably, but she counterbalanced that by increasing VAT. The overall tax burden did not fall, so we have to ask where the North sea oil money—the excess revenue for the Treasury of more than £100 billion in that decade, in contemporary terms––went.

In the first half of the 1980s, there was a very serious recession, from which the economy took 18 quarters to recover and which reduced the Treasury’s overall tax income. Essentially, the Treasury made up the loss from that early-1980s Thatcherite recession by using the North sea oil money. In the end, in the 1980s—the peak years of income from North sea oil—the money was wasted. It did not go into private or public infrastructure investment and it was not used by private individuals to expand their savings; it simply went down the drain.

[John Penrose]

Does the hon. Gentleman agree that there is not necessarily a choice between tax cuts and a sovereign wealth fund? Potentially, depending on pacing, we could do both. In some cases, it might make sense to do both, if only because—as the Government have already said in answer to parliamentary questions—we will need to do something to reduce the country’s overall debt burden. All I am arguing is that we should not ignore the liabilities built up in our state pensions and benefit system as part of that burden. We need to address that and we may also want to make tax cuts, but for different reasons, to do with demand stimulation and so on.

[George Kerevan]

In a spirit of compromise and reaching a consensus that might have an impact on the Treasury, I happily take the hon. Gentleman’s point.

All I am trying to say is that the crude default assumption that taking the money and giving it to individuals or companies will resolve the infrastructure investment problem has historically not proven correct. We come back to the need for some kind of overall public agency that saves and invests. The crude Thatcherite argument, if Members will forgive me for putting it that way, that says “Leave it to the public” is wrong. Short-term pressures on the public and on companies are just as great as those on Governments and Ministers. Somebody somewhere has to create an agency that thinks long term. That is what we are talking about.

[Mr Gareth Thomas]

The hon. Gentleman’s colleague was a bit sniffy about the idea of turning the Crown Estate into such an agency. Could the hon. Gentleman be persuaded to be more positive about the idea?

[George Kerevan]

I am not sure that I recognise that characterisation of my good friend, my hon. Friend the Member for Ross, Skye and Lochaber (Ian Blackford). In case it has never been said on the record before, I will say that he was once my student when I lectured in economics—he is younger than he looks—so everything he knows about economics probably came from me. Anyway, I will come on to the Crown Estate in a minute.

What should we spend the money on? I agree with the hon. Member for Harrow West (Mr Thomas) that the Norwegian example of simply investing in foreign equity is too narrow. Given the primary crisis here in the UK, we should impose an injunction on whatever form of wealth fund we create to invest primarily—not totally, because for safety and balance it should have a remit to spread its portfolio—in infrastructure. The OECD reckons that a baseline of something like 3.5% of GDP should be reinvested in public infrastructure every year to maintain and develop reasonable levels of productivity. In the UK, that investment has fallen to less than 2%. I fully recognise that significant funds for infrastructure investment over the forecast period were announced in the autumn statement, but even so the figure will rise only to about 2.3%, and we need to get up to at least 3.5%, so there is an infrastructure investment gap. The flow of funds could come from a sovereign wealth fund, because above all a sovereign wealth fund can think long term, whereas the City and the financial institutions are being forced to think more and more short term. Again, one of the crucial things we get from a sovereign wealth fund is the ability to think long term rather than just talk about thinking long term.

How would we fund it? I share some of the disquiet about simply linking it to running a budget surplus. Running a budget surplus is extraordinarily difficult; it has rarely been possible to run one over any length of time, in this country or in others. Gordon Brown ran one for a few years at the beginning of the millennium, but it was largely done through artifice because he sold off the gold reserves at rather a bad time. Roy Jenkins, who some Members may be old enough to remember, ran a budget surplus at the end of the 1960s, but only with a hugely draconian austerity programme that actually undercut investment in the long run.

From looking closely at the autumn statement, I do not believe that there is much chance of our running a budget surplus at the end of the forecast period. I certainly agree that we should seek to have a balanced current budget over the medium term, but artificial controls on investment and on borrowing for investment are the wrong way to go. There is no reason not to have quite a healthy borrowing for investment, provided that it is roughly in line with trend growth, because it will make a return. Simply linking the sovereign wealth fund to running a budget surplus is offering a hostage to fortune.

We should therefore look at other sources of funding. The Crown Estate is one—clearly we have assets there that could be deployed. I also remind hon. Members of something that has not yet been mentioned: in the last decade, most of the sovereign wealth funds that have been created, particularly in China, have come from recycling the foreign investment earnings from a trade surplus. It is a bit difficult for the UK, given that we have a trade deficit. Fortunately, in Scotland, where we still have a trade surplus, that surplus would underline the re-creation of our sovereign wealth fund.

Clearly, this is an idea whose time has come and about which there is broad consensus across the parties. It is also an idea that the Treasury has always been reluctant to think about, but that stems from the short-termism of the Treasury. The new Chancellor has suggested that he wants to think longer term. A sovereign wealth fund would be his chance to prove that that is what he is going to do.

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[George Kerevan]

About half of the extra £23 billion that the autumn statement has put into infrastructure investment is going into housing. How does that raise productivity?

[Simon Kirby]

Housing does raise productivity. It is a much-needed part of our economy. People need affordable homes to rent or buy. The building process, as I am sure the hon. Gentleman is aware, creates jobs and increases prosperity and productivity.

The hon. Member for Strangford mentioned a shale fund—a suggestion that others have made, too. The UK does not currently meet the criteria of a country that would benefit from a shale wealth fund: we have a high debt and a large deficit, and we do not have extensive commodity or natural resource exports. The development of the shale industry would leave a positive legacy for local communities and regions where it is based. The Government’s policy is for those communities to be able to choose to invest the funds for the long term. I thank the hon. Gentleman, as ever, for making a very thoughtful contribution that added greatly to the debate. [Official Report, 19 December 2016, Vol. 618, c. 9-10MC.]

The hon. Member for Harrow West apologised for not being able to be present during my speech, and I appreciate that. He asked about lifting investment restrictions on the Crown Estate. That is an interesting idea; I will do as he asked and write back to him on that matter.

I thank the hon. Member for East Lothian (George Kerevan), as ever, for his thoughtful contribution. He mentioned inter-generational fairness. I agree that that is an important issue, but at 90% of GDP next year, our debt is just too high. That represents a burden on future generations, and it is important that we retain our focus on our priority of returning the public finances to balance and getting the debt falling. Therefore, it is not possible, and it would not currently be appropriate, for the UK to set up a sovereign wealth fund. He also mentioned taxation levels; I feel duty-bound to remind him that from tomorrow, for the first time, his party—the SNP—will be able to put up taxes in Scotland. The Scottish Government can put their money where their mouth is, if they choose to do so.

Draft Bank Levy (Double Taxation Relief) (SIngle Resolution Fund Levy) Regulations 2016

George Kerevan Excerpts

Thursday 8th December 2016 General Committees

[George Kerevan (East Lothian) (SNP)]

I will not ask for much more, as the hon. Member for Bootle has asked some of the important questions. I have a general point for the Minister that flows from some of them. These regulatory changes have been framed in a period that is about to become redundant. Post-Brexit, we are likely not to be in the single market, and banks will therefore create a whole range of new vehicles and entities with which to conduct business, both from Europe to here and from here to Europe. I press on the Minister the need to keep the regulations under review in the next few years to make sure that there are no loopholes that may be taken advantage of—benignly or otherwise—by the industry, leading to a loss of revenues to the Exchequer. That is important—this is not cut and dried.

Given that the single resolution mechanism will continue in some form or other and that we will have a relationship with it, much in the regulations is premised on use of the existing bank levy. With the bank levy being phased out in favour of the surcharge, will the Minister comment on how that shift in our taxation will affect the regulations?

Thirdly, it is important to underline, without straying too far from the business in hand, that the single resolution mechanism is not, from my point of view or that of many others who have looked at it, fit for purpose. In addition to the setting aside of money for resolution, the main resolution mechanism is bailing in by banks that are in financial trouble. There are clear signs that the bailing-in mechanism by which existing debtors have their debts turned into the bank’s shares, and thus have to take some hit in what is owed, is leading to people not lending to banks, and is having a negative impact on the nature of bank capital.

I think we might find that the single resolution mechanism is not fit for purpose if a multitude of banks go into some financial crisis simultaneously. Underlying that is a mechanism that we have created that might not actually work when push comes to shove.

Multiannual Financial Framework

George Kerevan Excerpts

Wednesday 7th December 2016 General Committees

[Mr Gauke]

On the mid-term review, as I have explained, the current proposal ensures that the payment ceilings that we signed up to over this seven-year deal are preserved. Therefore, we would not be looking to oppose the proposed mid-term review. The proposals are essentially neutral, with respect to what we would expect to pay over the MFF period, but we recognise that some commitments and functioning are likely to outlast our membership. On that basis, we took the view that the most appropriate approach for us to take is to abstain. We think that is the most constructive approach in the circumstances.

The hon. Lady asked what our approach to the future MFF will be. She may be familiar with the answer. This will play into our negotiations for Brexit. In those circumstances, the point at which the negotiations will start for the next MFF will be in 2018. We can assume that we will be in the middle of Brexit negotiations at that point, and our role in the next MFF will also be discussed in those negotiations; I think that the two are linked.

On the hon. Lady’s point about why the mid-term review was expedited, the presidency was keen to make progress and show that the budget proposals could be delivered quickly. That is something we welcome. Sometimes these matters can drag on for some time, but where it is possible to make quicker progress, we should do so. I hope that that is helpful.

[George Kerevan (East Lothian) (SNP)]

I am pleased to serve under your direction, Mr Hanson. The hon. Member for Salford and Eccles (Rebecca Long Bailey) has covered a lot of ground that I would have reservations on, but I agree with the specific issues relating to the 2017 budget.

First, can the Minister confirm that the UK abstained on the reconciliation discussions between the Council and Parliament, and can he justify that? It seems that has a direct relationship to spending next year. Secondly, in the reallocation of funds that led to the increase in spending for next year on immigration and immigration security, how did that impact on previous plans to spend on development and development aid within the budget? Thirdly, given the significant funds that are allocated and the increase in funds that will be allocated for pensions and remunerations to former commissioners, is the Minister satisfied with the rules of conduct governing former commissioners in taking paid remuneration after they leave the Commission?

[Mr Gauke]

First, on why we abstained on the annual budget, it is fair to say that the budget deal has a healthy payments margin of €9.8 billion—over €7 billion more than last year—and we welcomed that. We still believe that the EU could go further to cut lower priority spending from the budget. However, progress has been made, and the UK recognises that by not voting against the budget. We very often voted against the budget in the past because we felt that not enough had been done to deal with wasteful spending and that better value for money could be obtained for the European taxpayer. However, given that the payment margins were healthy this year, we decided not to vote against. More could have been done, but, in the circumstances, we decided to abstain.

On the reallocation of immigration expenditure, I can reassure the hon. Gentleman that the spending on aid was not impacted by increases in internal security. In fact, both have been enhanced.

Pensions remuneration is not a matter for budget discussions; it is a matter for the rules that the Commission applies to itself, so there were no particular discussions on that point. The UK and other member states have pointed out that the European Commission’s administration costs are higher than we would like. Indeed, there has been an increase in recent years, particularly in administration costs, although that has largely been put down to increased security costs, given recent events. The specific point that the hon. Gentleman raised was not part of our discussions.

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[George Kerevan]

I will be reasonably brief. I want to put on the record my growing concern about the abstentionism that the Government are pursuing at an EU level when it comes to making decisions. I understand the logic that if we are proposing to leave an institution, it is slightly invidious to remain part of the decision-making process. On the other hand, it is highly unclear at what point we will exit the European Union, if indeed we do exit. It is more than likely that there will be significant legacy payments and that they will be influenced heavily over the next two of three years, particularly if the global economic situation worsens. If there is a rise in interest rates, that will trigger all sorts of shifts in budget allocations. It just seems premature, even from the Government’s point of view, to abstain on a lot of the budgetary negotiations.

I feel slightly conflicted in saying that, because the UK Government’s abstention from the reconciliation process between the Council and the European Parliament over the last few weeks has actually led to the Parliament being able to increase commitments quite significantly and in a positive direction, particularly when it comes to investment in growth and jobs. Given that the EU budget is 2% of European GDP, it is a significant lever when it comes to improving economic growth, and I think the 2017 budget will actually be quite beneficial in improving the economic picture in the EU. As the Government and the Brexiteers always remind us, the EU remains our most significant market. We therefore have a role to play in boosting economic growth across the entire Union. Again, I ask the Government to think carefully about which budget discussions it decides to abstain from, because abstention from such discussions does not mean that the UK will not at some point have to pick up the tab.

I remain slightly worried about some aspects of the 2017 budget, as I intimated in my question. It seems to me—I say this as a convinced European—that there is a sad track record of well-paid senior Commissioners leaving the institution and quickly taking up jobs in the banking sector, pocketing large pensions to boot. Questions need to be asked about some of the budget lines. The Minister is perfectly correct to point out that we should scrutinise the budget carefully for value for money, but there are still some aspects of the way money is spent that we could worry about.

In conclusion, I will not oppose the motion, but I suggest that the Government should think carefully. There is a long way to go before the Brexit negotiations are finished. We remain a member of the European Union, and we should play our part in discussions about budgets.

Oral Answers to Questions

George Kerevan Excerpts

Tuesday 29th November 2016 Commons Chamber

[Mr Gauke]

There has consistently been a gap. What is important is that there is certainty of supply. We need to ensure that we have the right planning system in place and the right fiscal support, and that is what the Government are determined to deliver.

[George Kerevan (East Lothian) (SNP)]

In last week’s autumn statement, the Chancellor raised the tax on house insurance by 20%. How is that supposed to help first-time home buyers to get access to housing?

[Mr Gauke]

We were very clear that the 2% increase in insurance premium tax was a revenue-raiser that enabled us to introduce the measure on changing the taper for universal credit, which increases the incentives to work. We believe that was the right course of action, but if we look at the autumn statement, and indeed the announcement made at the Conservative party conference, what is very clear is that this Government are committed to ensuring that we build more homes, which is what the public rightly expect.

Autumn Statement

George Kerevan Excerpts

Wednesday 23rd November 2016 Commons Chamber

[Mr Speaker]

I must advise the House that I have noticed a growing split within the Chamber between the glowerers and the smilers—Members deploying different techniques in a bid to be called. Some have very beatific smiles and others—

[George Kerevan (East Lothian) (SNP)]

Which works?

[Mr Speaker]

A smile is more effective.

--- Later in debate ---

[Mr Speaker]

From the abundance of smiling Scottish nationalist countenances, I choose Mr George Kerevan.

[George Kerevan (East Lothian) (SNP)]

I congratulate the Chancellor on abolishing the autumn statement and the spring Budget, and introducing a spring statement and an autumn Budget. I trust that that is not his definition of productivity. The OBR central forecast suggests that after 2019 there will be a precipitate fall in the contribution by business investment to GDP growth. In addition, there will be a negative contribution from trade. Does that not suggest that when Britain leaves the single market—if we are taken out of the single market—the only thing between a recession and growth will be public expenditure and an overheated housing market?

[Mr Hammond]

On the hon. Gentleman’s first point, I recognise that the fact that we have to respond to the OBR report in the spring can easily be caricatured as swapping an autumn statement and a spring Budget for a spring statement and an autumn Budget. All I can say is that I promise it will not be like that. The intention is clearly to move to a single event each year when, in normal times, we will make tax changes, but it is prudent, especially in these times, to reserve the right in extremis to announce tax measures at the secondary event, if absolutely necessary. The hon. Gentleman poses a perfectly sensible question. My interpretation of the figures in the table is not the same as his, but I would be very happy to engage in a discussion with him offline.

Draft Double Taxation Relief and INternational Tax Enforcement (Turkmenistan) Order 2016

George Kerevan Excerpts

Thursday 17th November 2016 General Committees

[George Kerevan (East Lothian) (SNP)]

I echo the sentiments expressed by the hon. Member for Stalybridge and Hyde. There is growing concern among non-governmental organisations in the development field that some double taxation treaties have been inimical to the developing countries concerned and have made it less easy for them to take a fair share of tax from multinational companies that operate in their jurisdiction. That is a reasonable proposition; all I am suggesting is that Ministers should consider it as one aspect of how the treaties are put together. We are therefore a little unhappy not to get the impact assessment, which would at least put the issues out in the open for us all to see. I plead with the Government to give us such impact statements, in this instance and in future instances.

My hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) is pursuing a private Member’s Bill that would place a statutory duty on Ministers to take into account the impact on international development of future double taxation treaties, so this is a live issue in the House. Will the Minister tell us whether there were any discussions about development issues in the negotiations over this treaty? Were there any discussions with NGOs and agencies in Turkmenistan in the run-up to the finalisation of the draft order?

Leaving the EU: Financial Services

George Kerevan Excerpts

Thursday 3rd November 2016 Commons Chamber

[Sir William Cash (Stone) (Con)]

There seems to me to be a great deal of overstatement and exaggeration in this arena. The media have tended to overstate difficulties in this area to a very significant extent.

This is about confidence. For nearly 400 years, up to our entry to the EU under the European Communities Act 1972, the United Kingdom was able to run one of the most effective—if not the most effective—financial services centres, the City of London. The idea that somehow or other, because of the intervention of the European Union, things will get better is completely outweighed by the disaster area and dysfunctionality that the EU now represents.

Only a few days ago, in Bratislava, I heard the chairman of the European Parliament’s Committee on Budgets saying that the EU needed an “electric shock”, that there was far too much regulation, that it was far too intrusive, and so on. The chairman of ECOFIN said that the EU was facing the biggest economic and political crisis in modern political history. All that is true. The idea that we would not have to leave the European Union—thank heavens the British people made their own judgment about that—and the construal of our leaving the European Union as a disaster in itself simply belie the facts.

The reality is that EU legislation is deeply embedded in the financial services sector. Just to state the obvious, not only are we obliged under sections 2 and 3 of the 1972 Act to absorb all the legislation—I warned in a letter to the Financial Times in 2008 that that would lead to the kind of difficulties we are now experiencing with regard to financial services—but because of the Court of Justice we have to obey all the regulations. The massive regulatory overkill of the whole of the financial services sector as a result of that arrangement is an undoubted disadvantage. There are huge benefits to be gained by being outside the European Union, which I will come to in a moment.

[George Kerevan (East Lothian) (SNP)]

Surely the hon. Gentleman is aware that most EU bank regulation—especially since 2008—has been at the behest of the G20, so we will be subject to it whether we are in the EU or not.

[Sir William Cash]

The problem that the hon. Gentleman has perhaps not quite taken on board is that because of the European Communities Act there is a legislative requirement for us to accept those rules. Outside, we will, I hope, be able to benefit not only the United Kingdom but the EU, as I will come on to in a moment.

We only have to look at places such as Singapore and Hong Kong to understand that one does not have to be in the European Union to have a successful financial services sector and compete in the global marketplace. The same applies to New York. The objective must be to keep the financial markets open throughout the European Union as a matter of mutual concern throughout the UK and the other 27 member states. Breaking up the London system would involve much greater costs for everyone. Europe would end up far worse off, in my judgment—and that of many others, too—if the financial sector migrated to New York, Singapore or Hong Kong.

The passport is not specific to any one aspect of the financial services field. It works best in relation to banking accounting for about a fifth of annual banking sector revenue. It works less well in relation to asset management, which my hon. Friend the Member for Wimbledon (Stephen Hammond) mentioned. It is vital to understand that there are subsidiaries set up all over Europe carrying on the business of other countries irrespective of a passport. A significant amount of EU assets are already in Dublin and Luxembourg and their management—this is the key issue—is run from the UK. Indeed, on a recent assessment I have read, only 7% of assets managed in the UK are thought to be threatened by the loss of the passport.

There is not a single market in insurance at all. I appreciate that my hon. Friend might wish to come back to me on that, and I am very happy to talk to the people he mentioned in reply to me, but I simply make the point that we are not always dependent on the passport. There is a special problem regarding Lloyd’s of London, but I am informed that the pool of underwriters across the EU amounts to only 11% of the market’s gross written premium, and only 3% is directly reliant on the passport.

We have three main alternatives: equivalence, bespoke agreements and local arrangements. Equivalence is granted by the European Commission. The Commission is guardian of the treaties and has the legal clout that we will get away from when we vote to leave, so equivalence would not apply to us if we left the EU. But we have the same regulations as the EU, and under the repeal Bill, which I put together just before the referendum and am glad the Government are so interested in, we would be able to run parallel operations where it was in our mutual interests to have regulatory arrangements in the UK equivalent to those elsewhere in the EU—and, indeed, internationally, as well.

As regards bespoke agreements, we have the potential to secure an agreement similar to that with Switzerland, for example. If no cross-border access arrangement is made, firms will still be able to set up subsidiaries. That would, I have to admit, cost money, but it would not be disproportionate. I do not want to go into the details of a private conversation so I will simply say that I got that straight from some very senior bankers the other day. It boils down to this: we can arrive at an arrangement similar to Switzerland’s or at a free trade agreement. Of the two, I must admit I prefer the latter.

--- Later in debate ---

[George Kerevan (East Lothian) (SNP)]

Let me begin, as others have, by commending the hon. Member for Leicester West (Liz Kendall) for securing the debate. Let me also commend her for summing up everything that I think Opposition Members, as well as many Conservative Back Benchers, believe about the nature of the problems that will face the financial sector post-Brexit. If there were any political justice, the moment that the hon. Lady had finished speaking the Minister would have stood up and agreed with everything that she had said. That would have been the end of it, and we could have gone on to actually solve some of these problems. Sadly, though, the Minister did not do that. We are faced with a situation in which the UK’s major industry, in terms of employment, taxes raised and the nature of our links with the rest of the world—it is a key strategic industry—is left blowing in the wind, waiting to find out what happens.

I always listen with great interest to what the hon. Member for Stone (Sir William Cash) says because he is forensic and thinks things through. He came up with a whole series of fixes—sticking plasters—that could be applied so that the financial sector could legally maintain its markets in Europe. However, I put it to him and those who agree with his line of argument that there is a problem: since 2008, the UK financial sector has been in a special place compared with many other industries. It has had to undergo massive regulatory change, which has produced massive uncertainty in the industry. That process has not yet fully played out. We still have to get to 2019 before we will have implemented all the Vickers proposals on ring-fencing, so the banks are in a major process of reorganisation. Many Members have been to bank headquarters in the City and know that the situation on the ground is very complex. To add to that process of uncertainty, we have another period of uncertainty when the institutions will not even know whether they have the right to trade any longer in the rest of Europe, and that is a step too far.

We all know what the Minister will say when he makes his speech as he has come along to a number of such debates. He will done a fine job of not telling us anything. He will say we cannot have constant reporting on negotiations, but we are not asking for that. Instead, we are saying that given the unique uncertainties in a major industry that is undergoing massive regulatory change, the Government must put forward a transitional period. It must tell the financial institutions, “Yes, we have a transitional period. We will put down a time period, and it will go beyond 2019, when the Vickers proposals bed in.” That would allow everyone to calm down. If the Minister will not do that and instead maintains the silence, the Government will be adding to the regulatory uncertainties that are piling up on the industry.

[Joanna Cherry]

My hon. Friend talks about the uncertainty that is caused by the Government saying that they will not give a running commentary. Does he agree with the First Minister of Scotland that the Government are refusing to give a running commentary and to allow a vote in this House not for reasons of high constitutional principle, but because they do not have a coherent position, and they know that if they come to this House, that fact will be exposed?

[George Kerevan]

It would be my guess that the Government’s silence may just cover up a lack of strategic vision.

I also want to address a point raised in an intervention by the right hon. Member for New Forest West (Sir Desmond Swayne). He said that only about a fifth of revenues from the UK financial sector come from Europe and that we have a huge domestic sector, particularly in retail banking, so we should not exaggerate the crisis in the financial sector that might emerge due to Brexit. I have an answer to that: the problem is that the strategic sectors of banking, particularly high-value investment banking, which is where the profits are, do relate to Europe, and the threat is not from Paris or Frankfurt, but from Wall Street.

I have no wish to force US banks out of the City of London, but the banking community that has gained most since 2008, and that has consolidated and expanded its market share, is the major US banks, particularly the five big investment banks. They have increased their market share in London and Europe while European investment banks are in major decline—Deutsche Bank is in financial trouble, as are the Swiss investment banks, and all we are left with is the European champions, Barclays. If we break up the European financial family in another period of uncertainty, all we will do is strengthen the arm of the US investment banks, and behind them is a whole series of other US financial institutions that are coming into Europe.

US private equity has driven a coach and horses through traditional German bank lending at a regional level. For example, Cerberus is coming in and using a network of Cerberus companies across Europe to buy its way into European property by buying distressed debt. It is using the fact that it can play off one of its divisions against another through transfer pricing to take a gain in taxation. The real threat to our banking system is that, unless we get a grip, Wall Street and the American banks will dominate it. The right hon. Member for New Forest West suggested that the British domestic market was strong enough to survive whatever happens in the next few years, but that is not true. As we weaken the entire European banking family, we open up the possibility that the British retail banking system, which has retreated into its own domestic market, will be very much weakened when it comes to further American competition.

We need a solution to the passporting issue. The Minister will probably not respond to my proposal today, but I will put it on record anyway. The Scottish Government are seeking to maintain Scotland’s position within the single market, and I want to make it very plain that we would do that while being part of the United Kingdom. The UK Government have already done a side deal with Nissan and said that they will keep an open border between Northern Ireland and Ireland, so side deals—by industry and by region—are already out there. If Scotland were allowed to stay in the single market as part of the United Kingdom, that would give us a solution to the passporting problem. British banks could use their offices in Edinburgh and Glasgow to continue to trade with Europe because they would have the passport, and the Treasury would still be able to tax their profits because they would still be in the UK. The alternative is that the major European and American banks will move their nameplates to Dublin and Frankfurt, and the bulk of the business will be run from New York. We need a solution, and one solution would be to accept the Scottish Government’s proposal—or at least give an assurance that it will be thought through, rather than instantly dismissed—that Scotland should remain within the single market.

Oral Answers to Questions

George Kerevan Excerpts

Tuesday 25th October 2016 Commons Chamber

[Mr Gauke]

We believe that HS2 is part of modernising our transport system and ensuring that we have infrastructure fit for the 21st century.

[George Kerevan (East Lothian) (SNP)]

In light of the upcoming report of the RBS’s Global Restructuring Group and given that past systems of redress for small businesses have been ad hoc and have failed, will the Chancellor meet the all-party group for fair business banking to see whether we can involve a permanent and effective system of redress?

[Simon Kirby]

The hon. Gentleman makes a fair point, but we should wait until we receive the FCA report before we proceed.