Finance (No. 2) Bill

George Kerevan Excerpts

Carry-over motion: House of Commons
Monday 11th April 2016 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

I realise that the hour is late and I will try not to try your patience, Mr Speaker, or indeed that of the House.

In an earlier life I was a journalist, and my editor thought it would be a good idea if I became a restaurant critic. It strikes me that some of the rules for identifying bad restaurants can be applied to this Bill. The way to detect a potentially bad restaurant is to look at the length of the menu. A very, very long menu means there are lots of stale, mouldy ingredients in the back room or in the fridge, needing to be reheated. The Finance Bill before us has 580 pages and comes in two volumes that have to be stapled together. If we reflect on the scale of it, we find stale ideas, hasty ideas, ideas on the back of an envelope and ideas put together at the last minute. Conservative Members have made a good fist of trying to find good things within the 580 pages. There are some good small issues worth taking up. The change in the laws governing transfer payments on intellectual capital and branding, for example, is very good and should have been done a long while ago. There are some good things, but the sum total does not add up to very much.

This Chancellor has given us 14 Budgets, if we include the December statements and emergency Budgets, with 14 ancillary Finance Bills, yet we have got nowhere near the simplification that we require, for which Conservative Members have also called. Why is that? Quite simply, the Chancellor has just one view in mind. It is not to improve productivity, improve the current account balance or improve this and that; it is simply to end up with a budget surplus in the year 2020.

The Financial Secretary made an attempt earlier to provide some intellectual coherence to the Chancellor’s work, and I commend him for that. He told us that what underlies intellectually the 580 pages is the promotion of savings. My hon. Friends and I will vote against the Bill because the last thing it does is promote savings. The Bill is anti-savings, because trying to run a permanent budget surplus itself undermines the whole rationale for savings.

When the Exchequer Secretary sums up, will he address some of these questions? If there is to be a budget surplus in 2020, more will be taken out of the economy in tax than will be put back in. If we run a permanent surplus, Government bonds and Government securities, which are the lifeblood of insurance companies and of safe investments, will inevitably not be issued. They will be taken away. If we add to that a running down of the special assets programme and quantitative easing, we will take even more Government securities out of the economy. I do not know what people are supposed to invest their savings in. The Minister might say that they should invest in shares, but we know that the whole point of quantitative easing is to keep share prices up artificially. When in the first couple of months of this calendar year there was a fear across the world that quantitative easing was being turned off, share prices went down. They have come back up again in the last four or six weeks only because Europe in particular has turned back on the quantitative easing tap.

I warn Ministers that if we go to a period of permanent budget surplus, share prices will be going down, not up. Where, then, in the end are people going to invest their savings, which the Chancellor wants to encourage in his 580 pages? The only place I can think they will be saving is abroad. I think there will be a big demand for foreign-based investment trusts. I cannot see anywhere else that the money will go. The Chancellor and his Ministers should think on that.

I would like the Minister to address another problem with running a permanent budget surplus. If we do so and ally it to our current account deficit, it means taking huge amounts out of the economy. We then have to borrow to put the money back in to make the national accounts balance. The OBR statement that went with the Budget suggested that if we are running a permanent budget surplus by 2020, the deficit that has to be filled will be about 4.5% of GDP a year. That will have to be borrowed. Ultimately, it means that consumers are borrowing. The very act of running a budget surplus forces consumers to borrow more.

The hon. Member for Leeds West (Rachel Reeves) made the point earlier that at this very moment the savings ratio is back at historically low levels. That is already happening before we even get to the budget surplus. If the numbers are telling us that savings are collapsing, how can we be told that this is a Budget for savings? It is not, which is why we have to oppose it.

If the Chancellor had used the Bill to tell us that pension tax relief would be reformed dramatically, and that a significant amount of relief would be given to lower earners and young people, I might have believed that he was serious about savings, but that is the very measure that he took out of the Budget a fortnight before this 580-page blockbuster arrived on the desk. He had to stand back and change the Budget entirely. A Chancellor does not run the country by changing a Budget a fortnight before presenting it.

The best summing up of what is happening in those 580 pages, and how it will be delivered, has just come in the form of the 2015 annual civil service survey. Each year, we ask civil servants throughout the Government what they think of the way in which the Government and the civil service are being run. According to the survey, only 25% of HMRC staff have confidence in HMRC’s senior management. There is rot within the delivery system, and there is rot within the mechanism for collecting the taxes. The Finance Bill, if we pass it, will not increase savings, and will not deliver what we are told that it will. It is 580 pages of nonsense.

Finance (No. 2) Bill

George Kerevan Excerpts

Monday 11th April 2016 Commons Chamber

[Mr Gauke]

The hon. Gentleman makes an important point. It is a long-standing issue for the United Kingdom economy. I would argue that the steps we have taken as a Government to ensure that we have a competitive, business-friendly tax environment, that we invest in skills and increase the number of apprenticeships, and that we spend more on transport infrastructure—we are spending £60 billion over the course of this Parliament—will help to drive up productivity. Without those measures, our productivity levels would not be as high as they are. Further work still needs to be done, but policies that result in, for example, financial crisis so that we cannot afford transport infrastructure spending or that drive investment away from this country by being unfriendly to business will only damage productivity and will not help.

[George Kerevan (East Lothian) (SNP)]

On investment in transport infrastructure, the Budget surely says that between 2018-19 and 2019-20 the Government will cut infrastructure investment by a whole £7 billion in one year in order to accommodate the Chancellor’s desire to run a budget surplus in 2020. How does that justify what the Financial Secretary has just said?

[Mr Gauke]

The Budget brings forward the expenditure on transport infrastructure in this Parliament so that we can gain the benefits of that investment earlier. The hon. Gentleman should welcome that.

Before discussing the measures in the Bill that address avoidance and evasion, I shall briefly address the issue that the Prime Minister covered earlier today—the Panama papers. Those papers have again put the spotlight on the global scourge of tax evasion and avoidance. As the Prime Minister set out earlier today, we are taking further action. First, HMRC and the National Crime Agency will lead a new joint taskforce to analyse the Panama papers and take rapid action where there is wrongdoing. It will initially have new funding of up to £10 million and will report to the Chancellor and the Home Secretary later this year.

Secondly, we will bring forward plans to introduce a criminal offence for corporations which fail to stop their staff facilitating tax evasion, ahead of next month’s summit to tackle corruption in all its forms. For the first time, companies will be held criminally liable if they fail to stop their employees facilitating tax evasion. Thirdly, our Crown dependencies and overseas territories have agreed to provide UK law enforcement and tax agencies with full access to information on the beneficial ownership of companies. We have finalised arrangements with all of them except Anguilla and Guernsey. Guernsey currently has elections and its Parliament is not sitting, but we expect both those territories to follow in the coming days and months. For the first time, UK tax and law enforcement agencies will see exactly who really owns or controls every company in those territories. This Government’s message is clear: there are no safe havens for tax evaders, and no one should be in any doubt that the days of hiding money offshore to evade tax are gone.

--- Later in debate ---

[Seema Malhotra]

I will make a little progress and then I will take another intervention.

[George Kerevan]

Is the hon. Lady aware that there is ample evidence in the United States and the UK that large amounts—possibly half—of the retained earnings from lower corporation tax actually go into share buybacks, and that those share buybacks, which end up in the pockets of the original shareholders, do not get reinvested in industry, but go back into property and other kinds of non-productive assets?

[Seema Malhotra]

The hon. Gentleman makes a very important point. That is one of the concerns. It is assumed that the proceeds from those tax cuts will go directly into investment, but the evidence for that does not necessarily stack up. In fact, an estimated £500 billion is not invested in this country at the moment. That is an important point, which is why greater analysis and scrutiny are required, as well as conversations with businesses about what will actually make a difference for them in the long term.

The basic rate of capital gains tax is to be reduced from 18% to 10%, and the higher rate from 28% to 20%. That is set to cost £735 million in 2020 and £2.7 billion over the forecast period. Capital gains tax was paid by only 200,000 taxpayers in 2013, which means that about 0.3% of the population will benefit from a giveaway of more than £600 million in total from the first year. That was not called for or expected. In fact, the Financial Times described it as an “unexpected gift” for wealthy investors. In 2010, the Chancellor told the House that raising capital gains tax was necessary to

“create a fairer tax system.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]

It would be interesting to hear perhaps during the Exchequer Secretary’s wind-up speech what has changed.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

I am grateful to be called so early in the debate. I strongly support the Bill, which will encourage saving, reward work, encourage business investment and tackle aggressive tax avoidance. Those things are exactly what we want to see in a Finance Bill and they are all in this one.

Given that, I cannot understand why anyone would choose to vote against the whole Bill. It seems to be largely because of the changes to capital gains tax and corporation tax. I will go back as far as Gordon Brown’s first Budget after becoming Chancellor, in which he effectively introduced a 10% capital gains tax rate and reduced the corporation tax rate. Perhaps we can remember when we had a Labour Government who at least tried, in the early years, to be friendly to business and encourage investment and growth in this country.

[George Kerevan]

Will the hon. Gentleman explain why the present Chancellor raised capital gains tax to 28%?

Section 5 of the European Communities (Amendment) Act 1993

George Kerevan Excerpts

Wednesday 23rd March 2016 Commons Chamber

[Mr Gauke]

Our principled approach over several years has been that the documentation provided to the Commission is based on the most recent publications. I do not think it would be sensible or proportionate to rerun elements of a Budget process purely for an EU audience. That would not be the right thing to do.

[George Kerevan (East Lothian) (SNP)]

On the accuracy of the information being transmitted to the Commission, there is another matter, which has not been brought up. The figures for February’s tax receipts have led to a significant increase in February borrowing. It is therefore impossible in the final month of the financial year for the Government to hit their declared target for borrowing. It will be greater than the target—so, again, the information is inaccurate.

[Mr Gauke]

Again, I make the same principled point. We provide information already published in these reports—we do not seek to amendment it—although the hon. Gentleman makes an interesting point: should this be updated monthly in the light of public finance numbers? I would make a second point about the public finances, however. Having been in the Treasury for a little while now, I know that public finance numbers can be quite volatile, so one should take good news and bad on a monthly basis with a pinch of salt. It is only when one steps back that one has a good view of the overall position, and that is what the OBR does twice yearly.

On the process, I remind the House that although the UK participates in the stability and growth pact, by virtue of our protocol to the treaty opting out of the euro we are required only to endeavour to avoid excessive deficits. The UK cannot be subject to any action or sanctions as a result of our participation in the pact. Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit that programme to the European Commission. The Commission is expected to make its recommendations to all EU member states in mid-May. These recommendations will then be agreed by Heads of State or Government at European Council.

Section 5 of the European Communities (Amendment) Act 1993

George Kerevan Excerpts

Wednesday 23rd March 2016 Commons Chamber

[Sir William Cash]

It has been said in the past that the House of Commons is the only lunatic asylum that is run by the inmates, but I think we pale into insignificance compared with the European Union. This just does not work. I ask the Minister to make a note on the piece of paper in front of him to remember to answer my question relating to that deficit and surplus issue, because every time I raise it I get no answer. Although I agree that we will continue to trade and to co-operate with Europe—we want to do so and they want to do it with us—when it comes to this question of the need to stay in the single market, it simply does not stack up. This document is put forward for approval by Parliament, so we are entitled to an answer to that question.

[George Kerevan (East Lothian) (SNP)]

In case the Minister does not answer, let me say that a sizeable proportion of the imports that Britain takes from the EU are in fact intermediate products, such as automotive parts, that go into goods that we then re-export. We are talking about supply chain interconnection, not free-standing goods.

[Sir William Cash]

I can only refer to the fact that these are ONS figures. They are endorsed and verified by the House of Commons Library, and I will leave my point at that.

The argument on page 19 moves forward to a suggestion that any

“new relationship which gives the UK…access to the single market that it needs”—

that assertion continues to be made—

“would involve contributing financially to the EU”,

which we are certainly doing to the very substantial extent of about £10 billion a year, and

“accepting the free movement of people”.

The European Scrutiny Committee has been trying to have a debate on that for the best part of 18 months, but without success. I had a meeting with the Minister about it only today. That goes right to the heart of the viability of free movement and the immigration that flows from it. The argument continues:

“and adopting EU rules without having any say over them.”

I repeat: without any say over them.

Today, the European Scrutiny Committee embarked on an investigation into the influence it is claimed we have and the manner in which decisions are taken in the European Union. This document implies that, somehow or other, we have massive input. The European ombudsman is looking into the question of trilogues, but within the decision-making process of the Council of Ministers it is horrendous to observe the extent to which votes are not taken. The so-called consensus on all matters, including those dealt with on page 19, is arrived at without a proper degree of accountability—in fact, I would say no real accountability of any kind. Decisions are taken in what I would describe as a Dan Brown’s “Da Vinci Code” situation, in which the Illuminati—otherwise known as COREPER—make deals behind the closed doors of unsmoke-filled rooms. We do not know and cannot find out how the decisions are arrived at. There is no agenda; nobody knows who decided what and on what basis. It is an affront to the democracy of this country that the decisions that affect the daily lives of everyone in it in respect of the whole gamut of European rule making are made almost entirely without majority voting taking place, in COREPER. It is deeply offensive. It is a black hole and the European Scrutiny Committee is looking into it.

Finally, page 19 talks about productivity. All I would say on that is that, as I understand it, the OBR, whose report is contained in this document, says that the biggest problem this country has is lack of productivity.

The whole of our economic performance is being presented to the European Commission for approval under the 1993 Act and to Parliament for approval today. I will not vote in favour of the motion and I certainly will not approve this load of rubbish. I will vote against the Government because I do not believe that page 19 is true or accurate. I do not agree that the basis of the statistics relating to PIP is such that the document is sufficiently valid to be presented to Parliament. It is a serious matter. We have become far too accustomed to saying, “Oh well, it’s just a blip—just a slight mistake. Someone got something wrong. Let’s not take too much notice of it.” Well, I am going to take notice of it and I shall vote against the Government this evening on that account.

[John Redwood (Wokingham) (Con)]

I share the concern of my hon. Friend the Member for Stone (Sir William Cash) about page 19 and that is the main reason I have entered this debate. It is an unfair exposition on the opportunities and risks linked to our membership of the European Union and I do not think it accurately reflects what the OBR has been saying. I am pleased that the OBR has now spoken for itself and put on the record the important point that it does not believe that in the five-year forecast period, were we to leave, there would be a decline in economic output or activity. Like many forecasters, the OBR believes that the net impact would be quite small. Of course, in line with others it has said that there could be volatility in currency and asset price markets. All I would add is that there has been massive volatility in those markets in the years we have been a member of the EU, so it would be somewhat outrageous to claim that that would suddenly stop were we to leave the EU, but I cannot see that it is a particularly damning point.

My hon. Friend has gone on at some profound length about what is wrong with page 19. I hope Ministers will look again and realise that it is not a fair exposition of the OBR’s position. Linking the OBR’s position with Christine Lagarde’s comment, which is obviously a comment made for the “stay inside” campaign trail rather than for normal commentary purposes, gives a misleading impression.

I wish to make some more fundamental points about the figures and the document before us this evening. Let us start with why we are doing this at all. It is a completely pointless exercise, but it is legally required by the treaty and the framework of law under which we live. It is a great pity that in the renegotiation this, along with dozens of other things, was not sorted out because if, as the Minister says, the Government can ignore the advice and the policy laid down by the European Union to control the deficit and get the debt down, what is the point of the Government having to table 300 pages of carefully selected documentation, go through the surveillance procedure, on some occasions receive a report saying that their policy is not good enough or they are not converging in the way that the European Union wishes, and the Government then saying, “Well, fortunately, there is no penalty on us so we will ignore that”?

It is strange to belong to a club, accept the rules and then, when we do not like the rules, say, “Of course, we didn’t really want any of that and fortunately we have been opted out of the penalty bit of it.” It is a strange exercise. I suspect that the official machine of the Government, which goes on whoever is in office, is quite guided by all this. There is probably a wish on the part of officials to get the British Government policy and the figures closer to the convergence requirements. It is high time the European Union itself had an honest debate about the most pressing and most difficult target it has set—the target that all member states should keep their stock of debt to 60% of their national income.

Practically every member state is way above that, and some of them violate the target by having more than double the level set down by the European Union. Why does that body think it is sensible to persevere with a target that none of the member states wish to keep and none of them are trying to reach?

[George Kerevan]

May I add that the rule that sets the 60% target also states that member states in breach must have a rectification programme and bring their debt level, whatever it is, down by five percentage points a year, which this Government have significantly failed to do and significantly will fail to do for a long, long time?

[John Redwood]

All the Governments are failing to do that, and it is even more pressing and difficult for a country such as Greece, where the penalties do apply because it is in the euro scheme. Despite all the best efforts of the European leadership, the European Central Bank and others, and very cruel and difficult expenditure cuts that Members in this House would not have accepted for the United Kingdom, Greece is still miles off getting anywhere near the stock-of-debt target and it has struggled until recently to get down to the deficit target.

We need to ask fundamental questions of our European partners about why we go through this routine and what malign influence it has on some economies and some economic performances around the European Union, which should be a matter of common concern all the time we remain in that body. The Minister says this is not a new exercise and it is not much of a burden on the British state; it is just one of those things, and we send in figures that we produce for other purposes. That is not quite true. The introduction to the document clearly has to be written, the selection has to be made, it is clear throughout the document that it is written for domestic purposes and for the purpose of forwarding it to the European Union, and we try to produce figures that we would not otherwise produce in order to conform with the workings of the European Union.

Next, I would like to highlight the figure for the convergence criteria and the so-called treaty deficit on page 186 of the report. That shows that in 2016-17, if all goes well and these figures work out, for the first time in many years we will get below the 3% target to 2.9%. That makes my point: we would not have to calculate that treaty deficit, think that it was significant or use it as part of the guidance for the British economy if we were not signed up to this surveillance and management system within the European Union. The Minister has to bear it in mind that there is actually some subtle guidance in the European policy. I think that many of my constituents would find it quite surprising that we have to table 300 pages of detailed financial and economic information in order to comply, and that that is then put through a scrutiny and surveillance process.

The next figure that I would like to highlight is on page 156, which shows how much in “expenditure transfers” we have to make to the European Union institutions—in other words, how much money we send that we do not get back. We see that the November forecast for 2016-17 was £10.7 billion, which is a very considerable sum, and that the March forecast, just four months later, has gone up to £11.8 billion. Between the autumn statement and the current Budget there is an increase of £1.1 billion in next year’s expenditure transfers to the EU institutions.

That figure of £1.1 billion is very close to the figure that the Government had pencilled in for disability cuts. I do not know about you, Mr Deputy Speaker, but I would rather not have the disability cuts and not pay £1.1 billion extra to the European Union. Why can we not make those kinds of choices? The reason, of course, is that we are signed up to membership of an organisation that thinks it knows better than we do how to spend our own money. I think that people in the United Kingdom are getting very frustrated at being told that we have to be very careful about our priorities, only to discover, if they get guidance from these complex figures, that the European Union can take £1.1 billion extra off us for next year without a by-your-leave. That leaves us struggling to find that money when we try to make the Budget add up, ending up with options and choices that I am sure Ministers did not really want to make, and which Parliament, in its wisdom, has decided should not be made.

I draw the House’s attention to some very important figures on page 205 that the Government are sending to our European partners and masters about projected net migration into the United Kingdom. I was very happy to campaign with my right hon. and hon. Friends at the previous general election on a sensible and sensitive policy of controlled migration, wishing to get it down to the tens of thousands by the end of the Parliament. It was a very popular policy, because I think that people liked the idea that there would be a fair system offering sensible rules so that people could understand it before deciding whether or not to come to our country. Interestingly, the forecast that we are sending to the European Union shows that the level of migration will stay much higher than the Government’s target—it shows 256,000 in 2016, declining to 185,000 in 2021. There is also a further projection in which net migration stays considerably higher, actually above 250,000 in every year.

I think that matters, because the Government’s intentions are very clear: they would like to get net migration well below these forecast figures. Why, then, is the forecast so high? I think that it is very simple: the forecast is that high because the European continental economies, particularly in the south of our continent, are performing very badly and have created mass unemployment on an extremely worrying scale, so the UK, which has a more successful economic policy that is generating a lot of jobs, is acting as a magnet for people who are otherwise without hope of employment.

That policy is making it very difficult for the United Kingdom Government to hit their very popular target on migration. I hope that when this document is submitted Ministers will follow it up by pointing that out to the European Union and saying that they have a solemn promise to keep to the United Kingdom electors, who helped elect them to government, and that this set of EU policies, creating joblessness and therefore triggering a lot of foot-loose migration around the European Union, is making it very difficult to honour that promise.

It also leads us to worry about the quality of some of these forecasts, because I am sure that the Government wish to get the level down, but there is a great danger that the variant of a much higher level has been put in, because actually that is what they are afraid will happen. I hope the Minister will consider that when he replies and that if we are going to go through the process of submitting our homework on economic matters to the European Union to be marked—by sending it 300 pages of figures—we will also say to it, “You are making it impossible for us to meet our legitimate wish to create more jobs to mop up unemployment in our country and to get wages up, as we would like to, because your failing economic policies in many parts of the euro area are bringing a number of migrants into our country that makes it impossible for us to meet our targets.”

Those are just a few brief comments on an extremely complex set of documents and numbers, which show that, while we stay in this body, we need to engage much more and to get some change so that there is honesty in the targeting and an understanding of the damage that some of the targets and policies are creating. However, it will not be a surprise to hon. Members to learn that I think that the simplest thing would be for us to leave the European Union so that this is the last one of these documents we ever have to produce. We can then take control of our own money, banish austerity, spend the £10 billion on things that we want and leave the European Union free to get on with its political union, which is clearly what it will need to do to try to deal with the mass unemployment, the lack of cash transfers and the inadequacy of its regional policies.

I hope tonight’s debate will be of use to the general public and that they will understand that we can take back control, spend our own money, and have prosperity, not austerity. That is what we will get if we leave the European Union.

Budget Resolutions and Economic Situation

George Kerevan Excerpts

Tuesday 22nd March 2016 Commons Chamber

[Mr Osborne]

If we take no decisions to control welfare spending and public expenditure, we destroy the nation’s finances, and the people who suffer are precisely the most vulnerable in society. Yes, we have taken difficult decisions, but where we have not got them right, we have listened and we have learned. If we had not taken those decisions, the country would be in an even bigger mess than the one we inherited.

[George Kerevan (East Lothian) (SNP)]

The Chancellor mentions security, including for the poor. Does he realise that until Monday, 340,000 people on PIP were worried that their benefits were going to be cut? If he just apologised and changed that, we could move on and discuss the economics.

[Mr Osborne]

I could not have been clearer. I said that we listened, we learned, we made a mistake, and we withdrew the proposals. The hon. Gentleman talks about days of the week, and Thursday would have been the day when Scotland separated from the United Kingdom if the nationalists had had their way. They would have plunged that new country into a fiscal crisis the likes of which few western countries have ever seen. They would have impoverished the Scottish people and driven businesses away. They based all their numbers on oil revenue forecasts that were totally fanciful, and it is time that they got up and apologised for leading the Scottish people into that potential trap. Thankfully, the Scottish people thought better.

--- Later in debate ---

[George Kerevan (East Lothian) (SNP)]

Let me begin by associating the SNP with the words of the Chancellor and the shadow Chancellor in expressing sympathy for the people of Belgium—Flemish, Walloon, and recent immigrants—at this tragic hour.

I must give the Chancellor his due. He gave us a bravura performance: in my view, a more assured and more interesting performance than we were given last week. However, I am always worried when he goes into his expansive, emotional mode. What is he hiding? We know what he hid last week, which was the fact that he would have to come back and tear up his Budget and create a new one, but what did he hide this week? He hid what he always hides and never addresses: the crucial issue of productivity. Without productivity growth, there can be no tax growth, no jobs growth and no wage growth. The truth is that, under this Chancellor, productivity has risen at an annual average of 0.1%. Since the top of the boom in 2007, the cumulative increase in UK productivity has been less than 1%. That is the Chancellor’s failure.

I have great respect for the Chancellor, but he is not a Chancellor who ever had a real job. He is not a Chancellor who ever worked in the private sector. He is not a Chancellor who ever had to lie awake at night—as I have, and as, I am sure, have many other Members on both sides of the House—and worry about how to pay the next wage bill. This Chancellor is an intellectual Chancellor: that is his problem.

[Chris Philp]

I have spent the last 15 years setting up and running businesses. As someone who has done that, I am glad that it is this Chancellor who is sitting in that seat, because he is the man who has created jobs and helped businesses like mine! [Interruption.]

[Mr Speaker]

Order. May I just say, for the benefit of the House, that moderation and good humour are the precepts of “Erskine May”. Members on both sides of the House can learn from the right hon. and learned Member for Rushcliffe (Mr Clarke), who has just given a textbook example of a robust speech made with good humour. Many Opposition Members can do the same, and new Members could learn from them.

[George Kerevan]

Thank you, Mr Speaker. I serve on the Treasury Committee with the hon. Member for Croydon South (Chris Philp), and I did not take what he said personally.

If we do not get productivity, what happens? We do not get growth. The right hon. and learned Member for Rushcliffe (Mr Clarke) gave us a wise presentation, as he normally does, but he slipped up a little. He said that, under this Chancellor, the United Kingdom had experienced the fastest growth in the developed world. That is not true. As he phrased it, it is not true—unless, of course, Australia is not developed; unless, of course, the United States is not developed; unless, of course, Sweden is not developed; unless, of course, Korea is not developed; unless, of course, Spain is not developed. All those countries experienced faster GDP growth than the UK in 2015, largely because they experienced faster productivity growth. That is what this Chancellor has not delivered. That is not what this Budget contains. And that is this Budget’s weakness.

If we look at the failure of productivity growth in the UK under this Chancellor, we see that productivity is lagging in practically every commercial and industrial sector. Crucially, productivity has been falling by an average of 1% a year in the financial services industry—our flagship industry, our key service industry, the industry that is leading our service exports. This Chancellor has devoted a lot of time and effort to reconstructing the financial services sector—I grant him that—but what have we got? Falling productivity. According to the Office for National Statistics, productivity in the British financial sector, including insurance, is now behind the level of financial services productivity in France and Italy. That is not a great record, Chancellor. Here is the bottom line: if we do not have productivity growth, the cash economy will not grow, wages will not grow and income to the Treasury will therefore not grow.

[Marcus Fysh (Yeovil) (Con)]

Does the hon. Gentleman not recognise that there is a lot in this Budget to improve the performance of the economy? Does he not agree that a massive cut in business rates will deliver exactly the productivity that he is talking about?

[George Kerevan]

I utterly accept that point. This is at the core of what I am saying. The kind of business rate cuts for small companies that the Chancellor has belatedly introduced in this Budget have long been available in Scotland. What has happened to productivity in Scotland? Despite the Scottish Government’s limited drivers for economic growth, productivity in Scotland has gone up 4.4% since the recession. That is more than four times what this Chancellor has managed to deliver. In Scotland, our limited tax powers have forced us to concentrate on the supply side, and my bill of fare against the Chancellor is that he does not do that. Yes, there are lots of bits and pieces in the Budget that I welcome—particularly the move to clamp down on transfer pricing in multinational companies—but in the end, there is no strategy. The Chancellor has no strategy apart from his rendezvous with 2020 and trying to run a budget surplus.

[Sammy Wilson]

Does the hon. Gentleman accept that he is perhaps being a bit harsh? There are many supply-side measures in this Budget, including improved investment in infrastructure and the digital economy and cuts in corporation tax and business rates, all of which should help investment and therefore increase productivity.

[George Kerevan]

Indeed, and I welcome all the supply-side measures, but—[Interruption.] Wait for it! We have had five Budgets in the past 15 months. Why did those measures not appear in the last four of them? In fact, if we count today as well as last week, we have had six Budgets in that time. Why did those measures not appear before? This is not about the Treasury officials, who are bright men and women; this is about the fact that there is no strategy apart from trying to run a budget surplus in a particular year, because the Chancellor knows that if he does not deliver in 2020, what is left of his reputation after this week will be in shreds.

[Mr Steve Baker (Wycombe) (Con)]

I should like to draw the hon. Gentleman’s attention to page 2 of the Red Book. It states:

“This is precisely why the UK has been working through its long-term economic plan. Since 2010 the plan has been focussed on reducing the deficit, while delivering the supply side reforms necessary to improve long-term productivity growth.”

Will he at least concede that the Chancellor has in his Red Book precisely the kind of strategy that he is criticising him for not possessing?

[George Kerevan]

I cannot accept that. There is a tension in the Chancellor’s mind. It is like good and evil sitting on either shoulder. One side is telling him to run a budget surplus, because that is an easy road to take. That is not badly thought out. Given the number of rules that Chancellors have thought up over the years and then failed to implement, running a budget surplus is an extremely simple rule. It is just too crude, however. That argument vies with the supply-side strategy.

Following on from the question from the hon. Member for Wycombe (Mr Baker), another friend from the Treasury Select Committee, let us look at what the Office for Budget Responsibility says in its report about how the Budget supply-side measures will work. It states:

“We also expect smaller positive contributions to potential output growth over the next five years from population growth, while average hours worked are expected to trend down over time.”

With a decrease in average hours, in input and in population growth, where is the productivity increase going to come from? I should like to hear the answer from the Chancellor.

[Geraint Davies]

Does the hon. Gentleman agree that we have such hopeless productivity growth because, first, our research and development is very low, by international standards, and secondly, so is infrastructure investment? Thirdly, the rights and security of people in work are now low, making it easier for them to be sacked. In Germany, where people can stay in work, employers have to invest in their productivity because they cannot get rid of them. Here, however, we are destroying rights and creating short-term, low-paid jobs, which is resulting in lower productivity.

[George Kerevan]

I could not agree more with all three points, so I will just accept them.

The Red Book also shows that public sector net investment—capital investment in the public sector—is set to fall for the next four years. I have to ask Conservative Members this question. With industry in trouble and manufacturing contracting, as it has done in the past quarter, how will it help productivity if we have to cut public sector net investment in the capital side of the economy in order for the Chancellor to meet his rendezvous with destiny in 2020 and have his budget surplus? We need investment in capital in order to have productivity—that is where it comes from.

It is interesting to see what the OBR thinks we will have to do in order to get the books to balance. It believes that UK private sector business investment will have to make up the difference. It believes that private business investment will come to the rescue and contribute a quarter of the expenditure contribution to GDP growth in the period to 2020 in order to achieve the Chancellor’s fabled budget surplus. So, to make all the sums work, there has to be growth. Where is the growth coming from? According to the OBR, a quarter of all the potential expenditure in the economy between now and 2020 has to come from business investment. [Interruption.] Bear with me as I go through the numbers, because they are important. According to the OBR, business will have to contribute 0.6 percentage points each year to GDP in order for the economy to grow sufficiently to deliver the taxes to enable the Chancellor’s budget to come into balance.

There is only one problem. Historically, from 1990 to 2008—that is, throughout the boom period—the level of investment that British business managed to achieve as a percentage of GDP annually was 0.3, which is precisely half what the OBR thinks that business will have to invest between now and 2020 if the Chancellor’s numbers are to work. That is not going to happen.

[David Rutley (Macclesfield) (Con)]

The hon. Gentleman says that the Chancellor lacks strategy, but that is clearly not the case. He was clearly not listening to the same Budget speech that I was listening to. That speech included supply-side measures, with business taxes going down and infrastructure being improved. We are seeing massive Government investment in the northern powerhouse to tackle the challenges, and private sector investment is coming in on the back of it, including £1 billion of investment in Manchester airport over the next 10 years. Is not that the sort of leverage that the Government should be seeking?

[George Kerevan]

If the hon. Gentleman had been listening carefully instead of following his script, he would understand that I am in favour of all the supply-side measures that we can get, because that is how we get growth. I am simply pointing out that the Budget figures that we have been presented with in the Red Book, alongside the OBR’s independent analysis, suggest that business investment will have to be double the level of its historical average, at a time when the global economy is slowing, in order for the Budget numbers to work. That is not going to happen.

The hon. Member for Macclesfield (David Rutley) made a reasonable point, however, and I shall follow on from it by asking: how do we boost business investment? The Budget includes a cut in corporation tax, yet our rate is already the lowest in the G20. How can a further cut produce any more inward investment? The incentive is already the biggest it is going to be, so cutting it even more at the margins will not increase incentive. That will just waste funds. Even with that—I have raised this in the House before—because there is so little outlet for investment at the moment, much of companies’ profits from reduced corporation tax is going into share buy-backs, which is a complete waste of time because it does not add to productivity.

The other tax issue in the Budget is the cut in capital gains tax. There is an argument for cutting capital gains tax, but here’s the point: which Chancellor raised capital gains tax in 2010? It was the Chancellor who is sitting there. Where is the long-term plan in raising it and then lowering it? The confusion of signals is exactly why businesses are not investing. They do not know what taxes will be from one Budget to another, which, at the moment, is every three months. [Interruption.]

[David Rutley]

I thank the hon. Gentleman for giving way. I was not seeking to make a point, but I will now. The Chancellor has clearly demonstrated that he has his public finances under control—[Interruption.] The deficit is massively down and he is now in a position to take forward the changes to which the hon. Member for East Lothian (George Kerevan) refers.

[Madam Deputy Speaker (Natascha Engel)]

Order. The hon. Member for East Lothian (George Kerevan) has been on his feet for 15 minutes and is taking an awful lot of interventions—he is very generous like that —but over 40 Members want to speak and I do not think that I am going to get everybody in. If he limits the number of interventions he takes, I will be very grateful.

[George Kerevan]

As ever, Madam Deputy Speaker, I am at your service and the service of the House. I will come to my final point, because I am sure that we will be discussing this at the next Budget in another three months.

The Chancellor talks about living beyond our means. He prioritises the budget surplus. He talks about intergenerational fairness. He says that if we do not get overall national debt down, it will be a burden on future generations. Let us test that and go back to the late 1940s and 1950s, when the national debt as a share of GDP was more than twice what it is now and was coasting at over 200% at one point. For most of the ’50s it was 150%, which is twice what we have at the moment. Where did it come from? It came from Governments, particularly Conservative Governments, borrowing money. Most of the rise in national debt did not come during world war two, but during the late ’40s and early ’50s as we tried to rebuild Britain’s infrastructure following the depredation of the war. Harold Macmillan was building a million houses a year. We invested and the national debt was pushed up.

Here is the thing: if huge national debts weigh heavily on future generations, let us look forward. What happened to baby boomers such as the right hon. and learned Member for Rushcliffe and me? Our generation has houses and pensions. We have benefited from state-funded investment in national infrastructure. The whole notion that investing and running up a budget deficit places a burden on future generations is not historically true. Did the economy grow fast in the ’50s and early ’60s? Yes, it did.

Here is my final point and my message for the Chancellor to reflect on: when trying to control public spending, what matters is what it is spent on. Harold Macmillan and the Conservative Governments of the 1950s invested in infrastructure. This Chancellor is borrowing to invest in current spending, which gets blown away by the wind, and if we do that, we fail. It is no wonder that the Chancellor wants his rendezvous with destiny in 2020. He wants to pretend that he can run a budget surplus. It may never happen. Even if it does for one year, it is unsustainable. The Chancellor does not understand business or how the economy works. He pretends he does and talks a good game, but he has not delivered productivity, which is the core thing that we need in this country.

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[Stella Creasy (Walthamstow) (Lab/Co-op)]

Let me begin by associating myself with the comments made by the hon. Member for South Dorset (Richard Drax) about the dreadful situation in Brussels.

This debate has seemed to be more about astronomy than about the Budget, because we have all been talking about black holes. However, there is a clear analogy to be drawn. It will be remembered that Stephen Hawking famously described what he called the “black hole paradox”: the idea that information could simply disappear into a black hole, never to be restored, although all matter contained information that was to be held in perpetuity. What a perfect analogy that is, given that, at this point, we simply have no information about how the Budget will stack up. Our colleagues in local government would rightly be horrified.

Where can we find information about the impact of the Budget? We can find it in our constituencies, and obtain it from the people whom we represent. In the time that I have been granted, I shall offer three areas of information on which we can judge the Chancellor’s work. The first is personal debt; the second is savings; and the third is productivity. Those are three areas in which this Budget signally fails the British people.

It is no accident that personal household debt in this country is going up and up. “Unprecedented” is the term that the Office for Budget Responsibility has used to describe the impact of the Chancellor’s plans on our constituents. Unsecured personal debt is set to reach 3% of GDP and to stay at that level. This is a black hole into which the Chancellor is asking the public to pour their own money to pay for his mistakes. Just how bad is the situation? The Bank of England tells us that people are now borrowing £1 billion a month in this country. In January alone, people put £500 million on their credit cards, and Aviva tells us that the average family debt is now £13,000, up £4,000 from last summer’s level.

Those on the Conservative Benches who are casual about credit miss the point. Not everyone is paying the same level of interest. Some are being charged excessive amounts for the debts that they are getting into to pay for the Chancellor’s mistakes. The hon. Member for South Dorset talked about people putting their houses up to fund their businesses, but many in our communities have long given up on the dream of home ownership as a result of the debt that they are now in. Wages have risen by just 4% in the last few years, but house prices have gone up by 76%. We know that every single penny matters. That is why it is such a problem that people face these levels of debt. This Chancellor is banking on the British habit of borrowing, but that is like putting Wayne Rooney in charge of a stock-take in a Nike shop.

This is not just about people’s borrowing habits. The fact is that we are now a nation that cannot save either. We are saving just 4% of our disposable income, which is half as much as we were saving four years ago. That is the lowest level of personal saving since 1963. Help to Save will do little for the 26 million people in our country who do not even have access to £1,000 for an emergency. On this Government’s watch, they have no rainy day money. Lifetime ISAs are out of reach for those people who have too much month at the end of their money.

We are seeing a situation of rising personal debt, and low or no savings, in which wages are now stalling. This has an impact on our public finances, because it leads to lower tax receipts. They are down £44 billion on the projections made in 2011. That is why we on this side of the House are angry when we see that those who will do well out of the Budget are those who can well afford to pay. We know that 80% of the gains from the Budget will go to those in the top half of the income distribution, and that half of that amount will go to the top 20%. Meanwhile, debt is locking our people out of opportunities.

[George Kerevan]

Is the hon. Lady aware that the very act of running a budget surplus—that is, putting more in than we take out—forces the public accounts into a situation in which private borrowing increases?

[Stella Creasy]

The hon. Gentleman might not know of my long-held concerns about the way in which this Government are managing the public finances. We do not have time today to talk about PFI debt, or about PF2, which is going to lead to even more problems.

We on this side of the House get the fact that we need to get the deficit down, because every single penny that we pay in interest, and every single penny that we use to pay for the mistakes in this Government’s borrowing, is money that could be invested in our people. It could be invested in the public services that our communities need in order to succeed. That is the point about this Budget. It is not just about the damage that it is doing to people today, or about the debts and destitution that they face now. It is about the narrowing of their horizons tomorrow, too.

We can see the Government signally failing to deal with the productivity gap Britain faces, and the 18% difference between ourselves and our competitors. They are failing to invest in our young people. By the end of this Parliament, China intends to produce 195 million graduates. Not just China is investing in its people; Brazil, Russia and Argentina are as well. Our children will have to compete with graduates from those countries, but our Government are offering them nothing in that regard. We can see the consequences for them in the productivity gap. And when the Government are forcing every school to become an academy, we can see that they are rejecting their own responsibility.

How very different this is from when we sat here a year ago and listened to the Chancellor claim that he was fixing the roof and that Britain would be able to walk tall again. He is a bit like one of those builders we see on the “Watchdog” programme. I would encourage the British people to go to their trading standards officer about him, but the Government have cut that service too. They are left with only one alternative, to look to an alternative party of government—the Labour party—to offer a genuine investment in the future of our young people and a genuine recognition of why fiscal responsibility matters. This is a black hole that is sucking everything out of this country—including, hopefully, the Chancellor’s career.

--- Later in debate ---

[Chris Philp (Croydon South) (Con)]

I would like to start with fiscal responsibility, as the Chief Secretary is on the Front Bench. Fiscal responsibility is very important —for the sake of our children, if nothing else. I have two-year-old twins, and there is nothing noble, moral or ethical about consistently spending more than we can afford and sending the bill to the next generation. Moreover, as the Chancellor eloquently put it earlier, without fiscal responsibility we cannot deliver the services that are so important.

Clearly, a good start has been made on fixing the deficit left behind in 2010; about half of it has been eliminated. Labour Members are right to point out that there is still more work to do, but it does not seem entirely appropriate for them to give angry lectures on the topic, when they have opposed every measure proposed by the Government over the last five years to reduce the deficit. In fact, had we followed their advice during the last Parliament, our national debt would be £900 billion higher than it is today.

During his thoughtful speech, my colleague on the Treasury Committee, the hon. Member for East Lothian (George Kerevan), suggested that high spending during the late 1940s and 1950s demonstrated that we could in fact spend money to grow. I am afraid that I dispute that analysis, because that spending spree ended in 1976, when we had to go cap-in-hand to the IMF. Even Denis Healey, the then Chancellor of the Exchequer, said:

“You can’t spend your way out of a recession”—

a lesson we would do well to remember.

[George Kerevan]

My point was to go not into the 1970s, but into the very specific period of the 1950s, when national debt as a share of GDP was significantly higher—twice as high—in many years than it is now. That did not lead to a burden on the generation that was young then—my generation—which is in fact extremely well-off as a result of that spending. I was trying to look at whether borrowing per se disbenefits future generations, and it does not—it depends on how we spend the money.

[Chris Philp]

I must respectfully disagree with the conclusions of my Treasury Committee colleague. If we look at economic performance in the 1960s and 1970s, we see that the enormous debt overhang, with the state spending too much money, was a drag on the economy and culminated in the 1976 bail-out. That was the natural conclusion of the overspending that started in the 1950s and continued through the post-war consensus period, which ended only in 1979.

The second main criticism levelled at the Budget by Opposition Members is on the issue of fairness. I am afraid I disagree with the comments made over the weekend by my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith). This is a fair Budget, but let me produce some evidence to substantiate that.

Over the last five years, spending on disability benefits has increased by £3 billion, and it is forecast to increase further. That strikes me as fundamentally fair. We are spending more than we ever have on the NHS and on education—particularly on pupils from low-income backgrounds, via the pupil premium. Moreover, we are introducing the highest-ever national minimum wage—the national living wage—which takes effect in about a week’s time. We have taken millions of people out of income tax entirely, which disproportionately benefits people on low incomes. We have frozen petrol duty once again, which also disproportionately benefits people on low incomes, because things such as petrol duty are inherently regressive.

If we consult the Treasury’s distributional analysis, we see that the lowest 20% of earners pay just 6% of tax; we would expect that to be 20% if everything was even. They will pay the same in 2019-20 as they paid in 2010, while the top quintile will pay 52%—up from 49% five years ago. The highest earners will therefore pay proportionately more in five years’ time than they did five years ago. This analysis excludes the effect of the national minimum wage; if that is included, the skew will go even further. I believe that this Budget is a fair Budget. It protects spending on the most vulnerable, and those with the broadest shoulders are bearing the burden.

Let me turn briefly to business. Before coming here, I spent 15 years setting up and running entrepreneurial businesses. There is a reason why our economy has created 2.4 million jobs in the past five years, and why youth unemployment in my constituency is down by an incredible 62%—it is not an accident. It is because corporation tax has been cut, which has encouraged businesses to invest in creating jobs. I am delighted that the Chancellor is continuing this very successful long-term economic plan—[Interruption.] I see it commands widespread support—with further cuts in corporation tax and capital gains tax to encourage investment. My Treasury Committee colleague suggested that lower corporation tax encouraged share buy-backs, which is a bad thing. I would respectfully suggest that share buy-backs cycle money back into the investor community, who can then reinvest in other opportunities.

I welcome the Government’s action on international tax evasion through the BEPS initiative, although they could forerun that with further moves on transparency and disclosure unilaterally in the UK, as has been suggested. There is a consultation document on giving the Financial Policy Committee further powers to direct buy-to-let mortgage lending, which appears to be very high. I urge the Government to look seriously at those proposals and enact them at the earliest opportunity.

I support this Budget. It is good for business and good for our country—and most of all, it is fair.

Budget Resolutions and Economic Situation

George Kerevan Excerpts

Monday 21st March 2016 Commons Chamber

[Alison Thewliss]

Yes, I think that would be a very useful idea. Rents in the private sector are soaring compared with those in the social rented sector, so it is perverse that this Government view the social rented sector as the source of the problem, not the acceleration of rents. That would be a useful power for local government in England.

It is evident to just about everybody outwith those on the Government Benches that the solution to the housing crisis is not starter homes of £450,000. A salary of £77,000 with a deposit of £90,000 is the going rate for these starter homes, but that will not exist in perpetuity for the next generation, who will go back into the very expensive retail housing market.

The Budget includes a welcome commitment to combat homelessness, but the funds involved are a drop in the ocean, given the size and scale of the housing crisis facing England. Virtually nothing is happening to encourage growth in the social rented sector in local government and housing associations. This Government are providing a sticking plaster when the patient needs urgent CPR. In Scotland, homelessness is falling and we are continuing to invest in the social rented sector, despite the cuts we face from the Government down here.

I will now turn to issues relating to devolution deals and draw Members’ attention to the “Pitch Book” on the Scottish Cities Alliance website, which outlines the scale of the ambition for some of Scotland’s cities. This Government could be doing a lot more to support growth deals in Scotland. Work is already going on in my own city of Glasgow and the partnership authorities in that city deal. That is making a significant contribution to the growth of local economies, and doing so in a sustainable manner that brings people on board and gets them back into work in communities that have been neglected over generations and that are still recovering from the cuts of the Thatcher years.

I reiterate my and my colleagues’ disappointment about the Aberdeen city and shire deal. The plans were for an ambitious deal comprising a £2.9 billion infrastructure delivery programme and an associated investment fund. Members will appreciate our disappointment when the Chancellor could find only a measly £125 million down the back of the Treasury sofa. Aberdonians often get unfairly maligned for being thrawn, but this Chancellor is in a different league entirely when it comes to being stingy towards a city whose oil has kept the UK economy afloat for years. There is news that the Inverness and highlands city deal may be announced tomorrow in Inverness, and I welcome that development. The people of Inverness and the highland region have been waiting for some time—since before the elections last year, in fact—to hear whether they will receive anything from the UK Government.

Significant investment is required to grow the economy of Inverness and the highlands, and to provide opportunities that enable young people to stay in the area. For too long, the brightest and best have had to leave the highlands to seek their fortunes elsewhere—[Interruption.] Especially my hon. Friend the Member for Glasgow North (Patrick Grady). The technological advances that we have in 2016 give us real opportunities to reverse that trend, which has damaged the highlands for so long. Doing so would not only allow local young people to stay in the area, but attract new families to enjoy the excellent quality of life afforded by that part of the world. Inverness deserves its share of UK Government support to innovate and make changes. I urge the Chancellor and Ministers to be generous and to find the money that the area needs to stimulate growth.

Young people are making life choices as we speak. They are filling in UCAS forms and deciding where they will go to take their next steps in life. They need to know that in this Budget, the UK Government, as well as the Scottish Government, are thinking of their futures.

[George Kerevan (East Lothian) (SNP)]

I want to follow up on city deals. Is my hon. Friend aware that at the back of the queue is the city deal for Edinburgh and south-east Scotland, which includes my constituency? The Chancellor and the Minister have made a great to-do about the fact that negotiations have been opened, but waiting six months before opening negotiations does not constitute an announcement. That is not an announcement; it is delay, delay, delay.

[Alison Thewliss]

I absolutely agree with my hon. Friend and with other colleagues from that part of the world, who are also here. I understand that the Edinburgh and south-east Scotland city deal team put in their bid in September last year. To open negotiations only now is an unacceptable delay in a region that needs that stimulus.

Select Committee reports on city deals have mentioned that they are often dictated by political imperatives. It seems as though Edinburgh’s deal sits nowhere in those political imperatives. We have waited and waited with bated breath for an announcement on the Edinburgh and south-east Scotland deal, but we have had no certainty about how well the plans have been received. It would be good to have an announcement soon, because the purdah period for the Scottish Parliament elections is imminent. There will then be a further purdah period for the EU referendum.

The people of Edinburgh deserve to know how their deal is being received and when work can get under way. It would be a shame if the ambitious proposal in the bid for £1 billion to improve infrastructure, skills and innovation were put on hold by an EU referendum. That £1 billion of investment could unlock an additional £3.2 billion of private sector investment in Edinburgh and south-east Scotland. Because the bid team is working collaboratively with Edinburgh University, surely the potential impact of the city region deal to the UK’s productivity and growth is deserving of an announcement of significant funds very soon.

There are fledgling deals in other parts of Scotland as well, and I would welcome early engagement by the UK Government in those deals. This morning, I met people involved with the Ayrshire growth deal, which involves ambitious proposals for the area to bring in greater science, technology and innovation and to make the most of the Prestwick hub—

Budget Changes

George Kerevan Excerpts

Monday 21st March 2016 Commons Chamber

[Mr Gauke]

My hon. Friend is absolutely right, and that is why all of us in the House should be delighted that we have record numbers of people in work.

[George Kerevan (East Lothian) (SNP)]

As of last Wednesday, the Chancellor has delivered five Budgets in 15 months—one every three months. Are we to take it from the Minister’s statement that the Chancellor wishes to improve on that record and give us a new Budget every week?

[Mr Gauke]

I fear that the quality of the questions might be slightly deteriorating, but there we go. The answer is no.

Bank of England and Financial Services Bill [ Lords ] (Sixth sitting)

George Kerevan Excerpts

Tuesday 23rd February 2016 Public Bill Committees

[Harriett Baldwin]

If I may, I will come back on some of the points made by the hon. Member for Bassetlaw, who seems, I submit, to prefer American democracy to British democracy. I do not know whether this is a preference he has publicly stated, but it certainly seems to be his revealed preference, judging by his comments before lunch on the second Chamber and his comments now. American democracy is very different from ours, it is true, and I am sure that each has different advantages and disadvantages. In America, the judges are elected, for example. That is not something that we have chosen to do in this country. In America, obviously, their second Chamber is directly elected. That is not something that this Parliament has yet chosen to do.

Obviously, the power of the Executive in the British system of democracy is considerably greater when it comes to Budget matters than in America, where for a long time they were unable actually to pass a Budget. In America, where the Senate must confirm presidential nominations for many public appointments, there have been significant delays in filling vacancies. At the end of 2010, for example, 22%—over one fifth—of Senate-confirmed positions remained unfilled or temporarily filled by acting officials. Introducing scope for delay and public disagreement could impede the recruitment of good candidates to these positions. These are Executive posts and, as I said previously, candidates may not wish to reveal their interest to a current employer in advance of being confirmed in the appointment process.

[George Kerevan (East Lothian) (SNP)]

I remind the Committee that for most of last year the Treasury Committee was in touch with the Chancellor, who was very dilatory in making a fresh appointment to the head of the FCA. Delays can occur even when the Executive are in charge.

[Harriett Baldwin]

Again, I have to disagree with the hon. Gentleman. There has been a very capable and competent acting chief executive at the FCA throughout this time. I submit that the hon. Member for Bassetlaw would rather that Bassetlaw were in America, from what he has said.

--- Later in debate ---

[Harriett Baldwin]

The Minister really is saying that. I am saying that these are Executive roles, which the Executive should continue to be able to appoint, obviously with a pre-commencement hearing by the Treasury Committee. I fear that the hon. Member for Bassetlaw’s ancestor’s ticket for this voyage must have got lost, but it was very interesting to hear about the connection with his constituency. Without more ado, I urge the Committee to reject this amendment.

[George Kerevan]

I normally have a great deal of respect for the Minister’s judgment, but I detected something in her tone which said that even she did not fully agree with her position. On the first point, she argued that statute guarantees the independence of the regulators. If there is anyone is this room, including the Minister, who can put their hand on their heart and truly say that no regulator has ever been leant on by a Minister of any party, then I will accept where the Minister is going. I am a tiny, wee bit cynical that sometimes, despite statute, Ministers of all parties and all jurisdictions tend to lean. We should try to tempt them away from that by giving a parliamentary underpinning to the role and the position of the regulator. That is at the heart of this.

The Minister also cites the problem that might arise from dual accountability to the Executive and to Parliament. If there is conflict, I am always happy for Parliament to triumph over the Executive, but maybe the Minister wants this to be the other way round—indeed, she has said as much. My point is that we already have a degree of dual accountability. The Treasury Committee, standing for Parliament as a whole, questions the regulators on a regular basis to make sure that they are fulfilling their brief. The Committee is not questioning them on policy, but to make sure of their independence. The actual accountability already exists. We are just making it clearer here.

The Minister says that as an alternative there could be a pre-commencement interview. If there is a problem with confusion of lines of responsibility, that is actually a worse way to go than making it clear that the Committee, standing in for Parliament, does have the role of confirming the appointment.

My final point is that this would interfere with the quality of the candidates we might get. I remind the Minister that every single member of this Bill Committee had to stand for election. We put ourselves before the electorate; that is democracy. All we are arguing for is the principle of democratic accountability. If there are candidates for senior Executive positions who are frightened of democracy, they do not deserve the job.

Question put, That the clause be read a Second time.

--- Later in debate ---

Brought up, and read the First time.

[George Kerevan]

I beg to move, That the clause be read a Second time. Forgive me, Mr Brady; I do not normally like the sound of my own voice quite so much as to speak so often, but I will get this over as quickly as I can.

New clause 4 suggests a change in the title of the Bank of England to the Bank of England, Scotland, Wales and Northern Ireland. I know I am at risk of being accused of triviality. In defence, because we are talking about a Bank of England Bill, I thought it was pertinent to bring the matter up. I accept that it is a minor aspect of the legislation.

I am not claiming ownership of the Bank of England for Scotland, even though that institution was first mooted by William Paterson in the 1690s. He suggested the original project to lend His Majesty’s Government the sum of £1.2 million. The geek in me made a quick calculation of what that would be worth today, and it comes out at about £26 billion, so that was quite a serious project for the time. The yield on the original loan was 8%, which was a good deal better than one would get today.

Let me quickly get to the core: why change the name? I appreciate that it is an historic name known around the world and is a great brand. There is a minor irritation in the other parts of the kingdom at the use of the name England. That is no offence to the great people of England—my father is from Liverpool—but it is a minor irritation. But that is the least of it.

I talk of a great global institution, one that has played even more of a global role since the crisis of 2007-08. If it is to play that global role and represent a modern Britain, it needs a name that reflects a modern Britain. That is the issue for me. The intent of the Bill for the Government and the officers of the Bank of England is to modernise. What better opportunity to have a modern name?

I am suggesting a minimum change in legal terms to the Bank of England, Scotland, Wales and Northern Ireland. I suspect that in day-to-day operations it would be comparable to a company saying, “This is the legal name but trading as.” I am sure that for a generation to come it would still be known as the Bank of England, but honour would be settled by the fact that the legal title would be as I suggest. It is the minimum change, and it is put forward as an attempt to gain some common ground.

I know that a number of my colleagues—and not only in the SNP—are considering tabling other amendments with other names on Report. The issue is not going to go away, but I think this solution is doable and still retains the tradition of the Bank of England, which I am sure the Minister will defend.

[Richard Burgon]

What’s in a name? But we are happy to support the renaming of the Bank of England to the more accurately titled Bank of England, Scotland, Wales and Northern Ireland, purely on a principled basis, given that they all fall under its area of geographical responsibility.

--- Later in debate ---

[Harriett Baldwin]

Members on the Opposition Benches have highlighted in a nutshell the essence of this debate and made some of the points I was going to make. The Bank of England as an entity predates the United Kingdom itself: it was founded in 1694, before the Union, and in the intervening 322 years it has built a globally prestigious brand, if I dare call it a brand. It is well known around the world and has a worldwide reputation as a strong and independent central bank, although independence obviously came quite a bit later. The hon. Gentleman’s amendment would not change this and it is not something we should dismiss lightly, but I think that people would still carry on referring to it as the Bank of England.

The Bank exists to serve the entire population of the United Kingdom. Its mission statement is:

“to promote the good of the people of the United Kingdom by maintaining monetary and financial stability”,

but I can understand from his political allegiance why the hon. Gentleman did not propose in his amendment that it be renamed the Bank of the United Kingdom, because his party’s aspiration is that we become a disunited kingdom, although we all sincerely hope that that never comes to pass.

I remember that in the referendum campaign there was some talk, not only of whether the euro would become the currency of Scotland, but of the groat becoming the currency of Scotland. I think that not answering that question was one of the real problems that the nationalists encountered in the 2014 referendum. It is worth reminding the Committee that the Bank has a clear framework for ensuring it understands the economic picture across England, Scotland, Northern Ireland and Wales, through 12 agencies located in the regions and countries of the UK. Naturally, Scotland, Northern Ireland and Wales all have their own individual Bank agencies, as do the regions of England, and the agents in these branches and across the rest of the country meet with some 9,000 contacts a year from a range of sectors, which provides a wealth of economic and financial intelligence to the Bank’s policy committees.

That vital source of information helps the Bank’s policy committees to understand both the financial and non-financial conditions for businesses in all four parts of the United Kingdom, whether it is a business’s ability to access credit, the condition of the housing market or the level of output. The Bank actively seeks to understand economic and financial conditions in all corners of the United Kingdom in order to set appropriate monetary policy in the United Kingdom.

It is not only the Bank’s agents who are the external face of the Bank. Members of the MPC, the FPC and the PRA board regularly make speeches and meet with businesses across the United Kingdom. In fact, in 2014-15, members of those three organisations conducted 54 visits in different parts of the UK. Engagement in the different countries and regions of the UK is clearly important at the highest levels of the Bank.

The Bank of England is known as the central bank of the United Kingdom. The hon. Gentleman’s new clause would make no practical difference on the ground. He himself referred to the name being a “minor irritation”. Changing a name steeped in more than 300 years of history, particularly to the name that he suggests, would be to the detriment of the institution. It has become internationally renowned and respected with that name, and the value of that recognition should not be underestimated. International confidence in the Bank of England helps to support international confidence in our economy. Changing the Bank’s name would undermine that international recognition of it as a world-class central bank, and I therefore gently urge the hon. Gentleman to withdraw his new clause.

[George Kerevan]

Any change to the Bank’s name would not affect coins because the Bank’s name does not appear on coinage, as far as I remember. It does, however, appear on notes. If there was ever an agreement to change the name of the Bank of England, that would have a knock-on effect on notes, but a sensible solution would be simply to let the notes wear out, as they do quickly, and then change them. I am certainly not proposing any name change that would have a major cost; I would not want that.

Members on both sides of the Committee raised the issue of what would happen if Scotland were to become independent. If I gather correctly the drift of the contributions, Members are worried that if Scotland becomes independent post Brexit, the name would have to be changed back. I am glad that Members are still alive to the fact that the independence issue is alive and well north of the border. I will not tempt the Chair’s patience by going too far into that; we will cross that road when we come to it, but I am glad Members are aware that the issue has not gone away.

The Minister’s final suggestion was that if there were to be a name change, it would be better to change it to something such as the Bank of the United Kingdom, and that I am being in some way devious by proposing this longer name. There was discussion about what the new name would be. I have tried to alert Members that that debate is going on in other parties within the House. I have heard suggestions such as the Sterling Central Bank. It seems to me that the longer form I propose is the least change and is therefore most able to encompass the Minister’s last point—we want to retain some of the tradition of the Bank, which was founded initially by a Scots person.

This is a live issue. The name will be changed at some point. Once a debate such as this emerges, it can only go in one direction. It would be better to choose a name that we can all agree on in the here and now. If the Minister rejects that on the basis of some grand tradition of the Bank of England, that undermines the essence of the Bill, which is to modernise the Bank and make it one that works for the whole of the nation as it is presently constituted. She and her Government are hiding behind the notion of modernity but they actually want to maintain a Bank which is run by the Executive, and which is not anywhere near as efficient as she thinks it is in terms of managing the prudential aspects of the economy.

Question put, That the clause be read a Second time.

Bank of England and Financial Services Bill [ Lords ] (Fifth sitting)

George Kerevan Excerpts

Tuesday 23rd February 2016 Public Bill Committees

[George Kerevan (East Lothian) (SNP)]

I just want to make some remarks about clause 28, on transformer vehicles, which is one of the most important elements of the Bill, even though it is somewhat technical.

I commend the Minister on her rapid and very clear presentation of the clauses, but she said something about clause 28 that caused me to worry, and I would like to press her on it. She seemed to imply that the clause is being introduced to ensure that the regulation of transformer vehicles will maintain, and in fact increase, the City’s competitive edge. I worry that we are enacting regulatory provisions that could be used to facilitate transformer vehicles, which are rather toxic.

Transformer vehicles have been around for a while—since the start of the millennium—but they began to grow rapidly in the reinsurance market in the past decade. The danger is that they are under-capitalised. The existing reinsurance market is well capitalised, and the risks are well catered for. The existing major insurers traditionally do not reinsure all of their risk. They keep some of it and capitalise for it, which is good, and pass on the bulk, but not all, to separate or wholesale reinsurers, which are heavily capitalised in case anything goes wrong. The companies use actuarial tables to make profit and invest, but if anything goes wrong—if there is a systemic crisis in the market—they are capitalised in both the insurance and the reinsurance parts of the market to cover that risk.

The point about transformer vehicles is that in the past decade we have moved away from a capitalised reinsurance market to one in which the risks are hedged by selling credit default swaps. If used sensibly, that is not a problem, because if an individual insurance policy runs into trouble a credit default swap can be called in. But as we saw with the mortgage-backed securities at the end of the first decade of the millennium, if there is a systemic crisis and the entire mortgage market goes, the credit default swaps cannot be up because everybody loses money. The worry is that if our reinsurance model is based wholly on hedging, individual transformer vehicles can pay up, but if there is a general crisis—if there is a massive weather crisis or a nuclear power station, such as Hinkley Point C, blows up—the credit default market will not be able to repay everybody. That is why we need to regulate it.

If we are introducing these regulations to put in place an easier approach to hedging, rather than a properly capitalised reinsurance market, and to ensure that the hedging is here rather than New York, we are creating a problem. The Minister could become famous. If she ensures that the regulations that are introduced by the Treasury, the PRA and the FCA are used to make the market work sensibly, we will avoid a crisis. But if we introduce regulations that move the market further towards hedging and away from proper capitalisation, her name will be on the crisis when it occurs.

I want to clarify what these regulations are for. Are they for ensuring discipline in the market and the capitalisation of reinsurance, or are they a way of evading capitalisation? That is where the problem would begin.

[Harriett Baldwin]

I will try to keep my response in order, Mr Brady, but forgive me if I occasionally slip out of order. The hon. Member for Wolverhampton South West started by asking about clause 27, which he described as “see no evil”. I want to reassure him that the change addresses an issue that arises as a result of the transfer of the regulation of consumer credit from the Office of Fair Trading to the Financial Conduct Authority and the consequent application of the Financial Services and Markets Act 2000 to the consumer credit market. The issue addressed by the clause, whether relating to a chain or third party, arises particularly in the context of consumer credit and the activity of credit broking.

We are confident that the change to section 27 of the Financial Services and Markets Act addresses the issue with regard to consumer credit, ensuring that the section is more proportionate on consumer credit firms, without unduly affecting the protections available to consumers in the market. That is in line with our broader policy intent for the consumer credit market, where the reforms that the Government have made balance the need to provide strong consumer protections with ensuring that the burdens placed on a diverse market that includes thousands of small businesses is proportionate. I reassure the hon. Member for Wolverhampton South West that firms remain under a regulatory duty, imposed by the FCA, to take reasonable steps to satisfy themselves that the firms that they deal with are authorised, where that is appropriate. The clause strikes the right balance between protecting consumers and placing a proportionate burden on firms that are lending to consumers.

We share with the hon. Gentleman an aspiration to simplify some of the legislation. I very much welcome his words of support for my dream goal in this post, which is to simplify and reduce some of the complexity not only of this regulation but of the FCA’s own rulebook, which has become quite a significant barrier to entry to sensible organisations that may want to move into, for example, the debt advice space. I welcome his support for any progress I am able to make to simplify some of that.

Clause 27 simply narrows the circumstances in which a credit agreement or a consumer hire agreement is unenforceable. I think that the hon. Gentleman will welcome that. Both he and the hon. Member for East Lothian mentioned transformer vehicles, which are not those fun toys that appeal to consumers but something completely different that, I assure Members, are not for the consumer market. Only sophisticated or institutional investors will be permitted to invest in insurance-linked vehicles.

From a policy perspective, it is important that London have the ability to establish insurance special purpose vehicles. London is the largest insurance market in Europe and is a centre for specialist insurance activity. Whether we like it or not, all Members face risks in their lives—indeed, all businesses face a range of risks. Insurance is a way to bring that risk down to a manageable level. London should be able to compete and innovate in new forms of risk mitigation. If London is able to offer a full range of innovative solutions, insurance entities will continue to come to London to meet their risk mitigation needs. I heartily hope that all Committee members support that.

Insurance-linked securities use a range of specialist skills and services to arrange the deals, including underwriting, risk modelling, brokerage, legal and capital market expertise. Nevertheless, Members are right to express concerns about the transparency and manageability of the risks, as well as about the importance of their being arranged by regulated entities, so it is important that I set out that insurance-linked securities business will be prudently regulated in the UK.

All special purpose vehicles will require Prudential Regulation Authority authorisation. All the wording in terms of the contracts must be clear and robust, and importantly risks cannot be bundled together in the way that the hon. Member for East Lothian feared. We require all special purpose vehicles to be fully funded to cover the full extent of the risk they take on, so we are not talking about the kind of very leveraged structures that he rightly said were so instrumental in the last financial crash.

I have said that only sophisticated or institutional investors will be permitted to invest in the vehicles. Of course, if they are arranged prudently—when someone is able to manage their risks prudently—those transactions will contribute to financial stability. They increase the capacity of the reinsurance markets. They provide investments that are not correlated with the economic cycle, and therefore they provide investors with good diversification characteristics. I hope that I have reassured hon. Members of the importance of clarifying the rules on transformer vehicles, but I sense that the hon. Gentleman has a further question on the issue.

--- Later in debate ---

[Harriett Baldwin]

I want to put on record that of course the Chancellor is a listening Chancellor. I am delighted that some of that listening includes listening to the hon. Gentleman, whose views on pasties I remember the Chancellor also listened to at one time. I see why his Whips put him on the Committee—because of his extensive and deep knowledge of so many of these things.

Let us face it, the topic of pensions can cause people’s eyes to glaze over—not of course those of hon. Members in Committee, but potentially those of people avidly reading the record in Hansard—so I want to clarify that the pension freedoms apply to defined contribution schemes. Those regulated by the FCA are covered by the new clause. The hon. Member for Wolverhampton South West asked about actuarial reductions, but schemes such as those that most Members of Parliament are members of are in the defined benefit section of the market. That is presumably why he has not found the language clear enough; the new clause does not apply to defined benefit schemes. In cases where actuarial reductions might be applied unfairly, we think it is important for the FCA to be given flexibility in the new clause.

The hon. Gentleman asked about the level of the cap. It is important to emphasise how well and constructively the industry has been working with the new pension freedoms to enable hundreds of thousands of people to take advantage of the freedoms. It is worth citing how excellent, innovative and adaptive many firms have been with the new freedoms, which came in with a degree of rapidity. However, there were some cases—I cited the example of a 10% cap—where charges were clearly egregious. The FCA will do further work in this area, in terms of its cost-benefit analysis process, but there have been efforts to collect evidence of the scale of the charges. In the vast majority of cases—I think that I am right in saying, off the top of my head, more than 90%—the charges have been under 2%. The industry, by and large, has worked very well with the reforms; I do not want people to get the impression that it has not. However, we think that where there are unreasonable barriers, in terms of charges that we would all regard as outrageous, the FCA is right to have these powers.

There will be cases in which, when someone removes their pension, the provider is right to apply a market value reduction, to readjust the value of the fund properly to reflect the performance of the market. Not all funds mark to market on a daily basis. We would not regard that as an early exit charge. It is right that market value reductions are specifically excluded from the new clause.

I hope that by answering all those questions, I have satisfied the Committee that this is another excellent clause from a listening Chancellor, and I commend it to the Committee.

Question put and agreed to.

New clause 7 accordingly read a Second time, and added to the Bill.

New Clause 3

Nomination of the Chief Executive Officer of the Prudential Regulation Authority: parliamentary oversight

“The Chancellor of the Exchequer shall not nominate a person as Chief Executive Officer of the Prudential Regulation Authority without the consent of the Treasury Committee of the House of Commons.”—(George Kerevan.)

Brought up, and read the First time.

[George Kerevan]

I beg to move, That the clause be read a Second time.

We on the SNP Benches believe that senior regulators and those charged with supplying independent advice to Government should be independent of the Executive and that the best way of achieving that is to have their appointments confirmed by Parliament. In the case of the PRA, we are suggesting that that should be done through the Treasury Committee. The principle has already been conceded by Government. The head of the Office for Budget Responsibility is confirmed by the Treasury Committee, so in a sense we are simply trying to widen that remit. We have chosen to begin with the head of the PRA, because major changes in the Bill involve the Bank and its relationship to the PRA. Also, Mr Andrew Bailey, the current head of the PRA, is moving on to the FCA, so sometime this year we will indeed be appointing a new head of the PRA.

The principle is simple. This is about the way in which we guarantee the independence of the regulator from the Executive. We accept that the Executive—the Chancellor, in this case—is the correct person to make the nomination, but the way we guarantee the independence of the regulator is to give them a wider base through confirmation by Parliament. Then, if there is ever a conflict between the regulator and the Executive, the regulator can fall back on the fact that they are there, having been confirmed by Parliament. That simple principle is accepted all round the world and, as I said, is already accepted with regard to the OBR.

I hope that the Government will accept this proposal; I hope that the principle is a broad enough one, but I stress that the aim is not to make the regulator in any sense a political figure, but to go in the opposite direction.

We have had some concerns in the last few months regarding the independence of the FCA. We will say no more about that. The point is that the issue of the independence of regulators is in the public arena. The best way for the Government to allay some of those fears is to accept the new clause.

Bank of England and Financial Services Bill [ Lords ] (Third sitting)

George Kerevan Excerpts

Thursday 11th February 2016 Public Bill Committees

Finally, I can confirm that again we have nothing further to add to clause 17 and schedule 3, which has been grouped with these clauses, and will not push amendments to them to a vote.

[George Kerevan (East Lothian) (SNP)]

Like other Members, I add my delight at serving under your chairmanship on this bright morning, Mr Brady.

There is no best way of constructing the Bank and its regulatory functions. In this instance, however, having set up a structure, I think we should let it work itself out and see what the issues are, rather than tear it up so quickly. From that perspective, I will support the line of argument followed by the hon. Member for Leeds East.

May I remind the Minister and the Committee that we have been here before? There was a long period when the Bank was effectively the prudential authority, and it did not do a good job. One can mention the Bank of Credit and Commerce International. One can mention Barings. The Bank failed at the very simple task of examining the imminent failure of major banking institutions and not ensuring that that did not happen before it became a public catastrophe.

For that reason, in the Bank of England Act 1998, prudential conduct responsibility was taken away from the Bank and invested in the Financial Services Authority. That model, as we saw subsequently, did not work, in the sense that completely separating prudential conduct from the Bank led to a chasm between the two agencies in terms of who was letting whom know and who was responsible for tidying up.

In a sense, the halfway house that we now have, where we have put prudential conduct into the orbit of the Bank but kept it semi-discrete, is better than what we had before. Will it work in the long run? I doubt that any bureaucratic system ever works in all circumstances, but we have set it up; let us test it to destruction before we make another bureaucratic change. From that point of view, we have a model that seems to work.

The issues brought up in the Treasury Committee related particularly to the resources that were deployable to the PRA to conduct its activities and whether the main board of the Bank was providing sufficient financial and staff resources to the PRA to allow it to do its work. My worry is that the change proposed by the Government makes it too easy for the Bank’s main board to ration resources for the soon-to-be PRC. It would be better to leave a degree of independence within the PRC, so that if it comes to a debate over resources, the PRC has some muscle and can go public if it feels that it is not getting the physical and staffing support it needs from the main board.

We may need to come back to the structure of the Bank at some point; the Minister may want to reflect on that. As I said in the previous sitting, we are in danger of creating too many committees of the Bank. We may be in danger of reinforcing a silo mentality, even though the Governor serves on all the different committees. We may have to discuss at some point whether we need to separate the Monetary Policy Committee and the Financial Policy Committee, but we should certainly test the prudential part of the administration in its present form. Changing it now simply because we will get a better and prettier bureaucratic chart is not a sufficient reason.

[Harriett Baldwin]

As I am sure you are aware, Mr Brady, desubsidiarisation of the PRA is not something they talk about very often down at the Dog and Duck, but it is incredibly important. Committee members have raised important issues, to which I would like to respond.

If one were in the pub discussing the Bank of England, the extent of people’s knowledge of what it does probably would stop with the changing of interest rates; the hon. Member for Leeds East made that point clearly. He said that the change represented a downgrade of the incredibly important microprudential responsibilities of the PRA, but I would argue that it is an upgrade, in the sense that it gives the PRA the status of a committee—the Prudential Regulation Committee—that has the same status as the Monetary Policy Committee. That reinforces to not only Bank staff but drinkers in the Dog and Duck and the public at large that it is an incredibly important function. I completely agree with hon. Members who raised that point.

The microprudential responsibilities of the prudential regulator are extremely important. The hon. Member for East Lothian made the important point that, in the 300 years of history of the Bank of England, until its independence under the Bank of England Act 1998, there were obvious failures. Firms did fail, and no one should be under the illusion that we are in a zero-failure regime for banks.

However, it is clear that the decision to separate that microprudential function and move it to the FSA created a system that was tested to destruction. That separation under the failed regulatory regime of tripartite arrangements meant there was insufficient communication between the microprudential regulation at the FSA and the day-to-day liquidity challenges that banks were experiencing in the markets in the run-up to the crash. That seems to me the strongest possible argument for having moved the microprudential function back to the Bank of England. I am glad that Committee Members have supported that important change. By following the logic of that argument, one is compelled to see that it makes sense to go one step one further, and change the PRA from being a subsidiary into being at the heart of the Bank with the same status as the Monetary Policy Committee.

By making the points he did, the hon. Member for East Lothian has made my argument for me—for having that much closer feeling of all staff being part of one Bank, which is the agenda that the Governor has set out. That not only gives a much higher status within the organisation to the incredibly important function of microprudential regulation but it reinforces the ability of the organisation to communicate with the important other parts of the organisation, and gives them more time to do it. They will not have to worry about all of the responsibilities of being a separate company.

[George Kerevan]

indicated assent.

[Harriett Baldwin]

I am glad to see that the hon. Gentleman, a thoughtful and intelligent man, is nodding vigorously as I make my argument.

The hon. Member for Leeds East asked what prompted the decision. It was very much the one-Bank agenda that the Governor has followed. He argues that it makes sense to have different points of view and not be captured by groupthink. Although I agree with the importance of having a range of views on these committees, I would counter that argument by saying that the tripartite arrangements were so clearly inadequate that that difference meant that no one spoke to each other about what they were seeing.

I hope that the Treasury Committee returns to evaluate how the transition has worked. I want to reassure hon. Members on resources, because they are incredibly important. We want to ensure that the microprudential function does not have to compete for resources or find itself starved of them. It is important to note that the levy will continue to provide those resources. No changes are being made under this legislation to the available resources for microprudential regulation.

The hon. Member for Leeds East mentioned the importance of the role of the Governor. Of course, the Governor is an incredibly important person who sits on all the committees. That is an important function of having a one-Bank organisation. He is obviously a very responsible person. With those responsibilities comes accountability, not only through the Chancellor but to Parliament through the Treasury Committee. I emphasise that that arrangement does not change as a result of these clauses.

Having reviewed all the questions raised against making the changes, I insist that the changes will improve the Bank of England’s governance.

--- Later in debate ---

Our amendments are very reasonable. As I set out earlier, on the spectrum of the two interlinked issues to which I referred—the reverse burden of proof and the width of the net—we are in between the Scottish National party, which is a bit too far one way, and the Government, who are a bit too far the other. Therefore, as reasonable people—as moderates, no doubt—the Government will think again and accept our excellent amendments, although I appreciate that when they do that, they may say to us, “On Report, we will need to tweak the wording a bit.”

[George Kerevan]

I will be reasonably brief, because the hon. Member for Wolverhampton South West has covered a lot of the points. The burden of our amendments 34 and 35 is to preserve the existing Financial Services (Banking Reform) Act 2013, which has not yet come into force—it comes into force next month—with regard to the reverse burden of proof. I think that at this stage, before the reverse burden of proof has been tried, to take it out of the legislation sends the wrong signal to the financial community. That is the most serious issue. We could argue the rights and wrongs of what is the best possible kind of regulatory regime, but much of this depends on mood, culture and signals.

The senior managers in the financial community in the City of London have been worried about the import of this legislation—there is no doubt about that. I understand that in their circumstances, because I have met many of them and they are not going out of their way to impose regulatory infractions. I think there is a new mood in the City, with people trying to get it right. Some senior managers were fearful of the extent of the legislation, but it would have been better to have tried to talk to them and explain it than, by withdrawing it, to imply that something was wrong and that it was too onerous. The signals were all wrong.

First, given the fragile nature of public opinion about the banking system, one would implore the Minister that withdrawing the legislation is not a good thing to do. What we are engaged in today is not an exercise in bank bashing, but trying to find a regulatory system that not only works, but finds the public confidence we desperately need. We need only look at the fact that since the autumn banking shares across western Europe, including the UK, have collapsed by about 37%. That shows that the markets are jittery about what is going on in the banking system. I press that on the Minister.

Secondly, where did the idea of the so-called reversed burden of proof come from? It has got into the legislation, and it came through the Parliamentary Commission on Banking Standards. We then have to ask: did the commission come up with the idea? Did its members suddenly think, “That would be a good idea”? There was lobbying on behalf of key figures in the regulatory community and the political sphere who said, “This is a good idea and you should look at it.” I gently say to the Minister that some people who raised that idea originally have now run for cover, and I think that sends the wrong signal. It suggests that in the regulatory family and within Government people are willing to press legislation home. That is dangerous for clarity in such a regime.

Thirdly, the one argument that has been brought up that one should pay heed to about the reverse burden of proof is proportionality. In widening the senior managers and certification regime through the legislation, which is the correct thing to do, there is a danger that we place onerous burdens on smaller companies or make them fear that such burdens will be put on them. I accept, as the hon. Member for Wolverhampton South West said, that there is a reasonable case for splitting the application of the reverse burden of proof between senior managers in the major systemic institution banks and funds and the smaller companies. How far I am prepared to press my amendments will depend on how emollient the Minister will be, but even if that is to be applied as a blanket rule, it is ultimately up to the PRA and the FCA to decide at what point they use their powers.

I remind the Minister that there has to have been a regulatory infraction before the reversed burden of proof comes into play—something serious has to have been proved to have gone wrong by either the FCA or the PRA, or by both. The senior named managers in their sphere of operation are already culpable for something having gone wrong, so all the legislation says is, “You have to prove why you got it wrong. You were in charge, you were on the deck and something has gone wrong.” It does not pick on that manager randomly. Something has gone wrong in their sphere of operation, so it says, “Why did that happen? You were responsible. Tell us what went wrong.” Even in the sphere of the current legislation and widening the certification regime, it is still up to the FCA or the PRA to say to a senior manager, “Tell us.”

I am willing to say that if that makes things clearer and helps get over the proportionality argument so that we can keep the degree of scrutiny and responsibility for the same managers in the systemic institution, that might be the way to go. So far, the Government have been in wholesale retreat from the original legislation of only two and a half years ago. They are sending the wrong signal in doing that, and the Minister has to explain why, when there are alternatives, she feels the need to take this measure off the statute book.