Autumn Statement Distributional Analysis, Universal Credit and ESA
Debate between Jeremy Quin and Ian Blackford(8 years ago)
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Ian Blackford
I fundamentally agree. There is a £36 billion tax gap, so let us fix that hole. I listened to the Minister talk earlier about the challenges the Government face in fixing the deficit. What they fail to recognise is the interaction between fiscal and monetary policy. It is the richest who have benefited most from quantitative easing. We should have had a fiscal stimulus package. That would have driven investment and productivity into the economy, and got more people back into work. That is what we should be doing.
Jeremy Quin
This is not the first time I have heard the hon. Gentleman refer to the great fiscal reflation he is planning. I welcome the fact that in the same speech he is also talking about the problems with inflation, but is that not a contradiction in terms?
Ian Blackford
It most certainly is not. The reason for the rise in inflation—to something between 2% and 3% next year, according to commentators—is, quite simply, that the pound has crashed, and the reason the pound has crashed is that investors do not have confidence in the UK economy, and who caused that? It is a direct consequence of Brexit, through the referendum, which was the misjudgment of the previous Prime Minister.
Savings (Government Contributions) Bill (First sitting)
Debate between Jeremy Quin and Ian Blackford
Jeremy Quin
Q I am grateful—it is 15% and 50%. I am a glass-half-full type of person, but I am sure the points were noted.
The other point I want to tease out is the reference to not everybody being ready, and the potential for delay. Hearing what Carol was saying, in particular, I take it that there is no sign that there will be an insufficient number of people to provide a market. There will be a market, and if people have to catch up they will have to catch up. We are offering a good product at an early stage—would that be fair?
Yvonne Braun: That is absolutely right. Our members very much want to make this work for their customers.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
Q A lot has been said about auto-enrolment and those who have been left behind in the process up till now—the self-employed. Given that we know there is going to be a review of auto-enrolment in 2017, is there an argument for postponing this until we deal with auto-enrolment and those who need to be included?
Carol Knight: Not necessarily, no. We need to monitor the effects, without a doubt. We need to look at the take-up of auto-enrolment to see whether there is any discernible drop-out and a corresponding number of people going into the LISA. There are so many unknowns with auto-enrolment that it is difficult to say that we should postpone the LISA because of that.
There are a lot of people who are not going to get caught by auto-enrolment. One of my biggest concerns is about people who earn too little to even fall into that bracket. An increasing number of people have multiple income streams, each of which is too low to get caught. Auto-enrolment is not going to solve the problem for them, but a lifetime ISA could.
Yvonne Braun: I think that question of people with multiple employment will be one that we will have to return to in the automatic enrolment review, because I think that is the very point of the review—to see whether some tweaks need to be made to make it work better for more people.
The point that Carol made about monitoring the outcome is absolutely right. I think the view has been expressed that the risk of higher opt-out rates from automatic enrolment is small, because that has not occurred with the introduction of the help to buy ISA. However, I think it is important to remember that the help to buy ISA is quite a different proposition, because the maximum bonus is much, much lower, and also the bonus is not paid into the actual account, whereas here it actually goes into the individual’s account. So I think the experience with the help to buy ISA should not give us false comfort that the lifetime ISA will not have an impact on automatic enrolment.
It will be really important that we look at what happens from next April, when the lifetime ISA is introduced, and, as I said earlier, it will also be really important that the information and guidance that people receive is very, very clear about the importance of the employer contribution and about not losing that through a switch into a lifetime ISA.
BHS
Debate between Jeremy Quin and Ian Blackford(8 years, 1 month ago)
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Jeremy Quin (Horsham) (Con)
It is a pleasure to follow the wise words of the hon. Member for Hartlepool (Mr Wright), and it was a pleasure to serve with him on the joint Committees. May I associate myself with the remarks that he and the right hon. Member for Birkenhead (Frank Field) have made about our hard-working Committee Clerks throughout the process?
When the news of BHS broke, I felt bad about the loss of a high street icon, desperate for the employees affected—including those in my constituency—and very concerned about the pensioners involved. I have a confession to make to the House, however. My gut reaction was that a Committee inquiry would simply rake over the ashes of a sad event, with little to be gained. I was initially not convinced that the inquiry would be productive, but I was persuaded to take part. I am glad that I did, and I am glad that this inquiry has taken place, because we can lay concerns before the House.
The largest concerns, for me, are not particularly about the trading circumstances leading to the demise of BHS—although it seems, as the hon. Member for Hartlepool has said, as though there was little magic around the revitalisation of BHS’s margins in the early years of its ownership by Sir Philip Green. Dividend payments, generous as they were and exceeding profits as they did, may or may not have undermined BHS through underinvestment. That would be hard to prove, but it is a perfectly sensible question to pose.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
Should we not be raising questions if any company pays out dividends in excess of its free cash flow? That should ring alarm bells, and perhaps there should be a test that companies need to meet if they behave in such a way.
Jeremy Quin
The hon. Gentleman, as so often, reads my mind. If he is a little patient, he will hear me make a similar point later in my speech.
On the period during which very generous dividends were paid, directors cannot be expected to have the gift of prophecy, but they can be expected to understand the fundamental trends driving the underlying profitability and sustainability of their business. I am far from convinced that that was the case in this situation. The most serious questions, as raised by the hon. Members for Hartlepool and for Torfaen (Nick Thomas-Symonds), are about the corporate governance of large private companies with millions of employees and pensioners.
Unlike my feisty friend, my hon. Friend the Member for Bedford (Richard Fuller), I intended not to refer to the individuals directly concerned in the sad demise of BHS, but to focus on the more general lessons to be learned. I am afraid that I have been drawn back to the circumstances of BHS after reading the joint legal opinion produced for Taveta Investments Ltd by learned counsel last night. As the right hon. Member for Birkenhead said, the two lead QCs make a point of saying that they are friends of the chairman of TIL. I hope that their report, which is considerably longer than the report of the joint Committees that it analyses, was not unduly costly. The report basically starts by saying, “Let’s pretend this is not a parliamentary inquiry, but some other kind of inquiry. Would that type of inquiry be set aside by the courts?” Having set up an irrelevant question, the opinion produces an irrelevant answer.
Ian Blackford
I will make some progress and then perhaps I will give way—[Interruption.] I will give way in a second.
Philip Green’s weak apology is a case of too little, too late. He lined his pockets and did not stop to think about his employees. On Tuesday 18 October, Philip Green decided to say he was “sad and very sorry” for the hardship caused by the BHS collapse and that he still wanted to sort out the pension deficit. Green has still tried to defend the indefensible and duck his duties to workers by shifting the blame.
Jeremy Quin
I am grateful for being allowed to intervene on the hon. Gentleman. The point that Government Members are making is simply that we have heard a very long speech about systemic pension risk. That may be an issue, but it could be an issue for another occasion. The Select Committees produced a worthy report of more than 60 pages specifically about BHS. I am relieved that the hon. Gentleman is actually addressing BHS, the employees who have lost their jobs and the pensioners who have been left with less benefits than they should rightly have expected. I am delighted he is finally getting to that part of his speech. We look forward to the rest of it.
Ian Blackford
I thank the hon. Gentleman. I am aware of the time and I am about to sum up. The point I was making is that we have been put in a situation whereby workers have suffered as a consequence of the actions of Philip Green, but the Government must not think that they can walk away from their responsibilities to regulate business and pension schemes in this country effectively.
I recognise that Sir Philip owes it to the BHS pensioners to find an urgent resolution, but we need to look at corporate governance in the UK to see what can be done to offer protection from the kind of corporate excesses that have taken place with BHS. The Prime Minister has talked about doing that, so she should bring forward the proposals. While Philip Green’s hands are filthy, the Tory Government’s paws are not so clean either. After a lifetime of shying away from an effective crackdown on the corporate irresponsibility of the likes of Green, we are beginning to catch up in the United Kingdom. It is about time that the UK Government took action and the Minister gave us some answers.
Quantitative Easing
Debate between Jeremy Quin and Ian Blackford(8 years, 2 months ago)
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Ian Blackford (Ross, Skye and Lochaber) (SNP)
I beg to move,
That this House calls on the Bank of England to provide a detailed analysis of the effect of its quantitative easing programme on the financial markets and the wider economy which includes an assessment of the future development of the quantitative easing programme and other monetary policy measures it may consider appropriate to achieve its objectives.
I draw the attention of the House to my entry in the Register of Members’ Financial Interests.
I understand the motivation to introduce the quantitative easing programme back in March 2009. The need to restore confidence and take action to stimulate lending and growth after the financial crisis was well understood. As QE was put in place, many commentators were worried about unfounded risks of inflation, which betrayed an ignorance of what the effects of QE would be.
My primary concern about the Bank of England’s QE programme, the asset purchase scheme, was not that it might lead to some kind of hyperinflation, but instead that it would not necessarily lead to an increase in lending. That was the evidence from Japan, where for a significant period after the introduction of its unconventional monetary policy, lending actually fell. Of course, that outcome has been mirrored here. If we look at M4—also referred to as broad money—its value in January 2010 was £2,220 billion. The figure for July 2016 was £2,210 billion—a slight fall in the value of broad money. Now, the improbable counter-factual is that lending might have been lower without QE; the inescapable fact, though, is that engaging in quantitative easing to the extent we have has not resulted in an increase in the money supply in the UK. It does seem that the asset purchase scheme has predominantly enhanced the balance sheets of financial institutions, without a commensurate increase in lending.
We understand the difference between QE and simply printing money, which is that QE should eventually be unwound, although the mechanisms and timings are the great unknowns of today. Just to put this into context, the Bank of England now owns an eye-watering quarter of all outstanding Government debt—in effect, we have borrowed against ourselves.
When I sought the agreement of the Backbench Business Committee for this debate, it was ahead of the Bank of England announcing further measures in August to add to its QE programme. That means that this is a very timely, much-needed debate, and it is right that, seven and a half years into the QE programme, we in this House take stock of what has been achieved and, indeed, what the interaction between monetary and fiscal policy should be to deliver confidence and growth for our economy.
With the measures announced in August, the Bank of England has authorised a QE programme of £445 billion. The desire to drive down interest rates, coupled with the effect of the QE programme, has seen investors seek other, higher-yielding assets, with a commensurate increase in asset prices and a decline in yields. Given those circumstances, the financial markets have seen a great bull run. The FTSE 100 was at a level of 3,529 on 6 March 2009, ahead of the launch of the QE programme. Last night, the index closed at 6,673, representing a gain in value of 89% over the last seven and a half years. The QE programme has helped to deliver an outcome that means that those owning financial and property assets have done well—that was perhaps an unintended consequence of QE—while, on the face of it, there has been no net positive impact on growth in the money supply.
Jeremy Quin (Horsham) (Con)
I note what the hon. Gentleman says on the money supply. The Bank of England reports do indicate an increase in growth in the economy as a result, certainly, of the first round of QE immediately post the first financial crisis, so it may yet have had a positive impact on the level of inflation in the economy and GDP growth—clearly of benefit to us all.
Ian Blackford
My contention would be that we have actually had very limited reporting from the Bank of England on the actual effect of the QE programme, and we need a much more detailed analysis. I accept, of course, that there would have been some limited impact on the economy from the QE programme. I will go on to discuss whether we need to balance some of these monetary measures by taking additional fiscal measures, which may have done more to boost sustainable economic growth. That marriage of our responsibilities for monetary and fiscal policies has to be relevant to the point the hon. Gentleman made.
As the Prime Minister herself said:
“Monetary policy—in the form of super-low interest rates and quantitative easing—has helped those on the property ladder at the expense of those who can’t afford to own their own home.”
On this occasion, I agree with the Prime Minister—I do not intend to make a habit of that though.
There has to be a policy response from the Government that recognises that fiscal measures must be taken as part of a balanced approach to deliver the circumstances of sustainable growth. If we look at the growth in financial wealth, we can see the contrasting experience of those who have benefited from this wealth effect at a time that real wage growth has stagnated. We know from an analysis published by the Bank of England in 2013 that QE had boosted asset prices and that the top 5% of households owned 40% of those assets. The analysis from the Bank of England at that time estimated that the top 5% of households had become richer to the tune of £128,000 on average. QE has demonstrably exacerbated wealth disparity between rich and poor.
Royal Bank of Scotland
Debate between Jeremy Quin and Ian Blackford(9 years ago)
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Ian Blackford
I thank my hon. Friend.
I am grateful to the hon. Member for Edmonton (Kate Osamor) for securing this important debate, and I commend the hon. Member for Wycombe (Mr Baker) who provided the House with great detail about how he views the financial issues surrounding the Royal Bank of Scotland.
We keep hearing from the Government about their long-term economic plan, but to have any kind of effective economic plan we need a dynamic banking sector that is fit for purpose and engages in appropriate and responsible consumer and business lending. It is therefore important that we pay cognisance to what is happening to the money supply, and in particular the definition of broad money or M4.
Figures released by the Bank of England for the year to end September 2015 are a cause of some concern. Money supply fell by 0.6%, although I concede that that was largely a result of a fall in wholesale deposits. Worryingly, however, lending fell by 0.1%. There is concern that availability to bank lending for businesses and consumers is running below the rate that can be considered sustainable, and certainly below the level that is consistent with the delivery of sustainable economic growth.
There is also a legitimate debate about what kind of lending we should have, and about interaction with savers—many speakers have already raised that point. We must encourage industrial and commercial investment that focuses on innovation and skills, driving up wages and living standards, and we must have less focus on consumer debt. In Scotland, Scottish Enterprise has a limited but successful investment bank, and we must consider how to support and grow that model elsewhere in the UK.
Jeremy Quin
I am grateful to be called an hon. Friend by the hon. Gentleman. I accept his point about the types of lending taking place. Does he share my concern that in making many banking decisions, bankers enjoy having an asset that they can grab hold of—a house, perhaps, or something that they can see, touch and feel? We are considering cash-flow projections. Perhaps this issue comes down to the heart of training inside banks, because to be comfortable with some of the new technologies and innovations, they must be able to understand those cash-flow projections exactly.
Ian Blackford
I agree with the hon. Gentleman and I could probably bang on about that issue for a considerable time. He is right. Banks that are lending, particularly to the business community, must understand the businesses to which they are lending. Too often that has been done by matrix, spreadsheets and ticking boxes, and not through a clear understanding of where the growth opportunities are in the economy. That must change, which is why I referred to the investment bank in Scottish Enterprise. We need sectoral skills and an understanding of where growth opportunities are in the economy. There must be more of an alignment of the interests of the country, the Government and the banks, and an appreciation of what we need to do to deliver long-term and sustainable growth.
Ian Blackford
I confess that I am not aware of the individual rates charged, but the investment bank in Scottish Enterprise is quite constrained by its access to capital. I hate to make this point, but if the Scottish Parliament had more powers, it would increase our ability to ensure that that investment bank was properly funded.
We all understand the importance of improving capital ratios and establishing a more sustainable banking platform, but at the same time there has been a choking-off of credit to businesses and consumers, restraining our ability to grow our economy. The need for quantitative easing was clear, but it is right to ask how wider society has benefited from the Bank of England’s £375 billion asset purchase scheme.
Quantitative easing demonstrably helped the banks, but it has not fed through to greater activity to help the wider economy. If we contrast that with the pre-financial crash period between 2006-8, we see that M4 was increasing at an annual rate of close to 15%—levels that should have made alarm bells ring in the Government and the regulator at that time. Today we are living with the consequences of that failure, and that is why we are having this debate. The issue of banks being too big to fail, and the dislocation that took place in our economy as a result of the financial crisis, meant that the public were, rightly, angry at the behaviour of those responsible. We cannot and must not return to the circumstances that led to that crisis.
Of course, none of this was unprecedented. There was a significant banking crisis in the UK in the 1870s. It took a long time to recover from that crisis, and at the time it led to substantial change. In the US the Glass-Steagall Act was introduced in 1933. It prohibited commercial banks from participating in investment banking after the excesses of the 1920s, and that legislation remained in place until repeal under President Clinton. The Glass-Steagall Act was introduced for good reasons, and in my opinion its repeal added to the toxic cocktail that led to the financial crisis of 2007-08. In that context it is right to debate the relationship between commercial and investment banking, although we seem to have settled on ring-fencing as a solution to the challenges.
I understand why many people have supported ring-fencing, and perhaps it is worthy of ongoing debate. We know, however, that investment banking was not the only source of the financial exuberance that brought our economy to its knees. It is worth remembering that Northern Rock was the first failure in this country. That bank had absolutely no exposure to investment banking, and, as was the case elsewhere, simple bad practice—or indeed malpractice—was the issue. We must ask whether it is necessary or appropriate for our commercial banks, such as Royal Bank of Scotland, to engage in investment banking. There is no question but that we need a thriving investment banking industry in this country, and it remains today a source of jobs and wealth. The critical question, however, is whether such practices are appropriate for our high-street banks.
Jeremy Quin
I am pleased that the hon. Gentleman referred to the Overend and Gurney banking crisis of the 1870s and—this follows on from the remarks by my hon. Friend the Member for Wycombe (Mr Baker)—I believe it was only because of that crisis that banks had to report their accounts at all. Before that, such disclosure was regarded as rather a bad thing for a bank to do, because people might not trust it if it had to state exactly what its assets were.
On the investment banking arm of the Royal Bank of Scotland, does the hon. Gentleman think it appropriate for a commercial bank to provide investment banking capabilities to its corporate clients? There are many legitimate things about investment banking, such as foreign exchange providing support for exports, and derivatives are not always a bad thing—there are things they can do to help the export industry. There may be a synergy there, and I would be interested to hear the hon. Gentleman’s remarks.
Ian Blackford
I appreciate that there is an issue regarding what can be defined as investment banking. Of course corporate banking clients at RBS would require some of those facilities, but it is a question of how it is done.
On 13 October the headline on the BBC was “Will Barclays make another push into Casino banking?” That is the real issue. We can debate and discuss the frailties that still exist in the Royal Bank of Scotland, and what it needs to do to improve its balance sheet, but when banks are in a better position than they are today and have strengthened balance sheets, what would prevent the likes of RBS—even in a ring-fenced scenario—from putting additional capital into investment banking? That is the problem. Over the past two or three decades the seductive charms of investment banking have led to investment banks going down that road. We must be careful about that and debate the best way we in Parliament can ensure effective regulation. It never worked. It was a fantasy. Sad to say, it could become a fantasy for many more in the years to come. We do not need our high-street banks to become casino banks, and if necessary we will need legislation to enforce that. Lessons must be learned. No more can the country be held to ransom.
I am conscious that others wish to speak, so in the short time I have left let me turn specifically to RBS. I want to see RBS back in private hands, but not at any price. As the motion sets out, there ought to be a wider review of the UK financial sector. We own RBS collectively and we have a duty of stewardship to make sure that it is fit for purpose for the decades to come. There needs to be a debate on this before the Treasury and UKFI unwind our position. We have a duty, having bailed RBS out, to get the best value for the taxpayer. I am delighted to support the motion.