Amendment of the Law

Ian C. Lucas Excerpts

Monday 26th March 2012 Commons Chamber

[Mr Vaizey]

That gives me a chance to respond to one of the Labour party’s most important Back Benchers. If he thinks that we are not interested in art and culture, why is he never out of my office talking about art and culture and, in particular, our joint campaign to save the Wedgwood collection?

To support technology and innovation businesses we have protected the science budget and are funding new science capital projects, including £158 million for e-infrastructure. The total increase in capital funding since December 2010 is £495 million. I feel that point keenly because tomorrow is the 10th anniversary of the agreement between the previous Labour Government and the Wellcome Trust to build and site the Diamond synchrotron in my constituency. I must say, in a moment of cross-party unanimity, that the last Labour Government had two of the finest science Ministers we have seen in Lord Sainsbury of Turville and Lord Drayson. We have, of course, gone one better by appointing our own Minister for Universities and Science, who has two brains.

We will have increased the level of the small company research and development tax credit from 175% to 225% by April 2012. That is the largest programme of support for business innovation in the UK and will provide support of more than £1 billion a year. We have made it more attractive to invest in smaller high-risk companies by raising the tax relief available under the enterprise investment scheme. We have established 24 enterprise zones throughout England. We have introduced catapult centres, which will form a new elite national network to act as a bridge between academia and business. They will cover sectors such as high-value manufacturing, cell therapy and offshore renewable energy. The Technology Strategy Board is investing at least £200 million in the current spending review period to make that happen.

We need to build on that success and I am pleased to say that the Budget maintains the momentum. We are cutting taxes on patents through a 10% patent box corporation tax worth some £900 million, which will be introduced next year and phased in. We are extending enterprise zones to Scotland, Northern Ireland and Wales. We are investing £100 million, which will leverage a further £200 million, in new university research facilities. We are introducing transport systems and future cities catapult centres. In a country with the world’s second largest aerospace industry, we have announced an investment of £60 million in a new aerodynamics centre to encourage innovation in aerospace design and the commercialisation of new ideas. Those measures will ensure that our world-leading universities and innovative small businesses can come together with global companies to commercialise new technologies, ideas and inventions in a wide variety of sectors.

[Ian Lucas (Wrexham) (Lab)]

Will the hon. Gentleman tell the House where the aerodynamics centre is to be based?

[Mr Vaizey]

May I congratulate the hon. Gentleman on his iPad cover, which is the same colour as a ministerial red box? It looked like he was using his ministerial red box. That is a rather nice conceit for an ex-Minister.

[Ian Lucas]

It’s the Budget.

[Mr Vaizey]

Oh, it was the Budget book. It looked like an iPad cover. Forgive me; I keep mistaking the hon. Gentleman for somebody who is on top of new technology. We have not yet decided where the aviation centre will be sited, and it may not even be in one place. It may be sited in two or three different areas.

To become Europe’s technology hub, we need world-leading digital infrastructure. The average broadband speed in the UK is already 7.5 megabits a second. In Northern Ireland, almost all the population have superfast broadband, and in England almost two thirds of the population do. In England, Northern Ireland and Wales, roughly three quarters of the population now have broadband. UK broadband coverage is in fact almost universal, with 91% of the country having access to speeds above 2 megabits a second, putting us in the top 20 countries worldwide. We are far ahead of many countries, including Morocco, where only one in 10 of the population have access to fixed-line broadband.

We have come a long way, but we need to go further. We are already investing £530 million in rural broadband, which will deliver superfast broadband to 90% of the country by 2015, two years earlier than Labour planned. More than half of our local broadband projects have been approved, and all will be approved by the end of this year. Procurement for some projects will proceed in the next few months.

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[Mr Vaizey]

Ultrafast broadband will of course benefit London, and across the 10 cities that I mentioned, the Chancellor’s Budget means that 40,000 businesses and 200,000 households will get ultrafast broadband. London is also getting it through private sector providers, to which I will turn in a moment. It is also worth noting that Virgin Media will provide free wi-fi on the London underground during the Olympic games. Some 3 million people will be able to get access to high-speed wi-fi in the 10 best-connected cities. The Chancellor also announced in the Budget an additional £50 million, which will be available to ensure that ultrafast speeds are available to the UK’s smaller cities.

I said in reply to my hon. Friend that the private sector is doing a huge amount to speed broadband roll-out. I can announce that this week, Virgin Media, after £110 million of additional investment—investment over and above the £600 million it invests every year—will complete the upgrade of its network, so all 13 million premises covered by it, which is about half the premises in the UK, will be able to access speeds of up to 100 megabits a second. Average speeds are set to be around 40 megabits a second, which makes Virgin Media’s broadband network the fastest in the world. [Interruption.] From a sedentary position, an hon. Lady accuses Virgin Media of bribing me to say that. I am not sure she will say that outside the Chamber.

[Ian Lucas]

Virgin broadband is not available in north Wales. The problem, as the Minister will hear from Government Back Benchers, is access to universal broadband, which the Government delayed from 2012 to 2015. What will he do about increasing services to ensure that we have universal broadband, the absence of which is preventing businesses from making progress in large parts of the country?

[Mr Vaizey]

I first need to get the hon. Gentleman an iPad—[Interruption.] He has one. At last he has an iPad! We have given £10 million to north Wales to put in place superfast broadband. As he well knows, we will get superfast broadband to 90% of the country two years before the Labour Government promised. We are not going to impose Labour’s telephone tax, which would have hit consumers and businesses. We will have the best superfast broadband in Europe by 2015—[Interruption.] My colleagues are saying from sedentary positions that that sounds excellent; it is excellent.

Having praised Virgin Media, let me also say that BT is investing £2.5 billion in rolling out broadband. Indeed, it has accelerated its plans so that it will deliver fibre to two thirds of the UK by 2014, a year ahead of schedule. It has already delivered to 7 million premises, and is currently adding an additional 1 million premises—the equivalent of the number in Singapore—every three months.

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[Andrea Leadsom (South Northamptonshire) (Con)]

This has been a great Budget for business growth, for work incentives and, as the Under-Secretary of State for Culture, Olympics, Media and Sport, my hon. Friend the Member for Wantage (Mr Vaizey) rightly says, for technology, too. However, I shall focus my comments on a huge potential opportunity for growth by using technology, which would transform the banking system, put people and small businesses first, and shatter the comfortable oligopoly of the big banks in our banking sector.

Bank balance sheets in Britain amount to 500% of our GDP, which compares with about 300% in Germany and France, and only 100% in the US. Britain is uniquely at risk from this highly profitable sector. Financial services employ 1 million people in the UK, including 250,000 in Birmingham alone, and generate 11% of our total tax take. However, banks in the UK are so highly concentrated that four or five players have 80% of the small and medium-sized enterprises lending market and 80% of the personal current account market, and only about 2% of that on their vast balance sheets is lent into the real economy—the bit that gives us our jobs and helps businesses to grow. We saw in 2008 how the crisis in banking could bring our economy to its knees. Our unique British dilemma is in deciding what to do about this critical industry which has the ability to make or break us. The Chancellor was right to set up the Independent Commission on Banking to look at how to improve the industry, but it missed a big opportunity, as it did not address the massive barriers to entry into the UK economy for new challenger banks.

When I was director of Barclays Financial Institutions Group in the 1990s, an incredible consolidation took place in the financial sector. Banks merged with fund managers, broker dealers, private banks and building societies, creating today’s oligopoly of banks that are simply too big to fail.

[Ian Lucas]

The hon. Lady is making an interesting speech, and she is talking about the 1990s, when she was at Barclays. Does she agree that one of the major errors of the late 1980s was the incredible centralisation that took place through the privatisations and the ending of local building societies, and that that is a major reason why it is impossible to get local access to finance now? That issue needs to be addressed.

[Andrea Leadsom]

I completely agree with the hon. Gentleman.

Before Virgin took over Northern Rock, Metro Bank was the only company to have been granted a full banking licence in 100 years. I have met entrepreneurs who would love to finance and set up new banks, and we have seen the launch of some new financial services products through the likes of Tesco and Marks and Spencer, but competition remains woeful. At the latest meeting of my business breakfast club, members made it clear to me that switching their business between banks is nearly impossible. Banks that lend money to SMEs require that their customers also do their everyday banking and personal current account banking with them. Some banks even require businesses to switch from a floating-rate loan to a fixed-rate one—that is profitable for the banks, but it forces the business into a loan that it cannot pay back early without enormous expense.

One specific policy would be a game changer for Britain, radically transforming our banking sector in terms of choice and competition, for business and personal accounts alike. We should introduce full bank account portability; we should be able to change banking provider at the flick of a switch. As with mobile telephones, when we change our bank we should be able, if we so wish, to take our account details with us. The ICB has proposed a costly seven-day switching service, where banks undertake to assist customers to move their banking within seven days but customers will still have to change all their direct debits, cheque books and debit cards, and all their documentation. Instead, we could insist on the creation of a shared payments clearing system, where all banks participate and customers have a unique bank account number with a code that simply identifies which bank holds the account. Switching would then be simple because nothing, other than the identifier code, would need to change when someone changes banks. This would vastly transform competition in the sector. Of course the big banks will resist it, arguing that the costs outweigh the benefits, but I want to highlight five very real advantages of full account portability.

First, it would cut barriers to entry for new challenger banks. Increased competition would force banks to differentiate themselves to retain customers. This would lead to enormous improvements in customer service and differentiation of bank offerings. Secondly, new challengers would mean more banks and, over time, a reduction in the risk of banks being too big to fail. The US has more than 3,000 banks and when a retail bank fails there is hardly a ripple. We need diversity of financial services providers, and this would enable it.

Thirdly, industry experts claim that the impact of creating a new shared clearing infrastructure would mean the banks sorting out the problem of their multiple legacy systems that date back to the consolidation of the 1990s. New systems could lead to a reduction of up to 40% in the bank fraud that costs the sector billions each year and is passed on to customers.

Fourthly, multiple legacy systems within banks make it hard properly to evaluate business ideas. Banking is essentially a technology business and improving the single customer view would have a positive impact on banks’ ability to evaluate credit risks and lend more successfully.

Finally, account portability offers the potential for orderly resolution of a failed bank. The potential to close down a bank and move accounts overnight to a solvent bank could be a valuable tool in a future financial crisis. The Chancellor has been kind enough to tell the Treasury Committee that he would consider full account portability if the ICB’s preferred option of a seven-day switching service fails to improve the current low switching levels. I urge him to grasp the nettle now. Technology has the potential to drive a fundamental change in our banking system.

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[Ian Lucas (Wrexham) (Lab)]

I am pleased to follow the hon. Member for Stafford (Jeremy Lefroy), who made some valid points.

The focus of last week’s Budget should have been on encouraging business and consumer confidence, because the failure of this Government is above all the failure to facilitate demand in our economy. On the contrary, their policy has led to a lack of demand in the following ways and policy areas. The first has been by reducing public expenditure on capital projects, which is especially telling in those parts of the UK that depend significantly on the public sector rather than the private sector for investment. The effect is especially evident in the construction industry, which is still in dire straits because of the lack of demand from either the public sector or the private sector.

In addition—we must not forget this—this Government, of the Tories and the Liberal Democrats, have increased taxes on consumer spending by increasing VAT, which has reduced the income going to local businesses. When people spend money, that difference between 17.5% and 20% is taken out of the local economy. It does not go into local businesses; it goes straight to the Exchequer. Again, that is money being taken out of the economy. The Government are also reducing employee confidence, because they repeatedly talk about reducing jobs in the public sector, which diminishes demand—for example, by affecting the decision to move house, which has an impact on the housing economy and developments in the construction sector.

In all those ways, the Government are cutting demand at the very time we need demand in the economy to facilitate work for our young people. Indeed, we hear a roaring silence from the Government about our young people, who were barely mentioned in the Budget. The problem is that we have seen all this before. In the 1980s, when I was politically forged, I saw all that happening in the north-east, where I was brought up. For example, we saw 3 million unemployed, twice. [Interruption.] I am sorry that those on the Government Front Bench find that amusing, but that is what happened. A generation claiming benefits are still suffering the consequences of the Tory Government of the ’80s, and now we are seeing it again. That is why I feel passionate and angry about what this Government are doing—because what those policies did was drive people on to the dole, which at that time was paid for by two things: privatisations and North sea oil. We remember Harold Macmillan saying that the family silver cannot be sold off twice, and privatisation means it has now been sold. North sea oil returns are diminishing, so the Government are simply running out of money because they are not facilitating growth in the economy. One of the major reasons for that is that people and businesses cannot borrow money.

The root cause of this difficulty is the incredible centralisation in the banking sector, to which I referred earlier, which prevents businesses across the country from accessing demand. Again, we go back to the 1980s. Then we saw the demutualisation of great institutions such as the Northern Rock building society. It was based in the north-east where I was brought up, but it ended up a horrific behemoth in the mid-west of America, losing money and going out of business as a result of the American sub-prime mortgage crisis. The result is that a local organisation that had provided homes and jobs for local people was there no more. We need to go back much further than the last Labour Government to understand why all this happened. It happened because of what happened in the 1980s, as I have explained. We need a radical change of course.

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[Rachel Reeves]

This is not just about freezing an allowance; it is about freezing an allowance this year, next year and the year after, and for many years to come. It is also about getting rid of the allowance, because it is disappearing for people who will retire next year. Next year people will receive not a reduced allowance but no additional allowance at all, and as a result they will be £323 worse off because of the choices that this Government have made.

I am sure that in a moment we will hear protestations from the Chief Secretary about his great triumph in raising the personal tax allowance for working-age people, but families with children have already lost £450 on average from the VAT increase, and another £530, starting on 6 April, through cuts to tax credits and the freezing of child benefit. Does the Chief Secretary really expect families to be thankful to be getting less than half this back in 2013? Is it not more likely that they will see this for what it is?

[Ian Lucas]

My hon. Friend rightly stresses the importance of VAT. Charities are among the types of business that are affected by a VAT hike. Chariotts in my constituency provides services to disabled people, and it will have to hike its charges by 20%. That will have to be paid by those disabled people, because of the VAT increase that this Government are pursuing. Does my hon. Friend agree that that is a disgrace?

[Rachel Reeves]

I agree. These are hard times for the charitable sector, and the VAT increase has hit it hard. That is one of the many reasons why charities, as well as ordinary families and businesses, would benefit from a reduction in VAT to 17.5% until the economy recovers. Charities are also affected by changes in tax allowances, and many have expressed fears that that will also create a big black hole.