Amendment of the Law

Karl McCartney Excerpts

Monday 26th March 2012 Commons Chamber

[Steve Baker (Wycombe) (Con)]

I refer the House to my interest in Cobden Partners.

This is a Budget of fiscal conservatism and monetary activism. It is a Budget, above all, of economic expectations, setting out to people that we will reward work, support families, help those looking for work, back business and back aspiration. In the short time available to me, I would like to speak directly to the point of monetary activism, which is one of the Budget’s key pillars. I hope the Government will not take it as a criticism, because the Chancellor has emphasised that the Bank of England is independent and, of course, its policies are symptomatic of those followed all around the world.

Over the past 13 years under new Labour, the money supply expanded from about £700 billion in 1997 to £2.2 trillion in 2010. That was through a massive expansion of bank balance sheets—a huge amount of monetary activism led by central banks, with the Bank of England keeping interest rates too low for too long. That goes to the heart of points that Opposition Members have made. It has redistributed wealth towards the south-east and the first recipients of new money. I would say that it is at the heart of our difficulties. The scatter chart in the Red Book shows how the balance between our fiscal position and the bank balance sheet position is interlinked, and has placed us as an outlier.

When many people look at monetary activism, and quantitative easing in particular, they get worried about inflation—and why not? It would, however, be hysterical to worry about hyperinflation at this stage, when the asset purchase facility is at £325 billion—just one seventh of the money supply. I would nevertheless like to sketch out something that troubles me in my darker moments.

Right now, there is not a problem, but a housing bubble became a banking crisis—at least not a problem of inflation—which became a sovereign debt crisis, which has now been turned into an asset bubble in the bond market. The Bank of England has deliberately inflated bond prices in order to suppress long-term interest rates—interest rates that our constituents cannot do without because they are so indebted. The problem is that, as we know, all bubbles burst; the questions are when and what might burst the bond bubble. Inflation expectations might do it. If we were to look at M4 and M4ex from the Bank of England, we would see that there is no reason to doubt its inflation forecast. If we look at my preferred measure of the money supply, however, which is Kaleidic Economics MA, we can see that from July last year, year on year money supply growth was minus 2%; today, money supply is growing by that measure at plus 6%. We should thus be very cautious indeed about the Bank’s forecasts.

If the bond market bubble bursts, there will be pressure on the Bank of England to continue to prop it up. That will lead to further quantitative easing and create an expectation of rising interest rates. That could cause a flight from the bond market into cash; and it could cause the public, as they see QE continuing, to lose faith in cash itself, which could lead them to start spending.

[Karl MᶜCartney (Lincoln) (Con)]

Will my hon. Friend give us an idea of when he thinks this bubble might burst—in the near or the distant future?

[Steve Baker]

I am grateful to my hon. Friend, as this is a critical problem. It is a problem of expectations; it about the human mind, which is extremely difficult to predict.

I was saying that, as we go through, we could find that people lose faith in cash. If they do that, they will spend it, and move into real value. Keynesians could end up celebrating an apparent boom, but actually one that is a crack-up of the currency. I sketch these events not to frighten, but to set out a perspective for the House of which we should be aware when we know that the central banks and the Bank of England have deliberately inflated this bond market bubble.

We could end up facing a choice: if prices and wages are accelerating, but less quickly than the money supply, the Bank of England will have to choose whether to supply more money or whether to abandon that monetary inflation and reveal the underlying havoc created by decades of inflationary money. Perhaps new money, instead of real resources, can be used to paper over the cracks. Perhaps expectations can be managed to avoid the bubble bursting. If I were to quote with just a little adaptation something that Hayek wrote in 1932, I would say: “We must not forget that for the last 86 or 88 years, monetary policy all over the world has followed the advice of the monetary activists. It is high time that their influence, which has already done harm enough, should be overthrown.”

Oral Answers to Questions

Karl McCartney Excerpts

Tuesday 8th February 2011 Commons Chamber

[Mr Osborne]

The right hon. Gentleman clearly had a lot of time to prepare that, but I am not sure it all came out as he expected. We have had to deal with his economic legacy and he is running away from his past. He was the City Minister who knighted Fred Goodwin. He is the economic adviser whose fiscal policy has led to fiscal disaster. He is the leadership candidate who, for reasons of political positioning, denies the deficit. The truth is this: we have a plan to clear up his mess. He has no plan at all.

[Karl MᶜCartney (Lincoln) (Con)]

2. What progress he has made in reforming the tripartite system of financial regulation.

[Jane Ellison (Battersea) (Con)]

3. What progress he has made in reforming the tripartite system of financial regulation.

--- Later in debate ---

[Karl MᶜCartney]

Does my right hon. Friend regret the fact that the system of financial regulation, which was drawn up by the right hon. Member for Morley and Outwood (Ed Balls), failed to prevent the greatest financial crisis in our country in living memory?

[Mr Osborne]

Of course I regret it, because we are all having to deal with the consequences. We still do not know—the legislation will come before the House of Commons—whether the Opposition support changing the system of regulation that was established by the right hon. Member for Morley and Outwood (Ed Balls) in 1997. I guess we will find out. The Government are clear—we must fix the system of regulation that went so badly wrong, and we believe that giving the Bank of England the lead responsibility on that will help.

Finance Bill

Karl McCartney Excerpts

Monday 12th July 2010 Commons Chamber

[The Chairman]

(Mr Lindsay Hoyle) I call Karl MᶜCartney. May I just remind Members that this is a maiden speech?

[Karl MᶜCartney (Lincoln) (Con)]

Thank you, Mr Hoyle, in your role as Chairman of Ways and Means and as the House sits in Committee to consider the amendments to this Finance Bill, for allowing me the opportunity to make my first speech in the House.

I intend to comment on two matters of importance today: the amendments to the Finance Bill and Lincoln, the constituency that I have been elected to represent. Before I discuss either matter, however, I want to pause to pay tribute to my parents, John and Brenda McCartney, who are here in the Gallery, along with my wonderful wife, Cordelia. I am pleased that she is still here, as I am indebted to her for so much, not least our two sons, Henry and Freddie.

Let me now return to the Finance Bill. What concerns me most is the lack of support for long-term share ownership that is eminently displayed by the current capital gains tax regime, which, ironically, now seems to be based on principles that are at odds with how we are to treat banker bonuses whereby an increasing proportion of their compensation is compulsorily taken in shares of their employing parent company. That has the quite admirable aim of encouraging actions that have at their centre the long-term interests of the companies for which they work. This is commendable.

Less commendable is the loss of taper relief, which encourages long-term share ownership and investment. Surely many on both sides of the House see the retention of taper relief as desirable. Also less commendable is the loss of indexation relief. Following a change introduced by the previous Government, payers of capital gains tax will continue to be taxed on illusory gains. A simple example might help to explain my concern. Let us say that the average price for a pint of beer is £2.50. Instead of buying a pint, one could invest that £2.50. If inflation averages 7% per annum for five years and the investment keeps pace, the beer will have risen in price to £3.50, as will the value of the investment. The investor would therefore expect that the investment would still buy a pint, except that it would not, because 28% capital gains tax would have to be paid and the investment would therefore be worth only £2.50 net of tax. That is clearly inequitable. Given the widespread acceptance that short-termism from investors is a problem faced by businesses up and down the country that are trying to attract capital for start-up funding, working capital and expansion, surely that is short-sighted.

I know that this matter is important to a number of people who are resident and work in the city of Lincoln. My fellow constituents are industrious and hard-working, and many of them either own their own business, want to start their own business or work for a small family-owned business. They know the importance of access to capital as an owner, a manager or an employee. Enabling measures that encourage investment is surely what this House should be about. What we have in place now enjoys the invidious merit of achieving the exact opposite and I hope that my senior colleagues will rethink these issues at the earliest opportunity. I know that we are where we are because of the utter mess bequeathed to us by Labour in the last Government, so I hope that as soon we have rebalanced the nation’s finances, we can reverse these measures, if we cannot do so now.

Let me now say a few things about the history of Lincoln and some of the main issues that affect the constituency. I shall summarise my thoughts and areas of interest, as well as detailing my predecessors and the military links that the constituency enjoys.

It is a privilege and an honour to represent the constituency of Lincoln. When I first embarked on the long and arduous B-road to selection, reselection and election, I did not imagine that I would have the privilege of representing such an ancient, traditional and famous constituency as Lincoln. I aim to show my constituents that they chose wisely, as a Jedi might say.

Lincoln is not just another name in the list of 650 constituencies. It is a city that plays and will continue to play a pivotal role in our nation’s democratic tradition. Naturally, I am proud to represent Lincoln and, as hon. Members might know, it is one of the oldest constituencies in the country. The Romans quartered a legion in the city and Edward III presided over a Parliament in our cathedral. The cathedral, which is one of the glories of English architecture, dominates the city and a large swathe of Lincolnshire. It is still as impressive today as when it stood as the tallest building in the world for 238 years—the only building in the UK ever to have held that title. If my Government ever feel the need, I am sure that Lincoln will be willing again to host a meeting of Parliament or of the Cabinet at a date of their choosing.

Although I am not an historian, I can safely reveal to hon. Members that the historical evidence for Parliaments before 1295 is quite patchy. Lincoln and York head the list of towns summoned to send Members in 1265 and, with the recent splitting of the city of York into two seats, it would seem that Worcester and Exeter appear alongside Lincoln in having a possible claim to being the oldest continuously existing borough constituencies.

Lincoln has so much more to commend it as a destination and as a place of history and worship than its two equally ancient constituencies. The cathedral is stunning and has proved a welcome sight and landmark for many travellers over the centuries and for our brave airmen in Bomber Command during the second world war. Lincoln is also home to one of only three existing original copies of the Magna Carta, the foundation of British, and therefore world, democracy. With our new Government’s plans for a great repeal Bill, we can see the relevance that the Magna Carta still has today, nearly 800 years after it was signed.

The city’s MPs have included the redoubtable Dick Taverne, who continues to sit in the other House, and the right hon. Member for Derby South (Margaret Beckett), originally Miss Margaret Jackson in Lincoln, eventually Mrs Beckett. More recently, I am honoured to follow in the footsteps of the last Conservative Member for Lincoln, Sir Kenneth Carlisle, who served happily between 1979 and 1997 and for whom there is a mutual, deep affection for and from the city of Lincoln and its people. My direct predecessor was Gillian Merron, who worked hard for constituents and was incredibly photogenic, appearing in our currently daily paper with regularity—something that I fear I will not be able to emulate, not least because many of my friends say I have the perfect face for radio.

The people of Lincoln and Lincolnshire are proud to be yellow-bellies—a hark back to the original Lincolnshire “Poachers” Regiment, which is now part of the Royal Anglian Regiment, some of whom I met earlier today out in Westminster yard. They serve us well abroad and in many fields of conflict, and I know that the people of Lincoln are immensely proud of them and all the armed services associated with our city, which is linked with the RAF and the Grenadier Guards.

As well as the city, my constituency covers the lovely villages of Skellingthorpe, Bracebridge Heath and Waddington, where the RAF is based. RAF Waddington is one of the busiest and most varied operational air bases in the United Kingdom, as well as one of the longest established. It has played an important role in the defence of the country and in supporting and servicing our armed forces. Soon, Waddington is due to become the home of the Red Arrows, who are another well-loved and appreciated aspect of Lincoln life as we are often treated to their practice sessions in the skies above our city.

Despite its wealth of attractions both historical and current, Lincoln has poor transport links that have worsened over recent years. There is now, unfortunately, only a post-election promise of one direct rail link to London and there are inadequate connections to other places. The A46 is soon to be dualled from Nottingham to Newark and the knock-on effect might be that the A46 single carriageway and roundabouts that plague our western, and only, bypass might cope even less well than they do now. The only other route is through the centre of our city, using the single carriageway A15 or negotiating our High street with its famous level crossing.

I am not aware of any other city in our country that is being held to ransom by Network Rail, which is currently threatening the city with the closure of that level crossing for up to 40 minutes in the hour throughout the day to allow freight trains that are of no benefit to Lincoln to pass through. Lincoln needs investment in its transport system that will provide a vital benefit to the long-term prosperity of both the city and the whole county, such as the east-west link road that is currently proposed. On all these transport issues, the Secretary of State for Transport and his Ministers can expect continued representations from me and my fellow Lincolnshire MPs, I am sure.

Many experiences, people and types of employment have shaped my life so far, and I am a great believer in being the owner of one’s destiny. If individuals feel that the world owes them a living, it does not, but if they are willing to believe in their own self-determination, there are no limits to what they can do. Many individuals from both sides of the House are testament to that philosophy. I now have the opportunity and ability to help to make decisions that affect our nation and to question and challenge them properly in the House, with, I hope, the important addition of compassion. It is a privilege to have that opportunity, in tandem with serving the kind and generous people of Lincoln, who did me such a great service in electing me to represent them in this traditional and great place. Doing my best for our city will be a major preoccupation of mine for as long or as short a time as the people of Lincoln allow me the privilege of representing them in this House.