Savings (Government Contributions) Bill (Third sitting)
Kelvin Hopkins Excerpts(8 years, 1 month ago)
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Kelvin Hopkins (Luton North) (Lab)
I absolutely agree with what my hon. Friend is saying and support the new clauses. We have had a recent history of appalling mis-selling, with billions having to be paid back to people who were mis-sold savings instruments and schemes over the years. Even though this scheme may be simple in itself, it could have serious knock-on effects on other parts of the industry. He is right in what he has been saying.
Ian Blackford
Indeed. The hon. Member for Bootle is right to ask the UK Government to keep a watchful eye on the impact of automatic enrolment. However, that does not go far enough. The LISA must be paused. It is a gimmick that has not been thought through. The impact assessment states:
“The government could have done nothing more, relying on existing tax incentives to promote saving among younger people and working families on low incomes. However, this would have failed to provide the necessary level of support for those who are unable to use existing support to plan and save for their future.”
What a dismal statement. Where is the vision? Where is the hope? Where is the idea of a Government who can architect a pensions savings system that encourages young people to save? Should we not bring forward next year’s review of auto-enrolment and make sure that we have the tax incentives and the structure right? That is what we should be doing, not introducing this hopeless gimmick that risks mis-selling to young people in this country. This Government stand charged with creating circumstances that could lead to mis-selling through this product. They should be utterly ashamed of themselves.
The SNP has tabled amendments that ask for the LISA to be halted until workplace savings are enhanced through automatic enrolment, which is the right way to proceed. Stakeholders have picked apart the UK Government’s main arguments for the LISA, including that it will be good for self-employed individuals who are left out of automatic enrolment. The British Bankers Association said that
“two thirds of the self-employed are already ineligible for the lifetime ISA.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 18, Q34.]
One of the Government’s major arguments has been shown to be fatally flawed. Why do we not reform auto-enrolment to make sure that the self-employed are included? That is the right way to progress.
At present, as a savings model, the LISA only supports the wealthy—those with the ability to save. New clause 2 is a welcome move to promote financial advice. We welcome this amendment. However, an SNP new clause that will be tabled ahead of the next stage will go further and explicitly demand that the advice extends to workplace savings and automatic enrolment and targets young people. We encourage Labour colleagues, and indeed the Government, to join us in supporting that new clause.
In its oral evidence to the Committee, the Association of British Insurers raised concerns about the communication of the difference between automatic enrolment and the LISA. There is a real concern that individuals could switch out of automatic enrolment and into LISA, and that
“they could lose up to a third once they get to the age of 60.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 5, Q1.]
The ABI also said that
“there needs to be a strong signpost towards the guidance services.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 9, Q14.]
Individuals who choose to invest in a LISA, rather than investing through automatic enrolment, could lose a third of their retirement benefits.
Carol Knight of the Tax Incentivised Savings Association said:
“We should be looking at retirement saving as a whole and helping people to put different types of assets towards funding later life.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 14, Q26.]
It is clear that stakeholders are concerned about the confusion that may arrive for savers with the introduction of the LISA. When he gave evidence to the Committee, Tom McPhail from Hargreaves Lansdown said forcefully:
“We are in danger of sending ISAs down the same road as pensions, making them more and more complicated.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 15, Q29.]
He advised of savers that it is
“really important that we support them with good information”.––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 16, Q31.]
As well as the potential distractions from auto-enrolment pension schemes, the LISA represents a major missed opportunity to increase the attractiveness of auto-enrolment. In a submission to the Work and Pensions Committee, the union Prospect argues:
“If Government wants to subsidise younger workers saving towards a deposit on a first home it could just as easily do so through changing the rules relating to the taxation of pension schemes as through introducing the Lifetime ISA. Such an approach would greatly increase the attractiveness of automatic enrolment pension schemes.”
The submission goes on to say:
“Anecdotally, Prospect members who opt out of automatic enrolment pension schemes sometimes report they do so in order to be able to save towards a deposit for a first home. Research shows a majority of young people would be more inclined to save into a pension scheme or would save more if they could use their pension pot to fund a deposit for a first home.”
Prospect also points out:
“In New Zealand the rules of the Kiwisaver allow the withdrawal of savings to purchase a first home”,
and research from the Pensions Policy Institute shows that early access and borrowing against funds for the purpose of home purchases are permitted in other countries.
David Wren of the BBA pointed out that the LISA will be the sixth type of ISA on the market. He said:
“The hybrid nature of the product—between saving for a house and saving long term for retirement—also adds considerable complexity for people who are choosing where to save and what to do.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 17, Q32.]
He also noted that
“complexity is definitely the enemy of success in getting people to save.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 20, Q39.]
That is why robust financial advice that takes account of an individual’s other savings and pension pots is essential. We do not accept that no alternatives to the LISA were considered—the impact assessment for the Bill spells that out clearly. The Government must look at other options. Surely the delay that we are calling for would give the space for a pause.
Since its introduction in 2012, auto-enrolment has been a success, with more than 6.7 million workers successfully enrolled by September 2016 and lower opt-out rates and higher employer compliance than was initially expected. That success has been built on the back of a broad political consensus and thorough planning ahead of its introduction. As the National Audit Office report on auto-enrolment pointed out, the policy faces greater operational risk as it is rolled out to small employers. The phasing in of increases to minimum contribution levels also presents challenges. A separate NAO report identified a potential risk if individual interventions
“are managed separately without adequate consideration of their impact on the overall objective of increasing retirement incomes.”
That warning could hardly fit the circumstances of the introduction of the LISA any better.
The Government’s main priority should be to build on the success of auto-enrolment to date and deal with the upcoming challenges that have been identified. That work should include strategies for addressing issues with ineligibility for auto-enrolment and for increasing contributions under auto-enrolment. That is particularly important for workers aged under 40, because most will be worse off in retirement as a result of the introduction of the new state pension. Prospect also said that
“the Government is in danger of losing focus on what should be its priority with the introduction of the Lifetime ISA.”
Kelvin Hopkins
I rise to support new clauses 1 and 2, along with everything said by my hon. Friend the Member for Bootle and much of what was said by the hon. Member for Ross, Skye and Lochaber. It would be sensible of the Government to accept the new clauses. They are practical and logical, and it is perfectly reasonable that we want a review of the effect of the LISA on auto-enrolment and pensions savings and that anybody choosing to buy a LISA is given proper advice. None of that would undermine the Government’s legislation; it would actually improve it considerably and give the necessary protections.
I have considerable doubts about the wisdom of going ahead with lifetime ISAs. The whole pensions and savings world has been far too complicated for far too long. Some 25 or 30 years ago, I reached the age at which I had sufficient income to start to save so that I would have extra income in my later years—I must say that I am now benefiting from that, in spite of having a very generous parliamentary pension as well. At that time it was extremely complicated. There were tax-exempt special savings accounts, personal equity plans, ISAs, national savings certificates and all sorts of tax-free savings instruments, but interestingly they were all perfectly acceptable for people on higher rate tax like me. I have always been concerned about that.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
Does the hon. Gentleman agree that one of the LISA’s major flaws is that the only people who will be able take full advantage of it are people who have a spare £20,000 a year to save? That is an attractive tax break for very wealthy people.
Kelvin Hopkins
The hon. Lady is absolutely right. During the era of TESSAs, PEPs, ISAs and national savings certificates, the wealthy, if they were wise, would have bought all of them for themselves, their partners and their children—anyone within the family for whom they could buy them—every year. They would build up a massive portfolio of tax-free savings over the years and be extremely well off in old age, especially if the savings in those four schemes would otherwise have been taxed at the higher rate. Instead of incentivising poor people to save, the schemes were actually tax-free bunce for the wealthy. I had some TESSAs, PEPs and ISAs, and I still have some national savings certificates today, so I am sitting pretty, but I am comfortably off. I am more concerned about people who are poor, and I am certainly not poor. I am not wealthy, but I am not poor. Mr Davies made the point well.
That is a frontal assault on such instruments, but the concern about damaging auto-enrolment is also serious. I strongly support auto-enrolment, which has been a great success so far. I wanted to go much further, and I have said in the Commons on more than one occasion that I believe we should have a compulsory universal earnings-related savings system for everyone, including the self-employed, so that we all make sure that we save for our old age. I do not stand back from that proposal, which I intend to continue advocating as a step beyond auto-enrolment. Auto-enrolment is a major step forward, but it is still not a defined-benefit scheme and it is still subject to stock market fluctuations, whereas a state system could have guaranteed defined benefits.
David Rutley
The hon. Gentleman makes an important point about self-employed people. We heard in the evidence sessions that LISAs would help a significant element of the self-employed. The Government are carrying out a review of how auto-enrolment could support the self-employed in future. Does he think it is important to think about not just nirvana and what might be, but how we can tangibly help people now? This product will make a difference to a big section of the self-employed.
Kelvin Hopkins
I agree with the hon. Gentleman that there is a serious problem for the self-employed. There is a lot of bogus self-employment, with employers forcing their employees into self-employment. If we counted only genuine self-employment, there would be far fewer self-employed people. We could then make sure that people are paying into the system through taxes and national insurance contributions. They could also be enrolled in a compulsory state system of earnings-related savings. I agree that there is a problem with the self-employed and I am glad that the Government are reviewing the problem, but we have to go far further into that than we are discussing today.
What my hon. Friend the Member for Bootle said is sensible, practical and reasonable. The Government should just accept his argument and say, “Of course, we want a review of the impact on the automatic enrolment and pension savings and we want to have proper advice for people applying for lifetime ISAs.”
When I was investing in my middle years—rather than my later years, as I am now—people gave me advice. People came to my door and talked about their savings schemes. I did not understand what they were talking about, even though I used to teach statistics and am mathematically qualified and could understand logic. It became clear to me that the people coming to my door did not understand the instruments either. They were selling something because they had been told to sell and they were on commission: “Just sell it, get the signature on the bit of paper, come away and we will give you 5%.” When they did not understand, I thought it was even more terrifying. No wonder we had mis-selling on a gigantic sale. Billions are now having to be paid back, and no doubt billions have been lost for ever and will never be paid back because many people died before compensation was thought about.
We have a problem. We have to make things automatic, simpler, with a state-managed system involved. We also need to ensure that, if there is any kind of subsidy for pensions in old age, it should go to the poor and not to the better-off like me. The gulf between rich and poor in our country has widened. We have a serious problem of poverty in old age and we have to deal with that through the state. I hope to persuade my own party to adopt a policy of that kind, as and when we become the next Government.
The Financial Secretary to the Treasury (Jane Ellison)
It is a pleasure to be here with you and the Committee, Mr Chope. I thank everybody for their attention at the very good witness sessions on Tuesday, when we heard from some very interesting people who were good enough to give up their time to come and inform our deliberations.
I will say a general word around lifetime ISAs when speaking to clause 1 and will come on to new clause 2. However, I should say first that there is much about the spirit of the new clauses and amendments proposed with which I agree, as I think we all would. When I come to speak on them, it will be to demonstrate that they are unnecessary or would not work as intended. I do understand the spirit in which they are tabled. I also note, as we all have, that there are areas of significant consensus across the Committee, particularly around auto-enrolment, the success it has been and the wish to see it go from strength to strength.
I will come to that in a moment, but I will first introduce the broader product. We believe the lifetime ISA is a positive addition to the savings landscape. That was a view substantiated by a number of the experts we heard from on Tuesday. It will support younger people to save for a first home and to supplement their long-term savings by topping up individual contributions with a generous 25% Government bonus of up to £1,000 a year.
In 2015, the Government held a full consultation on pension tax relief, which is the background to how we came to the lifetime ISA. The outcome was clear: there was at that time no consensus for fundamental reform to the pension tax system. In some ways, some of the comments that we have heard in speeches this morning reflect the fact that there is still a desire among some people for a fundamental redrawing of the landscape, but the reality is that that is a debate for another time and place. We are in Committee to deal with this Bill, but I acknowledge that that other debate is ongoing.
Throughout the course of the consultation, young people indicated that they wanted more ways to save flexibly for the future. At Budget 2016, therefore, the Government announced the introduction of the lifetime ISA, which has been welcomed by insurers, ISA providers and other industry experts, as we heard on Tuesday. Although some people had some concerns, I think it is fair to say that there was a broad degree of welcome from people across the sector. They see the lifetime ISA as a valuable new vehicle to help young people save.
Jane Ellison
I entirely accept the hon. Gentleman’s broad point. He assumes the worst will happen, whereas I have good evidence to show that that is not a reasonable assumption. I will go on to show that we are keeping these things under constant review across the broad piece of pensions and savings.
The lifetime ISA, like all Government policies, will be kept under review to ensure that it is meeting its objectives. We already publish a wide range of details about the take-up of Government-supported savings accounts such as ISAs, and we intend to take a similar approach with the lifetime ISA. Similarly, national statistics and other information such as the Office for National Statistics wealth and assets survey set out information on the savings held across a range of different household types. It is quite granular information.
As the hon. Member for Ross, Skye and Lochaber said earlier, we have a legislative commitment to review certain aspects of auto-enrolment in 2017. In addition, we have the discretion to conduct wider review activity. We recognise that broader challenges and questions have been raised by stakeholders in connection with the review—for example, questions of inclusion and adequacy. It is important we look at the scope and the right sequencing of review activity. The Government are currently scoping the review and hope to update further on that by the end of the year. Of course, the debate we are having in this Committee will inform those deliberations. Because of that, we consider publishing an additional review of the scheme’s operation to be unnecessary in terms of its interaction with the product we are discussing in this clause. I therefore urge the hon. Member for Bootle not to press new clause 1.
New clause 2 seeks that the Government provide in regulations that independent financial advice is made available to all customers making an application for a lifetime ISA. I think we all agree with the thrust of the debate on the new clause. We have all seen victims of mis-selling and want to ensure that our constituents go into every financial decision with the best information available. The Government want people to have the information they need to make important financial decisions and we will achieve that by providing clear factual information on gov.uk, as well as working with the Money Advice Service and its successor to ensure they make appropriate and impartial information available.
New clause 2 would require all individuals to take out financial advice before they open a lifetime ISA. I want to demonstrate that that is not practical, however well intentioned it is. Financial advice is relatively expensive. The point has been made that we do not want to disadvantage younger people and basic rate taxpayers who want to take advantage of this product. Our impact assessment and all the work that we have done indicate that the vast majority of people who take up the product will be basic rate taxpayers.
Research carried out by Unbiased shows that the average cost of financial advice for customers is £150 per hour and the average advice process takes around eight hours. That totals £1,200. Even if we assume that that is the upper end of estimates, it is still £200 more than the maximum annual bonus that an individual could receive from the lifetime ISA. That would create a significant barrier to all but the wealthiest individuals opening a lifetime ISA, and I know that that is the opposite of the Opposition’s intent.
Kelvin Hopkins
If there was a simple state office where people could obtain such advice from an objective, publicly employed adviser rather than a private financial adviser, would that not be an efficient and relatively cheap way of providing good, reliable advice?
Jane Ellison
I think we would all agree on the broad point about wanting people to have access to financial advice whatever their income, but we are dealing with this Bill. The Government will consult and take soundings on the successor to the Money Advice Service and the other advice services that will be brought together, and I am sure that we will have a good debate about that in due course. The hon. Gentleman may wish to contribute those broader thoughts to that debate.
Let me turn to the current regulatory framework around the LISA. It is worth saying that it is not the Government’s role to set that regulatory framework. The hon. Member for Luton North talked about the different regulatory landscape at the time when he was being sold products—not particularly well, apparently. We are all thankful that that landscape has changed greatly since those days, and rightly so, but it is the role of the independent Financial Conduct Authority to regulate the providers of ISAs, and it will likewise set the appropriate framework for the lifetime ISA.
The FCA will consult on the regulatory regime for the lifetime ISA throughout the autumn and will, as is its ordinary remit, ensure that providers are transparent to customers about the products that they are offering and those products are sold with suitable safeguards in place. We heard in some of the evidence sessions on Tuesday about how the industry wants to get advice right. Everyone has been scarred by what has happened in years past. As I said to the hon. Gentleman, we will consult later this year on the scope of the new financial guidance body, as a complement to the industry’s advice. We heard people such as Martin Lewis talk about the common-sense advice that people need to hear, and that is also an important part of the landscape from which people can seek guidance. I am sure that Martin Lewis and others will contribute to the debate about the new advice services.
I reassure the hon. Member for Bootle that information about the lifetime ISA will be available so that potential customers can make informed choices about which financial products to use. We want people to understand what the right choices are for them, but it would not be appropriate for the Government to require advice to be provided, as that would create a significant financial barrier to individuals accessing the lifetime ISA. It is the independent FCA’s role, not the Government’s, to set the regulatory framework for ISAs. For those reasons—not because I disagree with the spirit of his new clause but because I do not think it would work in practice—I encourage him to withdraw new clause 2.
I conclude my remarks about clause 1 by saying that the lifetime ISA will benefit many young people by supporting them to save flexibly for the long term. It is designed to complement the pension system, not replace it. The clause makes provision for the fundamental feature of the lifetime ISA: the Government bonus. We think that is a positive product for young people, and we do not want them to lose out on, for example, a year’s worth of saving and the compound interest on that because of the delay that has been called for. I therefore ask Committee members to support clause 1.
Peter Dowd
I welcome some of the Minister’s comments on both new clauses, and the spirit in which she made them. In the spirit of trying to move on, we will not push new clause 1 to a Division. We acknowledge that the Minister has said that there will be reviews of some fashion, though maybe not statutory reviews; we will take that away and consider it, and may come back to the question of reviews. Our concerns in relation to auto-enrolment can be appreciated. It has been a good product, to use the jargon, and we do not want to lose that. However, again, in the spirit of moving on, we will pull away from the new clause.
We will push new clause 2, on independent financial advice, to a vote, because this House has to lay down a marker when it comes to people’s future and making a significant investment in a product. The lifetime ISA is a significant investment, whatever way we look it. Importantly, it is also a significant investment by taxpayers; that has to be taken into account. If somebody wants a lifetime ISA, and rightly understands that the Government will put a lump sum towards it, it is not unreasonable for us to say that we expect that person to take independent financial advice.
Kelvin Hopkins
I absolutely support what my hon. Friend says, but is it not important to have that commitment in the Bill, rather than just rely on the apparent sympathy of the Government?
Peter Dowd
It is, and that is why I am trying to push that message home. To some extent, we need to draw a line in the sand.
Peter Dowd
New clause 3 would require the Government to conduct a review within a year of the Act coming into force of the potential impact of the lifetime ISA on house prices in the United Kingdom. The review must be made publicly available and laid before both Houses of Parliament. The Opposition recognise that many people want to own their own home. However, we are concerned that the Government’s housing policy will only inflate house prices further. We have concerns that the LISA will make things even more difficult in a housing environment that is already strained because of the limited number of houses being built nationwide, not to mention the huge cost of housing, particularly in London and the south-east; the average figure is £250,000.
Evidence to the Committee on Tuesday was cautionary. Martin Lewis from MoneySavingExpert.com, while acknowledging the potential popularity of the LISA, flagged up its potential impact on the housing market. He highlighted that
“Unintended consequences are possible—the lifetime ISA might pump the housing market, which is a concern”.––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 50, Q95.]
The Institute for Fiscal Studies, referring to the Office for Budget Responsibility, made a similar point.
I do not want to over-emphasise the point, but it is worth noting—and perhaps assessing, as suggested in the new clause—the effect of the LISA on house prices overall. It is worrying that fewer homes were built in the last Parliament than under any previous peacetime Government since the 1920s. LISA may help—if that is the right word—to overheat a market that is already short of capacity. The Government’s priority should be to try to mitigate that, not to add to the problem. I do not think that is an unreasonable point to make.
The fact is that people are increasingly chasing a product in a market that has low supply levels. It so happens that the product is a house. The facts speak for themselves. Since I sat on the Housing and Planning Bill Committee around this time last year—it may well have been in this very room—the housing market has remained pretty tight, with supply remaining low. The national planning policy framework, which the Government were warned would create confusion, has done so. That all adds to the broth and is creating problems. By now, according to the plan, and the former Housing Minister, the right hon. Member for Great Yarmouth (Brandon Lewis), there have should been a better housing supply. Alas, he was wrong.
The lifetime ISA, which will in effect replace the help to buy ISA in due course, provides a Government bonus that can be used towards a deposit on a house—if one can be found. If I remember correctly, concern was expressed by a witness that the help to buy ISA had been poorly articulated, and that the current one was potentially being poorly articulated as well. There was the impression that an ISA could be used for a deposit. Of course, there was a smorgasbord of consternation, anger, disappointment, frustration and bewilderment when many young people found that that was not the case. The problem is that if people are encouraged to borrow money for a house in a tight market, the more house prices rises, the bigger mortgages they need, and so on. The fact that the Government are helping to do that is not helpful. The problem is exacerbated. When the growth of mortgage lending outpaces the supply of housing, prices just keep rising and rising, making it increasingly difficult for people to access the housing market at a reasonable rate. There is no doubt about that.
The Government have identified the right problem but are coming up with the wrong solution. We need to build more houses. That is the only way to solve the housing crisis. New products are fine, as far as they go. Lots of people welcome the LISA—I cannot argue against that—and many people do not, but the comprehensive solution is to deal with the continuing housing supply problem. It is worth noting that the house shortage is simply a physical manifestation of the shortage of skills in the construction sector in general and the housing market in particular.
The Government are almost two years through their five-year housing plan, not counting the previous five years, and we are still falling badly behind on targets. The question is whether the proposals really deal with the substantive issue of supply, and the answer is no. In that context, it is important to look at whether this policy will have an impact on house prices. If it will, in addition to there being a lack of action on housing policy in general, that is a concern. It is legitimate to ask the Government to review the impact on the housing market of this product.
Kelvin Hopkins
I rise to support my hon. Friend’s new clause. Many of us have long been concerned about the massive rise in house prices. I will give a simple example. When I bought my first house in Luton in 1969, house prices were three times average earnings. Now in Luton, they are 12 times average earnings.
Millions of people are seeing the possibility of home ownership disappearing. Owner-occupation is in decline; it is becoming a smaller sector, and we are seeing an opening up of major social divisions between owner-occupiers and renters. For owner-occupiers, equity will cascade down the generations, and their children and grandchildren will stay in the owner-occupied sector because they will inherit the equity. Those who are not in the sector and do not have sufficient income will remain outside the sector, as will successive generations after them—unless they win the lottery or become extremely wealthy for some other reason, but that will apply to only a small number. The great majority of people will find it very difficult to become owner-occupiers if they do not have equity handed down by their forebears.
Adding extra cash to help people who are already likely to be in a position to buy their own home will simply increase house prices further and take home ownership even further away from those who do not have equity and are unlikely to be able to afford a home. We have to see some action by Government over time at least to stabilise house prices, so that more people can get into owner-occupation, and so that those who aspire to be a homeowner have a realistic prospect of becoming one.
I support what my hon. Friend said. We have to build many more houses. The only way to stabilise house prices is to raise supply, not increase demand, which would just push house prices up. It is not the price of houses that is increasing, but the price of the land on which they are built. The cost of building a house does not increase by that amount; it is the land on which it is built. There is a case for land value taxation and doing something about the price of land.
It is a mad world. In 1969, I thought becoming an owner-occupier was a bit of an adventure, but I could afford it on one income—mine, which was not massively high, because I was a trade union research officer. Nevertheless, I could afford to buy a three-bedroom house with a garage and gardens back and front—a nice, typically British home, which we might all aspire to. If I were trying to buy the same house now, with the same sort of income, in the same town, I would have great difficulty. On my generous parliamentary salary, I might stand a better chance, but not on the salary that I had at the time, so I think my hon. Friend the Member for Bootle is absolutely right, and I support his new clause 3.
Jane Ellison
The Committee is enjoying the autobiographical journey to Luton North through the ages.
Kelvin Hopkins
I used to be a teacher—I taught economics years ago—and I always found that using examples kept the class alive and entertained them. It also helped them to understand the points that I was making.
Jane Ellison
To that end, he has succeeded magnificently; everyone looks thoroughly engaged, which is not always the case in Bill Committees, it is fair to say.
Before I speak about schedule 1 and new clause 3, I have a couple of points to make. I do not intend to go into a wide discussion about house building. We all agree that we need to build more houses. Earlier this month, the Government unveiled a £5 billion package at the Conservative conference, which will make substantial progress and build on the progress already made.
The help to buy ISA is often unfairly criticised. In a way, those myths then transfer across to criticism of the lifetime ISA, so it is worth putting on the record that the take-up of the help to buy ISA has been high; there have been more than 650,000 of them to date. Where people have used help to buy to buy a home, that home has been worth on average £167,250, which is well below the scheme’s property price cap of £250,000, or £450,000 in London. That underlines the fact that we expect the majority of those who use the lifetime ISA to be basic rate taxpayers.
I will turn to schedule 1 and then make a point or two about new clause 3, because I hope to show the shadow Minister that I can respond to his substantive concern. The schedule sets out some of the detailed rules of the lifetime ISA. It is a long schedule, so I propose to provide only an overview.
Regulations made under paragraph 11 of the schedule will set out who is eligible for a lifetime ISA by specifying who “the investor” is. We intend to provide in regulation that a new account may be opened only by a person aged under 40, and that payments to a lifetime ISA may only be made until an account holder reaches 50. That is to reflect the fact that the scheme, as discussed, is designed to support younger people in getting into the habit of saving. Draft regulations have already been published for consultation, and they will be considered and debated by the House before the product is launched.
Paragraphs 7 and 8 of schedule 1 concern withdrawals. Account holders will be able to withdraw sums from their lifetime ISA at any time; that is consistent with normal ISA rules. Such withdrawals will not be subject to a withdrawal charge in the circumstances set out in paragraph 7, which include account holders purchasing their first home after saving in a lifetime ISA for 12 months or longer, or reaching a specified age, which regulations will set at 60.
Regulations will also set out detailed rules for the processes to be followed when a withdrawal is made to buy a first home. We intend to consult with industry experts to ensure that those regulations are simple to apply and that they meet our objectives for the scheme. Officials have been working hard and openly with industry experts for some months to ensure a product that works well. There will also not be a withdrawal charge when an account holder dies or becomes terminally ill, or when savings are transferred to another lifetime ISA.
Savings (Government Contributions) Bill (Fourth sitting)
Kelvin Hopkins Excerpts(8 years, 1 month ago)
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Kelvin Hopkins (Luton North) (Lab)
I concede that there is some worth in what the hon. Member for Ross, Skye and Lochaber was saying, but my concern is that if all sorts of accounts were protected from insolvency prosecutions, people might pile all of their cash into those accounts while knowing that they were going to go bankrupt or behaving in a financially irresponsible way. That protection would not help creditors.
Jane Ellison
A fair point—I certainly acknowledge what the hon. Gentleman says. What we propose in the Bill around creditors and insolvency is consistent with Government policy in other areas. For those reasons, I urge the hon. Member for Ross, Skye and Lochaber to withdraw the amendment.
Jane Ellison
The amendment would require the Government to pay the bonus on Help to Save accounts within six months of the account opening. On Second Reading, hon. Members expressed concerns about the bonus being paid after two years and on maturity, and not more regularly. The Government are not requiring people to lock their money away in Help to Save. People will still have full access to their savings and will be paid a bonus on the highest balance obtained. Even if people are able to save for only six months, they will still be entitled to receive a bonus at the two-year point and on maturity.
We have said a number of times that the purpose of Help to Save is to support rainy-day saving over a four-year period to help people to build a buffer against unexpected financial shocks or changes in circumstances. In light of that objective, we have looked carefully at how frequently we should pay the bonus.
Similar accounts in the Saving Gateway pilots run by a previous Government ran for 18 months. Published research shows that participants had different views on account duration, but many were in favour of extending the period. Additionally, there is peer-reviewed research by US academics on individual development accounts, a similar savings scheme in the US that also provides match funding to help people on low incomes to save. The research concluded that 19 to 24 months is the optimal time period to embed a savings habit.
Kelvin Hopkins
I am somewhat persuaded by the hon. Member for Banff and Buchan. In the American case, is that the convenient time period for those organising the scheme, or is it the optimal time period for the saver?
Jane Ellison
My understanding—I have not read the detailed research, although I suspect I will before Report—is that it is what people who were in the scheme fed back about how they felt. That is certainly the case with the Saving Gateway research, which was published in the Journal of Economic Psychology, and I will certainly read it before we get to the next stage of the Bill. Research was published on the Saving Gateway pilot showing that participants were generally in favour of extending the period. We have the right focus there.
Kelvin Hopkins
I remember that when people on lower or ordinary incomes were paid monthly instead of weekly, it was sometimes felt that that was uncomfortable, and that short timescales were better for those on low incomes than those on high incomes.
Jane Ellison
We risk straying slightly off the point, but there has been a lot of debate about weekly and monthly pay in the discussions about the many changes to the welfare system in recent years. Universal credit, which like many other benefits is moving to a monthly-by-default payment, is subject to the same argument about striking the right balance. We think that paying the bonus at two years and on account maturity strikes the right balance, because it gives people enough time to build up their savings and develop a saving habit, while allowing them to access the bonus within an appropriate timescale.
The Government bonus is designed to provide support and a real incentive to those building up their savings over a long period, rather than supporting or incentivising short-term spending. A bonus of up to £600 after two years is an attractive target to save towards, and will encourage people to keep saving, if they can. We do not believe that smaller bonus amounts paid at more frequent intervals would provide the same incentive for regular saving over the long term.
Given the rainy-day nature of the scheme, Members may be concerned to ensure that savers can access their bonus early if they face an unexpected cost or change in circumstances, and I stress that savers can access their money at any time and still earn a bonus on their savings. The four-year duration of the account allows people to start saving again, so they can earn an additional bonus. While I recognise the strong views on this issue, the motivation behind the amendment, and that no one solution will work perfectly for all savers, I think—in light of the argument I have made and some of the evidence I have cited—that we have got the balance right in this regard. I ask the hon. Member for Banff and Buchan to withdraw her amendment.
Savings (Government Contributions) Bill (Second sitting)
Kelvin Hopkins Excerpts(8 years, 1 month ago)
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James Cartlidge
Q In respect of Help to Save, it seems to me that there is a real crisis of people who are living week to week, who are often using payday lenders or other forms of debt which are not sustainable for them and who are near the precipice all the time. I take your point that some may not have any spare income at all, but if a savings product such as this, which is so generous, is not going to help them save for those emergency funds that give them greater independence and less reliance on the lenders, which is important, what possibly could?
Bryn Davies: You are right. The work done by StepChange and the Centre for Social Justice very much endorses much of the evidence that you received in the previous session. There is no doubt that it can help people. How targeted it is on people who do not already have a rainy-day fund is unclear. The first point is that many of those people who would take it up already have their rainy-day fund. In that sense, the extra money is not solving that problem.
The other problem is the sheer difficulty of operating on limited budgets. It is not a case of saying, “Let’s give everyone the opportunity to save for a rainy-day fund and that will solve the problem.” I think that underrates the difficulty people face in running their day-to-day budgets and the competing demands that they have. I think that reflects the point that was made here earlier.
Kelvin Hopkins (Luton North) (Lab)
Q We are old colleagues from the TUC, so I have to say that I have great sympathy with everything you have said so far. It has always struck me that these alleged savings schemes—tax-exempt special savings accounts, personal equity plans and ISAs—help at the margin with people who are relatively comfortably off, but do not help those people who cannot save anything at all because they are too poor. Is this another of those schemes, which will help some people but not those in the most desperate need? They will be the people who are slightly better off and can afford to save something. Would it not be better to have some sort of universal state scheme for pensions, for one thing, but also, on the other hand, to have an emergency scheme where you can give more money to poor people one way or another? Raising their incomes is what the problem really is.
Bryn Davies: Yes, absolutely. These people do not save because they are poor. A hyped-up social fund would do much more directly to help people with these crisis problems. As was mentioned, it is the day-to-day grind of being poor that is the problem. It is not just crises—people are not just poor in crises; they are poor all the time. In those circumstances, there are very tough decisions to be made about how people use their money. Saving is sometimes seen by those people themselves as a luxury. They would rather run the risk than go without some relatively innocuous discretionary spending. We should, in a sense, respect their decisions. We may warn them that they are heading to a crisis but, ultimately, we need to trust people to make their decisions.
On the broader issue, you well know my views on state provision. I think that the market does fail and that it fails, in terms of saving and pension provision, for a much larger proportion of the population. There are very few people who could get by with just the new state pension. Everyone needs to save something for retirement but the market is a bad way of saving for a large proportion of the working population. I could speak on that at length.
Maria Caulfield
Q In your professional capacity, do you advise your clients to have pensions or savings or do you advise them to have both?
Bryn Davies: I do not give independent financial advice. I have to be very careful on that. I always promote the advantages of collective schemes and point out the advantages of having occupational schemes, and support unions when they are negotiating the best possible collective provision. I do not advise individuals about how to use their money.
Kelvin Hopkins
Q I am somewhat sceptical about the myriad private savings schemes and have argued the case for a much more comprehensive compulsory state savings scheme for everyone, on top of which people could save in other ways as well as in stocks and shares. What would be the case against having a universal state earnings-related system with defined contributions and defined benefits, which would be extremely efficient to operate, easy to administrate and which everybody would know they were going to get a good deal from? What would be the argument against that?
Calum Bennie: I don’t think there is an argument against that.
Maria Caulfield
Q I want to get to the bottom of the evidence that we were given earlier, especially from the experts and professionals in this sector, that these schemes—whether it is Help to Save or the LISA—are too complicated for those on a lower income really to grapple with, and therefore won’t be taken up and won’t be of use. What’s your experience? Do you think the way that these schemes are being set up is easily understandable and will encourage those on a low income to save?
Calum Bennie: We certainly don’t see any issue with that. If it’s us who are going to be promoting these schemes, then we will certainly make sure that our communications are clear and that they are researched in the first place. For instance, our ISAs—that is the basis of this product; it’s an ISA, with various add-ons—are as complicated or as non-complicated as you want them to be, and they are understood extremely well by our customers.
Centenary of the Battle of the Somme
Kelvin Hopkins Excerpts(8 years, 5 months ago)
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Kelvin Hopkins (Luton North) (Lab)
I congratulate the hon. Member for South West Wiltshire (Dr Murrison) and my hon. Friend the Member for Barnsley Central (Dan Jarvis) on securing this important debate on the centenary of one of the most tragic events in Europe’s history, and on their very fine and moving speeches. I also congratulate all hon. Members on their equally fine speeches. We have heard not just very moving words, but interesting speeches from people who know a lot about what happened in those terrible times during the first world war.
I wish to pay my personal tribute to those who fought and died on the Somme in the weeks that followed 1 July 100 years ago. Controversy has raged for decades about why such suffering of hundreds of thousands of men should have been first initiated and then tolerated, even as an act of war. The particular role of General, later Field Marshal, Haig, has been considered controversial, but perhaps that is a debate for another day. It is the men who died and were wounded on the Somme that must be and are uppermost in our thoughts today. Their incredible bravery and dreadful suffering are what we commemorate and are discussing. I hope I speak for all my party colleagues when I pay tribute to those men in this debate.
The Somme has come to symbolise the terrible nature of war at its most devastating and tragic. We must salute and remember all those who were killed and wounded on the Somme, and ensure that they are never forgotten. The first world war, and the Somme in particular, seem very close to me and are far from distant in my thoughts. I am older than the great majority of hon. Members in this House, and I have some personal associations with those events.
My maternal grandfather, Arthur Frost, was wounded early in the war, and could not return to the trenches. Instead—perhaps fortunately—he was employed as a chauffeur to a general, which is surely the reason he survived. My mother was born shortly after the war, and I would not be here today if my grandfather had not come through. I remember him telling me about his experiences in the war when I was seven and he was just 60—14 years younger than I am now. I, too, was lucky to survive the second world war. We lived in south London in Norwood in 1943, and my mother insisted that my brother and I were evacuated with her to my grandparents in Leicester, shortly before a V1 destroyed our house.
I have always been very conscious of war and its dangers and tragedies, but I have a particular association with the Somme. My wife Pat’s grandfather, Private Arthur Thomas Langley, died on the Somme, and my late father-in-law was raised by his mother and his aunt, whose fiancé had also been killed. I remember Nan and Aunty Sis, as they were known in the early 1960s—two dignified and kindly women who had both suffered tragedy in their lives but retained an amazing serenity. They, too, were a good deal younger than I am now. I knew several such women in those years, and there were hundreds of thousands of them, together with mothers, sisters, fathers, brothers and children.
I have brought with me the posthumous medals that were awarded to Private Langley and later posted to my wife’s Nan. We even have the registered envelope in which they were delivered nearly 100 years ago. My wife and I were the first members of her family to find out through the internet where Arthur was buried, and to make a journey to visit his grave. He lies in a war cemetery called Caterpillar Valley, alongside hundreds of his comrades. We took those medals with us and photographed them on his headstone as we paid our respects. We shall not forget him, nor the sight of the vast numbers of white headstones in one of many such cemeteries across the Somme. Each year we drive to see friends in Burgundy, crossing the Somme near Saint-Quentin, and we give more thought to those who died 100 years ago. The land around there is now calm, undulating and mostly grassy, and it is difficult to imagine the horror and slaughter that took place in those times.
I also remember the poems of Rupert Brooke, Wilfred Owen and Siegfried Sassoon, which we read at school—some of that has been referred to today. Those men were there, and they put into moving and eloquent language their thoughts on that war, and the death and destruction that they saw, and that two of them were later to suffer themselves. Their words are perhaps more telling than anything we might say today—moving though many of today’s words have been—and they will live on.
We should also remember all those from other lands, about which much has been said today, who fought on the Somme on both sides. My constituency contains the largest Irish community in the eastern region of England, and, as we have heard, many thousands of Irish soldiers died on the Somme—indeed, last Saturday I was at the annual general meeting of the Luton Irish Forum, and mention was made of that. I also represent many communities from across the Commonwealth who suffered great losses in the war. It is astonishing to think that they came from all over the world to fight and die in what was essentially a European war, and we should not forget that. I have many thousands of constituents from south Asia. They know that their parents and grandparents were associated with and involved in those wars, and we remember and pay tribute to them.
It has been a privilege and an honour to make my first speech from the Dispatch Box in this most significant, honourable, and heartfelt debate.
Finance Bill
Kelvin Hopkins Excerpts(8 years, 5 months ago)
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Roger Mullin
I agree with the hon. Gentleman that it would be better for some in this community to achieve traditional forms of employment, but that is not the situation for the in excess of 1 million people in the UK who fall into this category.
Despite the Minister’s warm words, we intend to press new clause 1. It relates to a matter of some real import for the communities and the economy of Scotland. I have indicated that we are simply speaking to amendment 180, which we will not press, and we will support the Opposition’s amendment 2.
Kelvin Hopkins (Luton North) (Lab)
I rise to speak briefly on these amendments and new clauses. The hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) was absolutely right to mention HMRC. Successive Governments have consistently understaffed HMRC, consistently arguing that they would make it more efficient or whatever. When I was first elected to this House 19 years ago, I remember going to my local VAT office and being told that every member of staff collects five times their salary. Being a logical sort of person, I wrote to the then Chancellor of the Exchequer and suggested that it was a good idea to employ more staff to collect more revenue for the Government. I received a letter back not from the Chancellor and not even from a junior Minister but from a civil servant, suggesting that HMRC was to save money by cutting staff. It was so irrational that it was just nonsense. That kind of nonsense has continued ever since—reducing the number of offices, making things more remote and so on. I was also not terribly impressed by the idea of having a benefits-distributing service—tax credits—going through HMRC rather than through the Department for Work and Pensions. I was not the only Opposition Member who was uneasy about that change.
I want to discuss new clause 3 and the tax treatment of workers employed through intermediaries and support my hon. Friend the Member for Wolverhampton South West (Rob Marris) on the Front Bench. It has long occurred to me that intermediaries and private agencies make lots of money out of both the public purse and the people they employ. That could be overcome if we instituted a substantial public ownership programme for agencies, particularly when the public sector is involved. If there was a local authority or NHS agency for nurses, the money would either go into the pockets of the staff employed through the agency or would be saved in public spending by the health service—everyone would benefit. However, the people who would lose would be in the private sector, which could not make profits out of employing people in this way. In that way, staffing and taxation could be properly regulated. There would be no cheating, irregularities or tax fiddles, because it would all be within the publicly accountable public sector.
Rob Marris
I have considerable sympathy with my hon. Friend on organisations such as agencies that deal with supply teachers. As he will remember from his background in education, that function was commonly done by the local education authority before, sadly, a Labour Government started changing things. LEAs were then gutted by the current Government and their predecessor. Will my hon. Friend concede that in certain areas, such as construction or oil rigs, there is a role for specialist agencies and that it would be rather Stalinist to look at nationalising them or having them run by national Government bodies, as he appeared to suggest?
Kelvin Hopkins
In the public sector, not everything that was in the past was bad. Some people say that we cannot go back to the past, but a succession of Governments have gone back to the 19th century in the way they run the economy, and neoliberalism was invented then. Since then, we have had social democracies and managed economies that worked well, but that has all been thrown away and we have gone back to the 19th century. Some things from the past that we can return to might actually improve things. I suggest that public agencies for temporary staff would be a good thing.
I might even debate with my hon. Friend that such a proposal could be employed in the private sector as well, because the staff involved would at least be properly protected, the companies would know that they are not being ripped off, and the Treasury would know that it is getting a fair deal through collecting its proper taxes. We could even have them properly organised with the trade unions, ensuring that they are properly paid and so on. We could go back to a splendid world of active social democracy. My hon. Friend’s new clause does not go quite that far, but I support it.
Rob Marris
I must say to my hon. Friend that I am quite in favour of a world of active social democracy. I am unsure whether my definition is quite the same as his if he seriously suggests that construction agencies should be run by some kind of state body—that is a step too far for me. I also caution my hon. Friend that, having got his way last Thursday, he is pushing his luck somewhat on this somewhat Stalinist approach.
Kelvin Hopkins
My hon. Friend suggests that my proposal is Stalinist, but we are talking about a world in which we had several splendid democratically elected Labour Governments after the second world war that did wonderful things. Nobody would call them Stalinist. They submitted themselves to the electorate every five years and were sometimes defeated—sometimes even in this House—so I do not think “Stalinist” is the right word.
I do think, however, that there should be a bigger role for the public sector in regulating employment, making sure that people are properly paid and securely employed, even if they are temporary staff, that taxes are fully paid and that private sector agencies do not rip off both the public purse and employees. I will leave that suggestion with my hon. Friend. I hope that he will bring forward even more radical proposals along the lines that I have suggested.
Kirsty Blackman
I shall be brief, as I know nobody wants a lengthy debate tonight. I have a couple of specific points to make about reviewing the income tax treatment of workers who provide services through intermediaries. We are asking for a review. I understand the Government’s point that they feel that their approach is sensible for the majority of workers and that it is levelling the playing field for the majority of people, but there will be unintended consequences on specific issues and in specific areas, and they are going to be a major problem.
We have mentioned that this will have a disproportionate impact on rural communities. That is partly because of geography, as those communities are further away and it is more difficult for people to make cheap travel arrangements to go there and for people to find reasonably priced overnight accommodation. That will have a disproportionate financial impact. We do not want specialist contractors to choose not to go to a rural community on the basis that it will disproportionately cost them money, as that will mean our rural communities will lose out; they will not have the ability to get whatever it is that needs to be done in that community because the contractor will choose to go somewhere cheaper. That is a major issue, particularly in the oil industry, as has been said, and in the whisky industry. The whisky industry may have specialist contractors that need to go to rural locations in order to do things, and we do not want those areas to be disproportionately affected.
Mr Gauke
I appreciate that that is the intention of the amendments, and of course the hon. Gentleman would be the first to accept that it would require some time for that to take effect, but there are other measures elsewhere that the Government are taking that I believe achieve those objectives more effectively.
Kelvin Hopkins
There is a proposal to build a railway line that would take 5 million lorry journeys off our roads every year, transforming current levels of emissions, particularly in towns. This has widespread support apart from in the Department for Transport and the Government. Will the Government look seriously at the scheme and see it as a positive way forward?
Mr Gauke
This Government are committed to a very substantial investment in our railways—the biggest rail building programme since Victorian times. As a Government, we have great ambitions; we intend to spend £60 billion on transport infrastructure over the course of this Parliament.
Turning to supporting testimonials, a point was raised about the definition of “customary”. To reassure the hon. Member for Wolverhampton South West, I point out that HMRC is committed to working with external bodies in the production of guidance on this, which will cover issues such as the definition of “customary”. He also asked about the numbers of testimonials that fall within the contractual or customary categories, or fall outside that. No figures are available, as employers have not had to report this to HMRC. It is worth pointing out that contractual and customary payments are treated as earnings and it is therefore not possible to disaggregate them from the PAYE system.
A number of points were raised on clause 14. It was asked whether this change would disadvantage rural communities. Workers in rural communities who are contracted directly cannot claim travel and subsistence on their ordinary home to work commute. This change equalises the tax treatment of workers employed through employment intermediaries with that of other workers. It addresses an imbalance in our tax system, ensuring that it is fair. It is a long-standing principle of the tax system that tax relief is not allowable for the expense of ordinary commuting—travelling from home to a permanent workplace. I made that point earlier.
In terms of whether it would reduce contractors’ ability to travel, creating a skills shortage or reducing flexibility and preventing growth, where businesses wish or need to recruit workers living some distance away, the Government expect businesses to pay a wage sufficient to attract workers without any special tax subsidy being necessary. This forms part of the Government’s plan to move to a high-wage economy with businesses meeting the costs of paying their workers a wage which does not require a top-up from the state. I should also make the point in this context that this change puts supply teachers —an example that I think was used in the course of the debate—who are engaged through an intermediary on the same terms as other supply teachers who are contracted directly or through an agency. Like other workers, supply teachers not engaged in this way would not receive tax relief on their travel and subsistence expenses on regular home to work travel.
Prior to the last general election, the Labour party said that it would stop umbrella companies exploiting tax relief. It stated this both in its published plan to tackle tax avoidance and subsequently in Parliament, and that is exactly what this change does, so I hope our measures in this area will have cross-party support.
The hon. Member for Aberdeen North (Kirsty Blackman) made a point about the impact on the Scottish oil industry. Employees with a permanent workplace at an offshore oil or gas installation are already exempt from income tax where they are provided with transfer transport, related accommodation, subsistence or local transport. These changes will not affect that exemption.
UK Economy: Post-Referendum Assessment
Kelvin Hopkins Excerpts(8 years, 6 months ago)
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Kelvin Hopkins (Luton North) (Lab)
The institutions and individuals forecasting economic doom if we leave the EU have got it wrong time and again in the past and seem likely to do so again. The exchange rate mechanism debacle, driven by the whole Europhile spectrum; the prediction that the skies would fall in if we did not join the euro; and the complete failure to foresee the 2008 crisis coming down the road—all this shows just how hopeless they are. Does the Minister accept that a plausible opposite case—that we would be better off outside the EU—can easily be made? If not, I will happily provide him with one.
Mr Gauke
I look forward to hearing that plausible case when it is made. I look forward to an analysis, supported by leading economists, making that case, but we have not heard it yet. The hon. Gentleman and I agree about our membership of the euro—we always have done—but if we were to single out two politicians in this country perhaps more responsible than anyone else for keeping us outside the euro, I would highlight, from my party, William Hague and, from his party, Gordon Brown, both of whom believe we should remain in the EU.
Protection of the EU’s Financial Interests
Kelvin Hopkins Excerpts(8 years, 10 months ago)
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Mr Gauke
I thank the hon. Gentleman for his question. It is 0.02% that is identified as being fraud. I think that a slightly larger number is suspected of and looked at as being fraud, but when it comes down to it, only 0.02% is established as being fraud.
In terms of the UK comparison, it can be difficult to make exact comparisons. All managing authorities across the UK have in place robust anti-fraud measures. Those include fraud risk assessments, mandatory checks on payments, fraud awareness training and regular referrals to OLAF where suspected fraud arises. We also support OLAF through the work of the designated UK anti-fraud co-ordinator, AFCOS, which is based in the City of London Police alongside Action Fraud. AFCOS continues to engage actively with OLAF and other member states to investigate and bring criminal proceedings against perpetrators of EU fraud. It would also be fair to say, looking at the ECA’s assessment of member states, that it samples member states’ activities; it is not intended to be a thorough audit of each and every member state to produce those numbers, so there is not a specific UK error rate on fraud, just as there is not for financial management errors.
Kelvin Hopkins (Luton North) (Lab)
It is a pleasure to serve under your chairmanship, Sir Edward. Hon. Members may notice a sceptical note in my questions, but—[Interruption.] They are just very accurate. We are a very substantial net contributor to the European budget, and 4.4% of the budget going amiss is the equivalent of certainly £1 billion and possibly more. Should we not be more concerned than some of the large recipient countries, because it is our money that is going into the wrong pockets?
Mr Gauke
It is certainly right that we should be concerned about that money. That would be the case regardless of whether we were a net contributor, but the hon. Gentleman makes a fair point: we make a substantial contribution to the EU budget every year. The UK has traditionally played a leading role in ensuring budgetary discipline in the European Union, and I highlight the Prime Minister’s achievement in 2013 of a real-terms cut in the EU budget for the multi-annual financial framework. An important area for us is ensuring that money is spent wisely and that we do not spend too much money at an EU level. We are a strong advocate of sound financial management and are committed to ensuring that EU funds are safeguarded and managed well. The Commission has ultimate responsibility for the implementation and management of the EU budget, but all member states, including the UK, must take responsibility in terms of putting pressure on the Commission and ensuring that money spent by member states is spent well.
Kelvin Hopkins
No doubt there are particular budgets that are more vulnerable and particular countries where the budget is not as appropriately controlled as it might be. The Financial Secretary talked about simplification. Are the British Government targeting certain areas and do they have concerns about particular countries where the budget might not be appropriately spent?
Mr Gauke
In terms of the UK’s action in this area, we have in place comprehensive procedures to ensure that EU funds comply with UK and EU rules, including a role in programme audits and preventive anti-fraud measures. The hon. Gentleman raises concerns about particular areas. Structural funds, for example, which are a sizeable part of the EU budget, have to be focused upon. The Commission set up a high level group on European structural investment funds simplification last year, whose work is ongoing. Although the agenda is in its early stages, the UK continues to engage actively by advising on simplified costs and financial instruments.
In agreeing the terms of the 2014 to 2020 structural funds regulations, the UK actively pushed for and achieved greater use of simplified costs, reductions in document retention periods, and lighter and more automated annual reporting. In terms of good practices, DCLG’s work in improving public procurement procedures was highlighted in an ECA special report last year. The Department has set up an internal network to review public procurement issues, including the issue of guidance, case studies and reviews of public procurement checks and audits.
As I have said, the UK takes this matter very seriously. Although the Commission has ultimate responsibility for implementation and management of the EU budget, we have a role in taking responsibility to push for reforms.
Mr Swayne
The fact that 11% of our overseas development aid goes via the European Union is not inconsistent with the fact that 15% of what the European Union spends is accounted for by us. I am not quite sure how that works out mathematically, but I am confident that it is true. The issue of how much is spent—how much comes from us—is an assessment of our share of the European budget. My understanding is that that works on the same basis—[Interruption.] The seventh cavalry has arrived. The ratio of UK funds to the EDF is determined by our gross national income at the beginning of the period. Well, there it is.
Kelvin Hopkins
I have one or two questions for the Minister of State. I have attended many such European Committee debates over the past 19 years. There have been concerns in the past about the allocation of aid by the European Union, including that it is less efficient and less well-directed than British Government aid, but the Minister seems to suggest that that is no longer the case. There were two specific accusations: that the aid was not directed to those most in need—the poorest countries, such as sub-Saharan Africa—and that there was a bias towards the better-off Francophone countries around the Mediterranean. Can the Minister tell us whether that matter has been addressed?
Rob Marris
Please do not tempt me. I congratulate the Financial Secretary to the Treasury. The European Commission report came out on 31 July and he signed off the explanatory memorandum for Parliament on 24 August—during the holiday period. Clearly his family never get their holiday though, and I urge him to change that. Similarly, the Minister in the House of Lords, Baroness Verma, promptly signed off her explanatory memorandum on the European foreign aid report from the Court of Auditors on 10 December, and here we are having a fairly prompt debate.
The explanatory notes, as ever, are helpful—the Financial Secretary knows my penchant for reading explanatory notes carefully. Paragraph 2 refers us to the report:
“The report summarises and evaluates measures taken by the Commission and Member States to counter fraud and irregularities against EU spending in 2014.”
That is a major area of concern, as my hon. Friend the Member for Luton North mentioned. Page 2 of the document from the European Parliament refers to the amount of fraud, saying
“the Commission estimates that tax fraud in all its forms amounts to EUR 1 000 billion in the EU, or EUR 2 000 per European citizen.”
That is a huge amount of tax fraud.
The reports deal with the monitoring and auditing to see that there is not fraud—not only tax fraud, but fraud and irregularities in other spending. The Commission report on page 21 of the bundle refers to measures already taken and to AFCOS, to which the Financial Secretary to the Treasury referred earlier. It also refers to
“a draft directive on the fight against fraud by means of criminal law, proposed in July 2012,”
and goes on to refer to
“a draft regulation on the establishment of a European Public Prosecutor’s Office (EPPO), proposed in July 2013.”
The EPPO would be established under article 86 of the treaty on the functioning of the European Union. I hope that one of the Ministers present—I imagine the Financial Secretary to the Treasury—will be able to indicate what progress is being made on that draft directive and that draft regulation. With the passage of time, I hope that there has been progress.
There is a huge problem with fraud and irregularities, not just in terms of tax. What is meant by irregularities? Just as my father used to say—I do not know why he used this example—all St Bernards are dogs, but not all dogs are St Bernards, so all fraud is an irregularity, but not all irregularity is fraud. An irregularity can occur when a beneficiary is not in compliance with the EU rules, which could be down to a genuine mistake.
Kelvin Hopkins
Should we accept that the term “irregularities” is merely a euphemism for fraud and that we should use the term “fraud” when we mean it?
Rob Marris
That is not my understanding of how the term “irregularities” is used in Euro-speak. It could be that there is non-compliance with the rules, but the reason for that non-compliance is not fraud but, for example, laziness, misunderstanding and so on. It does not necessarily have what us lawyers would call the mens rea for fraud.
Kelvin Hopkins
It is perhaps the same as the difference between tax avoidance and tax evasion.
Rob Marris
That is perhaps not the greatest of parallels, but I understand where my hon. Friend is coming from. Of course, tax avoidance is not illegal, but tax evasion is. Nevertheless, some tax avoidance—by, for example, Google—raises serious questions that my hon. Friend and I would agree on.
There is a great deal of difficulty with the error rates, some of which, again, will be driven by fraud and some by non-fraudulent irregularity. Take, for example, funds for jobs and growth on page 382 of the bundle. The hon. Member for Wimbledon talked about chapter 3, but, as lawyers often do, I went to the back to get to the juicy bits. The explanatory memorandum dated 9 December that was submitted by HM Treasury refers to chapter five of the European Court of Auditors annual report. That chapter is on funding for jobs and growth, for which research and innovation accounts for 60% of spending. At paragraph 16, the explanatory memorandum states:
“The estimated error rate for this area of expenditure is 5.6%, an increase on 4.6% for the 2013 budget.”
It refers to the European regional development fund and the cohesion fund. It states in paragraph 20, on page 383 of the bundle:
“The overall estimated error rate is 5.7%, an increase on 5.3% for 2013.”
The bête noire, of course, is the common agricultural policy and the common fisheries policy. Paragraph 26 states:
“The ECA estimates that the overall error rate for this area of expenditure stands at 3.6%, the same as in the 2013 budget.”
There are considerable concerns about error rates. A company trading in Britain, for example, with an error rate of 3.6% in its accounts would be open to serious questions about whether it knew what it was doing. The situation is more difficult with the number of member states in the European Union and the number of disbursements that they make to the hundreds of thousands of individuals and organisations in the European Union, but that is quite a large error rate.
In paragraph 4 of the Financial Secretary’s helpful explanatory notes, he refers to
“the various initiatives taken by the Commission in 2014 to counter fraud affecting the EU budget”.
If you will forgive me, Sir Edward, I will, because I have questions on these points, read out quite a long quote from paragraph 4. It concerns a series of 10 different areas and, with your indulgence, it will be simpler if I just read those out. They will then be on the record in Hansard. The areas are:
“negotiations between the European Parliament and the Council on the proposed Directive on the protection of the EU’s financial interests by means of criminal law; ongoing negotiations concerning the proposal to set up a European Public Prosecutors’ Office”—
I referred to that earlier—
“a Commission proposal to partially revise the Financial Regulation to align it with the revised public procurement Directive; the 2014 Communication on fighting corruption in the EU; negotiations relating to four delegated and four implementing Regulations on the reporting of irregularities; actions concerning anti-fraud policy in customs; measures taken to fight against VAT fraud; negotiations to include anti-fraud provisions in international agreements; the entry into force of new public procurement rules; a Directive on protection against currency counterfeiting; and progress on the implementation of the CAFS and Hercule and Pericles Programmes.”
For those hon. Members who have temporarily forgotten, Pericles is a European Union exchange, assistance and training programme for the protection of the euro against counterfeiting, so it is not directly of interest to the United Kingdom, but is indirectly; and Hercule is the European Union programme to promote activities related to the protection of EU financial interests, which is very much of interest to the United Kingdom. I therefore hope that the Financial Secretary, either today or perhaps later in writing, can give me and the rest of the Committee an indication of what is happening as regards those 10 items of anti-fraud policy at European Union level, helpfully delineated in the Minister’s explanatory notes, and of how the European Union, in co-operation with the United Kingdom, is getting on in those areas.
The explanatory notes, at paragraph 7, say:
“The Commission considers that Member States have, in general, adequately implemented the recommendations in its 2013 report, for example, the designation of an AFCOS”.
I hope that the Financial Secretary can say a little more about what is going on in that regard.
The explanatory notes also say, at paragraph 14:
“The use of false or falsified documentation or declarations remained the most common type of fraud.”
The Financial Secretary will remember the debate that we had in Westminster Hall on 14 January regarding VAT fraud on online purchases. Online retail purchases in the United Kingdom have gone up by two thirds since 2010. It is a growing area and will continue to grow as an area of retail sales. One hopes that there will not be a commensurate growth in fraud, but that is of great concern.
The note from the European Parliament—this is on page 2—states:
“Two directives were also adopted in 2013, one on the common system of VAT concerning an optional and temporary application of the reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud, the other concerning a quick reaction mechanism against VAT fraud”.
Will the Financial Secretary indicate, first, what a reverse charge mechanism is in relation to supplies of certain goods and services susceptible to fraud, because I do not know, and, secondly, what is being done about it? Clearly the European Parliament thinks it is a problem, and so do the member states, because a directive was adopted in 2013, more than two years ago—perhaps three years ago.
The second directive is a quick reaction mechanism against VAT fraud. Will the Financial Secretary enlighten us on what the European Union and, indeed, the United Kingdom are doing about a quick reaction to VAT fraud? As he will remember, considerable concern was expressed in the Westminster Hall debate of 14 January on both sides of the House about VAT fraud in online retail. VAT fraud does not only happen in online retail, but online retail is perhaps more susceptible to VAT fraud, as it is more difficult to address. As I have indicated, online retail is a growing area of commercial activity, and it is very big in this country.
Paragraph 22 of the Financial Secretary’s helpful explanatory notes refers to four specific recommendations contained in the report from the Commission on financial interests:
“urging Member States to use their AFCOS to its full potential; encouraging Member States to put in place effective measures to tackle conflicts of interest; asking specific Member States to strengthen their detection and/or reporting of fraud against the EU budget; and inviting Member States to inform the Commission of measures taken to fight customs fraud.”
Can he indicate, either today or later in writing to members of the Committee, what is happening in each of those four areas in terms of both the United Kingdom and the European Union? The report has indicated that something should be happening in each of those areas.
The European Parliament report—this is on page 4 —states:
“Particular attention should also be paid to the development of mechanisms for prevention, early detection and customs transit monitoring”.
Can the Financial Secretary enlighten the Committee on what customs transit monitoring is? I suspect, perhaps wrongly, that it could be related to VAT fraud, which is of considerable concern on both sides of the House.
Paragraph 36 of the Financial Secretary’s helpful explanatory notes—he has repeated this today—states:
“The Government believes that the best way to reduce the level of irregularities and fraud is through a more preventative approach, such as greater simplification of the systems and regulations.”
I agree that simplification is desirable—he and I have discussed it many times over the years—but I draw his attention to paragraph 14 of his own explanatory notes, which I read out earlier, regarding the use of false and falsified documentation or declarations. Some of that might be addressed through simplification, but if false documents, et cetera, are the most common type of fraud, as he indicates in paragraph 14, I suggest that simplification, as per paragraph 36, although welcome, is not necessarily the best way to address false documentation. I hope he can enlighten the Committee as to what Her Majesty’s Government propose to do about false documentation.
Kelvin Hopkins
It is interesting to sit on one of these Committees for possibly the 19th time. I have debated in almost all of them, if not in every one. I was a permanent member when there was fixed membership of such Standing Committees, and for several years I have taken part in debate on the issue we are considering, as a member of the European Scrutiny Committee.
It is amazing that no one has said how unacceptable and astonishing it is that for 21 consecutive years the European Court of Auditors has failed to sign off the European Union budget. If the National Audit Office could not sign off the budget of a Government Department for 21 years, and up to 4.4% of the Department’s funding had gone missing through fraud or irregularities, there would be a scandal.
We should raise our concerns again. We cannot just roll over and say, “Oh, well, it’s the European Union. What do you expect?” We should say it is not right. People’s money is involved—that is particularly an issue for substantial net contributors, of which we are one. We should not accept fraud or corruption, especially when, as I suspect, it happens in particular countries, and is less likely to happen in the United Kingdom and some of the better regulated countries. Perhaps I am claiming too much, but I suspect that certain countries and budgets in particular are involved.
I remember, going back years, a report of a beef subsidy being paid to a resident of a tower block in Turin. I suspect that there were not too many beef cattle in his tower block flat. I hope that these more extreme cases have been dealt with; nevertheless, there are clearly still things taking place that should not be. I hope that the British Government will take issue with the European Union over the matter in the strongest terms, once again. As the International Development Minister said, this sitting may well be the last of its kind. Who knows? I would certainly vote for that—not, I may say, with all my Opposition colleagues. Some of us, however, do take that sensible view, as I would describe it.
The level of corruption is ridiculous. Because of my concern, I made a serious suggestion in previous Parliaments that I want to repeat now. Let us consider, setting aside aid that goes to countries outside the European Union, fiscal transfers between members of the European Union. They could be made to member states’ Governments, so that there would be a net contribution to the budget of Latvia, for example. I know that there is a substantial net contribution to Latvia, and that a high proportion of its gross domestic product comes from European Union transfers.
If the transfers were done on the basis of GDP per head, so that those with the lowest level of GDP per head received the most net transfers, and those with the highest made the biggest contributions, but it was done to and through Governments, I think we would overcome much of the problem. The Governments of those member states would have the job of sorting out how the money would be spent—whether they would subsidise agriculture or industry, or simply reduce taxes. Whatever they did, it would be their choice, and they would do it democratically through their own Governments.
That would be seen as fair because rich countries would be contributing assistance to poorer countries on a proportional basis.
Rob Marris
My hon. Friend raises the intriguing prospect of a European Union Barnett formula, such as we already have, of course, in the United Kingdom. Perhaps I may take him back a bit, to his reference to fraud of more than 4%, and contrast that with what I understood from the Minister. Perhaps this is a comparison between apples and oranges, but the Financial Secretary mentioned 0.02%. There is a big discrepancy between those two figures. From where did my hon. Friend get his figure—or are we talking about two different measurements?
Kelvin Hopkins
I took my figure of 4.4% from the Minister at the beginning, but I notice that the table on page 37—or 21; there are two figures—suggests that the actual amount involved is €500 million, as opposed to 4.4% of the budget, which would be much more. Nevertheless, substantial fraud is still going on, and substantial sums of money are still going missing inappropriately and sometimes corruptly, so we ought to take it seriously.
My suggestion for simplification is that even if we stay in the European Union, the budget should be allocated simply on a proportionate basis according to GDP per head, so that the fiscal transfers are from rich to poor and the countries themselves decide democratically how they allocate that budget. We would have the same privilege as well if we were in that position. If they want to subsidise their agriculture, they can; if they do not, they should not.
I was in Lithuania a couple of years ago with the European Scrutiny Committee. Lithuania used to be self-sufficient in food, but it is now being paid not to grow food, so thousands of acres in Lithuania are left fallow because the European Union does not want it producing too much food. That is nonsense. Lithuania ought to be able to decide for itself what it spends its income on. If it wants to stay self-sufficient in food, that is a sensible thing to do.
As I said, I put this particular suggestion in more than one previous Parliament, and the response—not to me personally, but in European documentation—suggested that people did not like it. The reason was clearly that it would weaken the glue holding the EU together, because there would be no European common agricultural policy—or fisheries policy; it would be very sensible to get rid of that. Instead, each country would get a fiscal transfer, or pay out a fiscal transfer, and expenditure would be decided democratically within member states.
That would make the European Union a very different place. If we must have a European Union with large fiscal transfers, it would be a much more sensible way to do it, and we would avoid all the problems with fraud. If there is fraud within countries, it would be their problem to sort it out. If they did not sort out their own fraud, it would in a sense be their problem, and it would be the problem of the democratic electors of those countries to ensure that their Governments did the right thing. Anyway, those are my thoughts. I think it is ridiculous that we have a vast amount of fraud every year, year after year.
I have one final question to the Minister. There is a table on page 129 showing the evolution of budgets and payments from 2010 to 2014. Interestingly, in the last four years, the payments made have been larger than the final voted budget in each case. The last time the payment was less was in 2010. Also, the amount spent on the budget increased substantially between 2010 and 2013, by 21% over those three years, which is way beyond inflation. Last year, because there was such pressure and such concern, it decreased, but payments made were still higher than the final voted budget.
Even over those four years, there is still a 17% increase in budget expenditure, at a time when we are supposed to be more concerned about reducing spending in the European Union. Can the Minister comment on that? He might be able to explain it simply to me as a problem that is not serious, but it looks serious in the table, given the calculations that I have suggested.
Mr Gauke
Indeed.
I thank the hon. Members for Luton North and for Wolverhampton South West for their questions, which I will attempt to address. I also thank other hon. Members who participated in the debate.
As the Committee is aware, the Government have taken an increasingly robust stance on financial management. Although the estimated European Court of Auditors 4.4% error rate from the 2014 EU budget shows a slight improvement in the estimated level of error, it is a marginal reduction from the 4.5% error rate in the previous year and remains well above the ECA’s acceptable threshold of 2%.
We want to see more ambition and progress in the area, so, as I confirmed earlier, the Government will vote against discharge of the 2014 EU budget at this month’s ECOFIN. That is the most public way for member states to take a tough stance on financial management and the Government continue to make that stand for UK taxpayers. None the less, we welcome the efforts of Vice-President Georgieva to manage the budget better and to focus on performance. The UK is taking a proactive role in driving that agenda forward.
The hon. Member for Luton North asked about the difference between fraud and error, which was touched on by his Front-Bench colleague. Fraud is the deliberate criminal misuse of EU funds. Financial errors are breaches of often complex EU regulations. Of course, the Government take a zero-tolerance approach to fraud. As I said earlier, only an estimated 0.02% of EU payments are established as fraudulent, according to Commission data. The “Fight against fraud 2014 Annual Report” shows that, across the EU, cases of suspected or potential fraud affected around 0.26% of EU payments and 0.8% of EU revenues. Of these, Commission estimates suggest that around 8% are likely to go on to be established as actual fraud. So I do not think we should consider that that 4.4% is all fraud.
Kelvin Hopkins
I thank the Minister for his explanation. However, the discrepancy between definitely defined fraud and the money that has been spent inappropriately suggests a relaxed attitude to expenditure—money splashing about and finding its way into the pockets of people who might be politically helpful and so on. It may not be fraud, but it leans that way.
Mr Gauke
First, where I would agree with the hon. Gentleman is that failures of financial management matter. Whether it is fraud or not, we should have stringent standards and take a robust approach. However, there is another context. We often talk about fraud and error, or error and fraud, in the context of welfare payments, and when politicians allow the percentages that refer to fraud and error to be described as simple fraud, those politicians tend to be criticised. Indeed, I have heard people make the case that we should refer to error and fraud, not fraud and error, because the larger part of the error and fraud budget relates to error and is not proven to be fraud. So I think that approach should also be borne in mind.
It is also the case that, as has been mentioned, much of the legislation governing the EU funds is complex, and the associated guidance does not always offer the necessary level of clarity. Some of the errors identified are systemic, recurrent, and affect various member states and EU institutions. It is therefore clear that the overarching rules governing these areas need to be addressed. I do not wish to downplay the importance of dealing with error or any kind of financial mismanagement, but it is not the same as fraud. It is not synonymous with fraud, and the element that can clearly be identified as fraud is a subset of the overall 4.4% number that we are talking about.
Kelvin Hopkins
Clearly, we must not confuse error and fraud. Nevertheless, if the vast proportion of the money that is inappropriately spent is described as error, it enables those who want to play it all down to be successful in reducing concern about the money that is misspent. There might be a penumbra somewhere between fraud and genuine, innocent error.
Mr Gauke
Yes. I do not in any way want to downplay that 4.4% number. It is too high and needs to be addressed. On the 0.02% that is identified as fraud, there may well be sums of money that in the end are not identified as fraud, but might be getting close to it. I recognise that point. However, I would not want us to consider that the two are synonymous.
The hon. Gentleman raised a point about expenditure levels. It is worth reiterating again that in 2013 the Prime Minister secured the first ever real-terms cut to the multiannual financial framework for the period 2014 to 2020, forcing necessary budget restraint. For example, both the 2014 and 2015 budgets represented cash and real-terms cuts compared with the 2013 budget, which was the last year of the previous MFF. From 2010 to 2013, we were still working on the MFF that had been agreed by the previous Government. Tempted as I am to debate the weaknesses of that agreement, I would rather focus on the successes of the 2013 agreement, negotiated by the current Prime Minister.
Turning to the detailed points made by the hon. Member for Wolverhampton South West, he first raised the directive on the fight against fraud to the Union’s financial interests by means of criminal law—the PIF directive. The UK supports the directive’s broad aims, but the draft text contained several unacceptable elements, such as the inclusion of VAT in the directive’s scope. While the Council’s general approach of 2013 removed many of the unacceptable elements, discussions are ongoing and the final text is yet to be agreed. As such, the UK has elected not to opt in to the PIF directive at this stage but continues actively to engage in EU negotiations and will consider the case for a post-adoption opt-in once the final text has been agreed. I will of course keep hon. Members informed of progress in that respect.
We of course continue to take VAT fraud seriously at both national and EU levels. In addition to working to tackle VAT fraud domestically, Her Majesty’s Revenue and Customs continues to work closely with other member states and international agencies to combat VAT and other cross-border fraud. Additionally, member states continue actively to work together to share knowledge and expertise through the Fiscalis programme and exchange information on potential missing trader intra-community fraud in the EUROFISC network. The UK has also successfully pushed for the increased use of multilateral control systems, involving a co-ordinated exercise in which two or more member states verify the tax liability of businesses, to investigate cross-border VAT fraud. However, the UK Government’s position on VAT fraud is that it should be dealt with at a national level, not an EU level, as it is primarily a national resource.
As for the other detailed points that the hon. Member for Wolverhampton South West raised, I will write to him on the specific policies outlined in the explanatory memorandum to the Commission’s “Fight against fraud 2014 Annual Report”, which, as he said, I signed on 24 August. I reassure him that it did not get in the way of the Gauke family holiday, much excitement though there would have been at the opportunity to run through the memorandum on a wet afternoon in north Wales. In the event, it did not interrupt us and I think we played Uno instead.
On missing trader intra-community fraud, it is worth pointing out that the estimates of attempted MTIC fraud have now decreased from some £2.5 billion to £3.5 billion in 2008-09, which I suspect we debated back then, to between £0.5 billion and £1 billion, which has held steady over the past four years. Nevertheless, we recognise that fraud poses a constant threat, but HMRC remains vigilant. HMRC has been in the vanguard of member states developing tools and arguments to deal effectively with VAT fraud, MTIC fraud in particular, and is active in EU forums to ensure the spread of good practice and greater co-operation between tax authorities.
Rather than attempt a definitive definition of the reverse charge this afternoon, I will include one in my letter. In short, it is about shifting the responsibility for reclaiming input taxes within a chain of transactions involving VAT. The reverse charge was something used by the previous Labour Government to counter MTIC fraud. I will write to hon. Members with a definitive definition.
On the European Public Prosecutor’s Office, the UK will not participate in the establishment of any European Public Prosecutor. Nevertheless, the Government retain a considerable interest in negotiations on the European Public Prosecutor, given its potential impact on us and bodies such as Eurojust in which we currently play a role. The Home Office leads on that matter.
The role of the anti-fraud co-ordination service varies across member states. The UK’s role includes investigating irregularities involving criminal behaviour—a function that the City of London police is well placed to perform. The AFCOS has attended EU conferences designed to facilitate the sharing of information and best practices across member states, enhancing co-operation on the important issue. The UK’s AFCOS actively supports OLAF in investigations in Brussels through facilitating interviews, statements and visits to the UK.
On structural funds, the ECA has indicated that a significant proportion of errors in its audits are related to public procurement procedures, which is partly due to the complexity of the rules. The ECA acknowledged in a recent special report on public procurement issues the good practices introduced by the UK since the errors in 2009-10. The UK authorities are aware of the need to continue improvement of public procurement procedures in structural funds programmes for the 2014 to 2020 period.
The UK welcomes the fact that the ECA recognised the different definitions of customs audit applied across member states and revised its assessment accordingly. The hon. Member for Wolverhampton South West raised a further point about preventing the falsification of documents—one of the primary ways in which fraud is committed. The UK has a number of policies in place. The Government support efforts to reduce fraud in the EU, including the work of the European anti-fraud office, OLAF, in detecting and tackling fraud, and in seeking financial redress for the EU budget when it is found.
Finally, the hon. Member for Kirkcaldy and Cowdenbeath raised the issue of different countries’ practices in ensuring compliance with EU aid spending. Member states are responsible, but ultimate responsibility lies with the Commission, which needs to ensure compliance across the EU by issuing clear guidelines and ensuring that effective control systems are in place.
I hope that those points of information and clarification are helpful to the Committee. I thank hon. Members for their ongoing engagement with the issues and for their continued support of the Government’s strong position on financial management and fraud.
Question put and agreed to.
Resolved,
That the Committee takes note of European Union Document No. 11470/15 and Addenda 1 to 6, a Commission Report: Protection of the European Union’s financial interests—Fight against fraud 2014 Annual Report, and unnumbered European Union Documents, the European Court of Auditors’ 2014 Annual Reports on the implementation of the budget and on the activities funded by the 8th, 9th, 10th and 11th European Development Funds; agrees that budgetary discipline and robust financial management at all levels remains crucial, and that EU taxpayers must have confidence that their funds are being effectively managed and implemented at an EU level; expresses disappointment that the error rate for EU budget payments shows only a slight improvement on last year; supports the Government’s efforts to continue to engage with the Commission and Member States to drive improvements to reduce the error rate, in particular, advancing the simplification agenda; stresses the importance of the EU budget achieving results as well as being compliant; and presses the Commission for a clear action plan to address the European Court of Auditors’ recommendations relating to the European Development Fund in order to improve its error rate.
Bank of England and Financial Services Bill [Lords]
Kelvin Hopkins Excerpts(8 years, 10 months ago)
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Harriett Baldwin
The hon. Gentleman is right to highlight the importance of auditors. Others in this place will consider the role of auditors in the crash, but I think what he will welcome in the Bill is the fact that the National Audit Office, for the first time, will have the ability to do value-for-money studies within the Bank of England.
Kelvin Hopkins (Luton North) (Lab)
Following on from my hon. Friend’s intervention, does the Minister not agree that one of the fundamental problems with auditors is that they are always employed, effectively, by the managers of banks or companies when they should be representing shareholders? If they want their contracts renewed, time and again private auditors provide a soft option for managers so they get the contract next time. As she says, the great thing about the National Audit Office is that it is independent and in the public sector.
Harriett Baldwin
The hon. Gentleman is absolutely correct that the Bill focuses specifically on the role of the National Audit Office, one independent arm of government, and the Bank of England, another independent agency. The Bill does not particularly focus on the role of auditors in private companies, but I am sure other parts of Parliament will consider that in this Session.
I turn first to the reforms that the Bill will make to the Bank of England. It introduces evolutionary changes to its governance, transparency and accountability to put it on the best possible footing to discharge its expanded responsibilities. These changes complement those taken by the Bank itself as part of its “One Mission, One Bank” strategic plan. The Prudential Regulation Authority will stop being a subsidiary of the Bank and instead be run by a committee of the Bank; another deputy governor will be able to join the court, the Bank’s governing body; and the Treasury will be able to send a remit letter to the Prudential Regulation Committee.
To strengthen the Bank’s transparency and accountability to Parliament and the public, we will give the National Audit Office the power to conduct value-for-money studies. Following debates in the other place and with the NAO and the Bank, we have made sure that that important change is implemented in a way that protects the independence of the Bank’s policy-making functions and of the NAO.
Kelvin Hopkins
I welcome the fact that the NAO will be looking at the Bank, but it will need extra resources to do that big job. Will the Minister guarantee that the extra people employed will represent the shareholders—us and the people we represent—and will not simply come from the banking sector and be soft on banks?
Harriett Baldwin
The hon. Gentleman rightly points out the importance of the NAO’s having the right resources. I have not had any representations about this particular move, but I am sure it will make its feelings known, should it require those resources.
The Bill also makes changes to the court. We will simplify and strengthen the governance of the Bank by transferring to the whole court the powers previously given to the oversight committee to oversee the Bank’s performance. Following discussions in the other place, to help guard against group-think, we have amended the Bill so that a majority of non-executive directors on the court will still be able to initiate reviews of the Bank’s performance without needing to secure the agreement of the whole court.
We will integrate prudential regulation more fully into the Bank by ending the PRA’s status as a subsidiary of the Bank. The PRA board will be replaced by a new Prudential Regulatory Committee with sole responsibility within the Bank for the PRA’s functions. That is modelled on the Monetary Policy Committee and the Financial Policy Committee. We will make these changes while still protecting the PRA’s operational independence, and we will continue to ensure transparency on the amounts raised by the levy and what the Bank spends in relation to its functions as the prudential regulator.
In order to strengthen governance and make the structures of the Bank more consistent, the Bill harmonises the legislation underpinning the Bank’s three policy committees: the MPC, the FPC and the proposed PRC. It moves the MPC to a schedule of at least eight meetings a year, from the current 12, and updates requirements for the timing of MPC publications, implementing the remaining recommendations of the Warsh review, entitled “Transparency and the Bank of England’s Monetary Policy Committee” and published in 2014.
Alongside these changes, the Bill builds on the existing arrangements and the strong working relationship between the Bank and the Treasury by updating the formal framework for how the Bank and the Treasury should engage with each other on the public funds risks and the financial stability risks of firm failure. These changes will improve co-ordination while maintaining the existing clear and separate roles of the Bank and the Treasury in the event of a crisis.
Harriett Baldwin
The hon. Gentleman is right to highlight the importance of the Bank’s operational independence, which Gordon Brown introduced in 1997—it was his greatest legacy to our country—but he will note that his colleagues’ motion calls for a stronger role for both the Treasury and Parliament and arguably for less independence for the Bank. It is popularly known as the people’s quantitative easing, and I hope that the hon. Gentleman will not support his Front-Bench team on the reasoned amendment.
Kelvin Hopkins
Following the point made by my hon. Friend the Member for Huddersfield (Mr Sheerman), it would be even more worrying if there were a cosy relationship between the NAO and the Treasury. The NAO should be responsible to this House, and the Treasury should not be able to get its tentacles on the NAO.
Harriett Baldwin
The hon. Gentleman is right to recognise that the NAO is completely independent of the Treasury. Although I have a nominal role on the Public Accounts Committee, the NAO is rightly accountable to Parliament.
Kelvin Hopkins
My hon. Friend is making an excellent speech and I strongly agree with it. Was it not astonishing that before 2008 those in the private banking sector did not appear to spot the crisis that was coming? They were too busy making money hand over fist for themselves.
Richard Burgon
I thank my hon. Friend, who has extensive experience in these matters, for that. Troublingly, the people who now say there is no risk of a financial crisis ever again were the very same people in the very same sector who were saying before 2008 that everything was fine and there was no risk of disaster at the time. Sadly, how wrong they were! Despite what the bankers did to our economy and our society, about which there was entirely justified anger among the population, the Chancellor has cunningly turned the bankers’ crisis into a crisis of public spending, and has adopted a policy of spending cuts to vital services to which there seems to be no end in sight. In looking at this Bill, it appears that the Chancellor believes that he can now turn back the clock in the banking and financial sector.
Under this Chancellor, things are going in the wrong direction. For example, he sold off shares in the Royal Bank of Scotland at a very significant loss to the taxpayer; he appointed Angela Knight, who was head of the British Bankers Association during the financial crisis and who defended the top bankers during the crisis, to head up the Office of Tax Simplification in the Treasury; and he decided he could do without the continued services of the respected chief executive of the Financial Conduct Authority, Martin Wheatley. I am sure that he is delighted with the new appointment, as we have been told by the Minister that Mr Wheatley’s successor is fine with the abolition of the reverse burden of proof. I wonder whether Martin Wheatley, who departed prematurely, would have said the same.
The FCA’s planned public review into banking culture has now been cancelled, and its investigation into the promotion of tax evasion by HSBC has been brought to a premature conclusion. I know that we will be hearing more about the FCA in another debate this evening.
The Bank of England and Financial Services Bill was originally drafted, according to the Chancellor at a Treasury Committee meeting, to make changes to the Bank of England’s structure. One important concern is that it includes a major change to the regulation of senior bankers, undoing a key measure taken after the bankers’ crisis to change senior bankers’ conduct and to deliver transparency and accountability to financial decision making. I am talking about the presumption of responsibility—or the so-called reverse burden of proof.
We welcome the extension of the senior managers regime to senior managers across all regulated financial firms, but we do not accept the Government’s case for ending the presumption of responsibility for the top managers in banking.
The presumption of responsibility, as currently set out, applies to senior managers. It means that, to avoid being found guilty of misconduct when there has been a regulatory contravention in an area for which they are responsible, they will have to prove that they took reasonable steps to prevent that contravention. This Bill removes that onus on senior bankers. The onus is entirely reasonable, proportionate and, as bitter experience tells the British people, entirely necessary. Misconduct and misdemeanours in financial services are not merely a tale from history. In 2015, for example, the FCA had to fine firms more than £900 million. There was also a LIBOR scandal, foreign exchange fines and the mis-selling of payment protection insurance to the value of up to £33 billion.
Oral Answers to Questions
Kelvin Hopkins Excerpts(8 years, 11 months ago)
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Kelvin Hopkins (Luton North) (Lab)
Britain has been a significant and, in recent years, a substantial net contributor to the EU budget. For over 40 years, this has had a negative impact on UK economic growth and GDP, the cumulative effect of which has been very large. Would leaving the EU not take that particular brake off UK GDP growth?
House of Lords Reform
Kelvin Hopkins Excerpts(8 years, 11 months ago)
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Martin John Docherty (West Dunbartonshire) (SNP)
I beg to move,
That this House has considered House of Lords reform.
Not since 2011, when the then Deputy Prime Minister presented the case for reform, have Members of the House of Commons been offered the opportunity to debate and discuss the House of Lords on the Floor of this House. Therefore, before proceeding any further, I wish to extend my grateful thanks to the Backbench Business Committee, and to the hon. Member for Harrow East (Bob Blackman) especially, for agreeing to this debate and for some sage advice, which was critical, given my novice plea.
During the general election there were various mentions of House of Lords reform. Critically, the Conservative party limited its vision in its manifesto to addressing only the size of the House of Lords, for clearly size matters to the Tory party. At its present velocity of expansion, the House of Lords will soon exceed the National People’s Congress of China. It has already exceeded the size of the European Parliament, which is elected by over 400 million European citizens. Clearly, Parliament envy will soon see even this House displaced by the Prime Minister’s expansionary tactics.
I know that at the previous general election the British Labour party took a more pragmatic view. I give credit where credit is due by recognising the work the previous Labour Government did to limit the hereditary peerage, although that work was sullied by the cash for honours scandal uncovered by my hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil). I wonder where my Labour colleagues are today.
At least on these Benches we have spoken with one voice. At the general election the Scottish National party placed our proposal before the entire community of Scotland: “Abolish it!” If this Parliament is to work as an effective and legitimate legislature in the British state, its upper Chamber should resemble less the congress of a communist state and more the revising and advisory role of a Parliament of a 21st century liberal democracy.
Kelvin Hopkins (Luton North) (Lab)
I agree with the hon. Gentleman about abolition, which is a theme I wish to speak about later. Does he agree that the power of patronage of Prime Ministers to appoint people they choose to the House of Lords is even more pernicious than having hereditary peers, who at least have the advantage of being independent?
Martin John Docherty
I am grateful to the hon. Gentleman for that intervention. He need not worry, because I will get there.
Let us return to the hope of many Members of this House—a hope that is shared, in particular, by my hon. Friend the Member for Perth and North Perthshire (Pete Wishart), who cannot be here today—that any future reform of the upper Chamber should not only consider its size, but limit it and remove with haste its ability, as an unelected and unaccountable Chamber, to generate legislation. That is an affront to my constituents and an aberration at the heart of the British political system.
Only a few months ago the Government were keen to play down any reform agenda. Their latest antics have the right hon. Member for Tatton (Mr Osborne) as Citizen Camembert rather than Chancellor of the Exchequer, and the Prime Minister playing the good cop and leading man as the Black Fingernail. This is indeed a farce, if not a “Carry On”.
While many Members across this Chamber would seek a long-term resolution of the undeniable illegitimacy of the upper Chamber in its present form, the Government tinker at the edges with the Strathclyde review, a botch job done in jig time for Christmas. Although the review offers a way forward, it seems to confuse the role of the House of Lords. Is it to be a mere stamper of Government policy, or is it a revising Chamber that tackles the Government on the tough subjects of the day? Critically, all options would offer an additional burden on the workings of this House and highlight the behemoth that is the Palace of Westminster. If the report were at least linked in some way or form to improvements in working practices such as electronic voting, which would allow us in this place to deliberate more robustly, in more depth, and with reduced recourse to statutory instruments, it would have been a slightly more useful document. For the record, however, I wish to commend Lord Strathclyde and all those involved for seeking to overcome the Government’s obstacles.
While the report is welcome, it highlights the Dickensian, if not medieval, machinations and dubious working practices of this Parliament. It accidentally shows the Alice in Wonderland antics of the so-called liberal democratic practices of the mother of Parliaments. If the review was worth the paper it was written on, it would be my hope, and that of my hon. Friends, that it would seek to uphold the nature of our polyarchy and at least promote its first pillar, namely that control over Government decisions about policy should at all times constitutionally be invested in elected officials—Members of this House elected by their constituents, from whom they derive their political mandate.
Martin John Docherty
My very hon. Friend has given the answer from a sedentary position: Wales does not have a separate jurisdiction. That in itself is a disgrace and one of the main concerns for my hon. Friends in Plaid Cymru.
As I said, all this could be seen as pure Celtic hyperventilation about the unaccountability of the House of Lords, yet there are Members from beyond the Celtic fringe—although I wonder where they are today—who find the unelected and unaccountable nature of the House of Lords an affront to liberal democracy.
Kelvin Hopkins
May I inform the hon. Gentleman that there are some English people—I am English from generations back on all sides—who believe we should have one democratic Chamber, not an unelected Chamber full of place persons and hereditaries?
Martin John Docherty
I am grateful to the hon. Gentleman. I do, of course, count Cornwall in the Celtic fringe.
Any debate that links the Government and Her Majesty’s Opposition to some of the most damning political consequences and incompetence, as highlighted in the last Parliament by my hon. Friend the Member for Na h-Eileanan an Iar, will fill even those Members—those hardy souls—with dread. Cash for honours sends a collective shiver down the spine of this House and, indeed, our parliamentary system. I seriously doubt that we have seen the last of it, not only in the upper Chamber but even here. The appointment process exposes beyond doubt the privileges of those Members of the House of Lords. In reality, there is no substitute for democracy and direct election.
Martin Vickers
It is certainly true that there are now fewer practising Christians throughout the UK than there were in the past. As the hon. Gentleman rightly says, however, our heritage is of a Christian nature and the eternal virtues taught by the Christian Church are the basis of our society.
Kelvin Hopkins
The hon. Gentleman may have noticed that, in the last census, some 31% of the population said that they had no religion and that they do not feel that they would be represented be people of faith. I am a vice-chair of the all-party humanist group. Does the hon. Gentleman not think that humanists should also be represented?
Martin Vickers
Humanism has always seemed to me to be the absence of faith. We could debate the hon. Gentleman’s rather philosophical point endlessly, and I would be very happy to do so some time.
The hon. Member for West Dunbartonshire referred to a unicameral system. It would be a mistake to move to a system with only one Chamber. However, I would point out that, with devolution, Scotland is almost a unicameral Assembly; I will leave that matter to Scottish National party Members.
Steven Paterson
I will let the hon. Member for Clacton (Mr Carswell) speak for himself on that one. My own view is simply that, whatever the country, people should get the representative Government they vote for. Whether I happen to agree with the hon. Gentleman’s party or not, if people vote for it then that is who they should get as a Government—that is what I believe in terms of democracy.
How does the crooked, anti-democratic nature of the House of Lords manifest itself? To answer that, let us consider for a moment the curious case of the quite inappropriately named Liberal Democrats. The Liberal Democrats were hammered at the ballot box—not before time, many of us would say. That happened first in Scotland in the 2011 Scottish Parliament elections, when they were reduced to a rump of five MSPs out of 129, and was followed up at the UK general election last year when they were reduced to a rump of just eight MPs out of 650. In a democracy, the people speak and the message is sent. That is not the end of the story, however. The Liberal Democrats defy democracy thanks to the House of Lords. There are an incredible 111 of them along the corridor there sitting—or sleeping—on the red benches, grazing, collecting their tax-free £300 when they pass go, occasionally contributing to the debates and maybe even voting. They are down at the other end of that corridor, unelected and unaccountable. They are Westminster’s own political zombies. We really have to move forward. They are not elected and the people’s views must be paramount.
Some would say that the House of Lords provides access to expertise that cannot be found among MPs in the House of Commons. I acknowledge, because I have met some, that there are some Lords who certainly have expertise, but there are many hon. Members in this place and it cannot be beyond the wit of this place to find experts on a range of issues.
Kelvin Hopkins
The hon. Gentleman talks about expertise. It would be possible to have an advisory body of experts. The Lords have legislative power—that is the difference.
Steven Paterson
Indeed. The hon. Gentleman is absolutely right. There are a number of things we could do and that suggestion is certainly one of them.
One of the many problems with the House of Lords is that it is stuffed to the gunnels with former politicians who failed to win seats but are none the less looked after by the powers that be. One of my predecessors as MP for Stirling is one such. Michael Forsyth has not won an election since 1992. In his 14-year career as MP for Stirling, he was democratically chosen by the people of the constituency to serve in that role. He has now spent 17 years in the unelected Chamber along the corridor. This illustrates a fundamental problem. There is a long, long list of such former political big beasts out to pasture at the end of the corridor; former elected politicians of such inestimable stature as Jeremy Purvis, for example. There are then those apparently picked at random, perhaps for saying the right things at the right time to help the party in government, or making the requisite donation to their political party.
Kelvin Hopkins (Luton North) (Lab)
It is a pleasure to speak in this debate, which I greatly welcome. I particularly enjoyed the speech by the hon. Member for West Dunbartonshire (Martin John Docherty). It was entertaining, but also serious, making many important points. The House of Lords has, of course, been in the news again recently, and the Government are clearly threatening change to rein in our allegedly noble colleagues. Yesterday’s debate in the other place seemed to suggest that even Conservative peers were not entirely happy with what the Government want to do. My interest in speaking today is to argue for a unicameral Parliament. The majority of legislatures across the world are unicameral, and some European nations—Sweden, for example—have chosen to become unicameral. We should at least discuss that possibility and, I hope, move towards that system in time.
When I first entered the House in 1997, the New Labour Government—I emphasise New Labour with a capital N—established a royal commission to consider possible reforms to the House of Lords. Shortly into my time here, I attended a Labour party so-called regional policy forum—I am sure that Mr Deputy Speaker would understand what regional policy forums were like. It was in Watford on a Saturday afternoon with about 25 to 30 party members attending. A chairman had been allocated by the party machine, and we were addressed by a learned professor from the royal commission.
The terms of reference set out by the Government for the royal commission made no mention of abolition of the House of Lords as a possible option. I asked why that was, and suggested that abolition should be a possible option for discussion. Another member suggested that we should have a show of hands to test opinion and see how many members at the meeting favoured abolition—an innocent little test of opinion. At this, the chair became very agitated and said, icily, that there would be no votes. Clearly, not even a show of hands in Watford among a small number of Labour party members on a Saturday afternoon—it was no doubt raining outside—was allowed to express a majority view that we should abolish the House of Lords. I suspect that there was probably a majority for abolition in that room, but it was not to be discussed. It was clear that our leaders wanted to keep the House of Lords in some form and that discussing possible abolition was not to be tolerated. It was most interesting.
Some reforms were later enacted by the Blair Government, and remain in place, but abolition is still not being discussed. Some longer-standing Members may recall the later discussions and debates on reform, and the series of votes on possible alternatives that took place in March 2007. One Division effectively permitted a test of opinion on possible abolition of the House of Lords. Among Labour Back Benchers, 169 of my hon. Friends voted for a bicameral Parliament, but 155 of us voted against that, effectively in favour of a unicameral Parliament and the abolition of the House of Lords. That was almost half of the Labour Back Benchers, showing a substantial body of support for a unicameral Parliament. The fact that this option was deliberately excluded from consideration by the earlier royal commission was, I think, a scandal and clearly a political fix.
I tabled an early-day motion to that effect at the time, which received the support of 50 Labour Members, some 14 of whom are still Members today. It was clear that that was due to the simple fact that the Prime Minister at the time wished to retain his power of patronage to appoint Members to the Lords, for a number of reasons. I might add that, subsequently, many argued strongly for an appointed House of Lords, and for retaining a substantial proportion of appointed Members even if it became democratic.
One of those reasons was obviously the ability to offer Members of the House of Commons the prospect of elevation to the Lords, both as a means of keeping control and reducing the potential for rebellion in the Commons and, possibly, to help to persuade older Members with safe seats to agree to retire at a convenient time for the party machine to slot leadership supporters into those safe seats.
Peter Grant
I do not know whether the hon. Gentleman recalls that, last time there was a major review of the boundaries in Scotland, the Kingdom of Fife was reduced from five parliamentary constituencies to four. The then Member of Parliament for Dunfermline, East, by the name of Gordon Brown, found himself without an obvious successor seat. The MP for Kirkcaldy agreed to retire from the House, Mr Brown became the MP for Kirkcaldy and Cowdenbeath, and very shortly afterwards the former MP for Kirkcaldy became a Member of the House of Lords. Is that the kind of democratic process to which the hon. Gentleman was referring?
Kelvin Hopkins
I do not wish to mention particular examples, because there are still hon. Members here who may or may not have experienced this process, but in my party I want individual Members to have the power, rather than party machines, and I certainly do not want leaders to have the power to select candidates.
I used the word “possibly” about selections of this kind because I cannot prove that such things occurred, and I do not wish to imply any criticism of other hon. Members who may have been selected in strong party seats. That may, of course, occur in other parties as well. It is clearly the case, however, that successive Prime Ministers, before and since, have jealously guarded their powers of patronage. I want to see those powers taken away in the interests of a more vigorous, intensive democracy in this House and outside, and to rein in the excessive power of the Executive.
I think that this is a serious matter, and I hope that, as and when we come to discuss the possible future of the House of Lords, the possibility of a unicameral Parliament and getting rid of this patronage will be raised again.
Patricia Gibson (North Ayrshire and Arran) (SNP)
When I first wandered into the Chamber today, I thought I had come into the wrong debate, because the Annunciator shows the title of the debate as “House of Lords reform”. Neither my colleagues nor I believe that there can be any reforming of something that is so deeply undemocratic and rotten to the core.
There is no doubt that the general public across the UK are deeply disengaged from and alienated by much of what goes on in this place. It is dangerous for democracy when the very people it is intended to serve lose so much interest and faith in it. We can come up with warm words and grand ideas about how to tackle that, but perhaps the single most important thing we can do to repair some, although not all, of the damaging rift between those of us who serve and those whom we seek to serve would be to hear the calls—a deafening din in Scotland—to abolish the House of Lords. It is no better than a carbuncle on the face of democracy across the United Kingdom, and there is a deep sense of frustration with it across communities in Scotland. It has already been pointed out that this archaic, outdated and medieval and anachronistic institution has no place in any state that purports to be a modern, enlightened and forward-looking democracy. Just to be clear, we do not simply object to the personnel in the House of Lords, although we do; we do not recognise its legitimacy or its right to legislate over the citizens of the UK.
Kelvin Hopkins
I agree very much with what the hon. Lady is saying. The hon. Member for Spelthorne (Kwasi Kwarteng) suggested earlier that this subject never came up on the doorstep. Does she agree that that is because people’s first concerns are jobs, housing, poverty and the health service? However, if people are asked about the House of Lords, many would say that we should abolish it.
Patricia Gibson
I absolutely agree with what the hon. Gentleman has just said. When people talk to us on the doorstep, their priorities are of course job security, benefit sanctions and putting food on the table, but if we scratch the surface, we find that the House of Lords is universally hated, across the UK in my view. There might be small pockets of support among what might be called traditionalists, but for the ordinary man and woman in the street, the House of Lords is an affront to modern democracy.
What I am about to say has already been mentioned earlier in the debate. That is one of the disadvantages of being so far down the speaking list. It is bad enough that the House of Lords is unelected, but it really is quite incredible to think that we are the only state in the world apart from Iran that has clerics pontificating on legislation. That further illustrates the absurdity of this relic.
Despite all the plaudits and feeble attempts to justify the other place, perhaps by those who have pals or cronies there or those who seek to retire there themselves when the voters reject them, it cannot be justified to retain those who are unelected. They have often been actively rejected by the voters. It is arguably worse that some of them have shied away from presenting themselves to the voters at any time at all, despite having political ambitions. That really makes the House of Lords a laughing stock in the eyes of the rest of the world.
Peter Grant
I am very grateful indeed, Madam Deputy Speaker, not least because I intend to quote the bard later on.
I find it astonishing that when we started the process of review of and consultation on how to repair the fabric of this undoubtedly magnificent and historic building, it was based on the assumption that Parliament would continue to operate in exactly the same way as it presumably always has done. May I suggest that a golden opportunity was missed to start to reform the processes of not only this Chamber, but the second Chamber?
Indeed, this might be an opportunity to ask ourselves why we need a second Chamber at all. Other modern, inclusive, democratic countries manage perfectly well with one Chamber. If we think about it, the argument that the second Chamber is good at scrutinising and checking the actions of the first Chamber suggests that we are saying that the first Chamber is not doing its job, so perhaps we should literally get our own House in order and then consider whether we want another House just down the road.
Kelvin Hopkins
I agree with what the hon. Gentleman has said. In my speech I mentioned Sweden, which has abolished its second Chamber. Does he appreciate that Sweden has not become undemocratic as a result? It is as democratic as it was before.
Peter Grant
The hon. Gentleman makes a valid point. Imagine that this Parliament had historically consisted of a single, elected Chamber. Then imagine that someone comes along and suggests that we need a second, unelected Chamber in order to become more democratic. They would be laughed out of court.
I think that there are options available to us if we are prepared to look at having a second elected Chamber, assuming that we need a second Chamber at all. That would give us a chance to elect the House of Lords on a different electoral cycle from that of the House of Commons, in order to avoid the temptation for Governments to time their announcements and legislation with a view to getting re-elected in a few years’ time. It would give us the chance, importantly, to elect a second Chamber by a different electoral method to help even out some of the undoubted inequities that exist in the first-past-the-post system. Yes, the SNP benefited from that system at the general election, but the system was not fair when it worked to our disadvantage, and it is no fairer when it works to our advantage.
Comments were made earlier about the place of the representatives of the Church of England in the House of Lords. I will defend and warmly commend the actions of a number of Churches and faith groups in helping to act as a social conscience of our nations. I think of the important work that various Churches have done in critiquing benefit sanctions and nuclear weapons, or in reminding us that the refugee crisis is about human beings, not burdens on our benefits system. I hope that faith groups, including humanists, who in my view are a legitimate faith group, will continue to do that. However, in this day and age should they have an automatic right to make laws that apply to the majority of citizens in these islands who choose to follow a different interpretation of their faith? I fully appreciate that that will be a difficult conversation for many, but it is one that we really cannot shy away from for very much longer.
It can be argued that there is a benefit in allowing people from all walks of life to play a part in scrutinising legislation, rather than just the relatively narrow “political elite”. There are two problems with that argument. First, the House of Lords is not a representative sample; if anything, it is more dominated by the political elite than the House of Commons. Secondly, the House of Lords does not just scrutinise legislation; it can block it. It can even initiate legislation and ask us to scrutinise it.
As the hon. Member for Luton North (Kelvin Hopkins) mentioned, if there are benefits in having experts who are not Members of Parliament, or lay people, advising and scrutinising legislation, why not set up a system that allows appointed people to scrutinise and examine, but not to legislate or to overrule the will of the democratic Chamber? That is an option that I think is well worth further investigation.
There will be those who appeal to a deity called tradition, as if tradition was always a good thing. I think that tradition is important. Our traditions are what make us who we are, and if we lose sight of who we are, then we really are in trouble. But if we allowed tradition to be the judge of what happens in future, we would still be sending children up chimneys and down mines, and we would still be exploiting slaves from other parts of the world. More topically, if we continued to judge things according to the traditions that applied in this Chamber for so long, the right hon. Gentleman the Secretary of State for Scotland would have had to resign this week. Thank goodness we have moved away from traditions that were indefensible 300 years ago and are no more defensible today.
What does it say about democracy in this Parliament when the only organisation that consistently blocks any kind of proper reform of the House of Lords is also the one with the biggest vested interest in not reforming it? Most people in these islands simply cannot understand that. Even those who are not 100% convinced that the Lords should be abolished cannot understand why, when what is supposedly the sovereign Chamber in Parliament takes a decision to reform the House of Lords, the Lords itself can block any attempts to do so.
Even without legislation that can still be blocked or delayed indefinitely by the Lords itself, party leaders could give commitments that would get rid of some of the potential abuses, which, let us face it, we all know have happened. Although it is not possible to point to an individual appointment and know for certain that it was based on financial transactions, or on a deal made when somebody was still a Member of Parliament, the fact that the system can be vulnerable to that kind of abuse means that in the eyes of the public it very probably has been abused in that way in the past.
Let us look at the three worst abuses, which cause a lot of concern. I invite the Minister not to commit to dealing with them but at least to give serious consideration to how the parties could, right now, start to make the appointment system of the House of Lords a bit more acceptable, pending a proper and rapid review sometime in the next two or three hundred years. First, politicians who get kicked out by the democratic process can come back, arguably better off than they have been here, by being appointed to the House of Lords. Why not ban appointments of former MPs to the House of Lords, at least for a period of five or 10 years afterwards?
Secondly, there seems to be a high correlation between new appointments to the House of Lords and previous donors to party coffers. I am told that about 25% of all recent appointments by the Prime Minister were of people who had made substantial donations to the party coffers. I do not object to people giving money to causes they believe in, but there is an issue there that damages the reputation of this place in the eyes of the public. Why not set a limit and say that anybody who has donated above a certain amount to a political party cannot then take a place in the House of Lords, again possibly with a five-year or 10-year cooling-off period?
Finally, there is an abuse of the system that we have seen here. Page after page of improvements to the Scotland Bill put forward by the people who were elected to represent Scotland were rejected by MPs who have no mandate to represent Scotland, and then promptly reintroduced by those same MPs through their friends in the House of Lords. When the amendments came back to the House of Commons a short time later, the people who had voted against them trooped through the Lobby to vote for them. That is a wrong use of the process. Why not invite the Government to consider the possibility of putting themselves under a voluntary ban whereby they will not introduce major legislation in the Lords unless it has been passed by this Chamber first, and will not introduce large numbers of significant amendments in the Lords when they have had the opportunity to have them considered in this place first?
Even those changes would not go far enough for me, or for a lot of people, but they would at least start to show the people of these islands, in good faith, that the Government are serious about tackling an appointments system, in particular, that has no place in a representative democracy.
Earlier, someone referred to Westminster as the mother of Parliaments. I have heard the story that once, during a hustings debate probably somewhere north of the border, somebody announced in a very pompous manner that he was proud to serve in the mother of all Parliaments, and a voice from the back asked him if he had any idea who the father was. I am not going to say which of those comments I prefer.
I started by quoting the greatest poem, or song, that Robert Burns ever wrote, but I think that the greatest piece of writing by Robert Burns is, surprisingly, not a poem or a song, but a piece of prose:
“Whatever mitigates the woes or increases the happiness of others—this is my criterion of goodness. And whatever injures society at large, or any individual, in it—this is my measure of iniquity.”
The way that Members of the Lords are appointed right now means that we have an iniquitous situation in this Parliament. If the Lords is not prepared to accept fundamental reform, then it can, will and must be abolished.
Wayne David (Caerphilly) (Lab)
I genuinely congratulate the hon. Member for West Dunbartonshire (Martin John Docherty) on opening the debate and on his very colourful and well-informed speech. I must say that many good points have been made. I emphasise the point made by the hon. Member for North Ayrshire and Arran (Patricia Gibson), which is that we must have a debate. It is very important to recognise the complexity and difficulty of reform, and we must begin by having an honest debate.
I congratulate Scottish National party Members on the consistency and uniformity of their arguments, by and large. They showed discipline. The number of times I heard reference to China’s National People’s Congress, I would not like to say. The hon. Member for Inverclyde (Ronnie Cowan) did talk about reform, rather than abolition. I welcome that because it is healthy to have a difference of emphasis within a political group, if not a complete difference.
Few people would genuinely say that our parliamentary system does not need fundamental change. It is important to remember that the biggest change to the composition of the second Chamber came under a Labour Government, when we secured the abolition of most of the hereditary peers. That was the start of a reform that we must complete as soon as is practicable, and it must be a radical reform. I say radical reform, rather than abolition of the second Chamber, because I am not convinced that we should move away from a bicameral parliamentary system.
Kelvin Hopkins
Clearly we have a difference of view on this. My hon. Friend says that there has not been enough discussion about reform. There has been a lot of talk about reform, but there has not been much of a debate about the alternative of having a unicameral Parliament. That is what I want to see.
Wayne David
I respect my hon. Friend’s view. That is one of the discussions that we need to have in this Chamber. He is perfectly right that we need to discuss not just how reform might be brought about, but whether we even need a second Chamber. I am of the view, although I am willing to take part in a debate, that we should have a bicameral system. There is a need for a second Chamber to scrutinise, modify, suggest amendments to and delay legislation, although I think that legislation should always emanate from this House.
It is deplorable that we are seeing two sustained attempts not to introduce more democracy into the second Chamber, but to exercise control over the second Chamber’s ability to hold the Executive to account. It is important to remember that this Government have appointed more Conservative peers than Margaret Thatcher did in her 11 years as Prime Minister. There is also a debate taking place about Lord Strathclyde’s report, which I would argue is all about undermining the ability of the other place to hold the Government to account.
We know why the Government are trying to control and weaken the Lords. It is not because they believe in democracy or because they have accepted the arguments of the SNP, but because they do not like to be scrutinised or challenged, no matter where it comes from. The issue is not the primacy of the House of Commons over the House of Lords; this is about the Government trying to minimise challenge and push aside opposition.
In the last Parliament, a great deal of time and effort was spent on debating reform of the House of Lords. Sadly, it came to nothing because the Liberal Democrats refused to have a constructive dialogue with reformers on the Opposition Benches and because—it is important to remember this—the Prime Minister did not deliver on his promise and Conservative Back Benchers defended the status quo.
What is needed now is a nationwide debate about the kind of democracy we need for the 21st century. The 19th-century, highly centralised nation state based on London is surely a thing of the past. Decentralisation must be the order of the day, not just to Scotland, Wales and Northern Ireland, but to the regions, cities and localities of England. There is therefore a strong case for a second Chamber—call it a senate if you like—made up of representatives of the nations and regions of the UK, possibly with people drawn from local government as well. Such a second Chamber might be made up of indirectly elected representatives or directly elected representatives. It would have the advantage of providing informed scrutiny by individuals drawn from all parts of the United Kingdom. It is a shame that most Members of the other place are either drawn from, or have a focus on, London and south-east England. That cannot be acceptable.
When we talk about fundamental change to our constitution, it is important to remember three things. First, there must be debate and dialogue between all political parties and, if possible, a high degree of consensus about what kind of changes are needed. If it is believed that political advantage is a motive behind any constitutional change, that change will not work effectively and will ultimately fail. Secondly, it is important not to see Lords reform in isolation from other changes that are needed for our democracy. I have already referred to devolution, but I believe that in our country there is a widespread thirst for popular engagement. No longer are people prepared simply to sit back and allow those who are unelected to make important decisions. It is therefore important to have a broad perspective when considering changes to our democracy.
Thirdly, we must not believe that there can be a top-down approach towards political reform, or that we are the repository of all knowledge on these matters. The people of our country need to be fully engaged in the debate on democratic renewal, and that is why we believe that there needs to be a people’s constitutional convention. Such a convention ought not to be made up of the great and good; rather, it should draw in people from all walks of life and all parts of the country. It must be focused in its discussions, and it must also inspire and enthuse people so that we give our democracy fresh life and inspiration.
John Penrose
Many of them are in the House of Lords. They are reduced to a small number of MPs, and none of them is here today. I regard that as a real tragedy because in the last Parliament, and in previous Parliaments, they—they have not been the only ones—were pressing the case for reform of the Lords and other constitutional reform. All of a sudden, when they are hugely over-represented in the House of Lords relative to their representation in this House, they are nowhere to be seen. They are Macavity’s cat when it comes to reform of the Lords and this debate. That is a tragedy, and people will draw their own conclusions about their relative levels of interest.
The hon. Member for West Dunbartonshire encapsulated a series of criticisms about the Lords, which have been widely echoed by many Members. I will not go through them all in huge detail when summing up the debate, but broadly speaking he made the point in a variety of different ways that the level of democratic legitimacy in the House of Lords is incredibly low. The only group that are elected are the 92 hereditary peers, and they are elected from an electoral college.
There are other criticisms—that the House of Lords is very large, and the bishops and hereditaries should not be there—that buttress the central charge of a lack of legitimacy and democratic principle in the Lords as it is currently constituted. I agree and that is reflected in my personal voting record on the issue. The hon. Member for Luton North (Kelvin Hopkins) mentioned the series of votes on the issue in the 2005 Parliament. It was my first Parliament and I voted consistently for anything that would increase the level of democratic involvement in the House of Lords. In the 2010 Parliament, we had an incredibly long and drawn-out attempt to reform the House of Lords. I do not think that anyone could claim that there was not a determined attempt—probably the most determined attempt for several generations—to reform the House of Lords and to make it more democratically legitimate. I voted consistently throughout for those reforms, even though the form of election might not necessarily have been to everybody’s taste—even mine. They were a step in the right direction, however, or at least they would have been had they been passed. I cannot argue, therefore, either from a personal or Government point of view, that the central charge is not valid. That is why the Conservative party’s election manifesto said we remain committed in principle to reform. Our approach is not driven by an opposition to the central charge made by the hon. Member for West Dunbartonshire and echoed by many other hon. Members today.
Kelvin Hopkins
The Minister talks about making the House of Lords more democratic, which is second-best to abolition. How will he deal with the real problem: prime ministerial patronage?
John Penrose
If I can ask the hon. Gentleman to hold his horses, I hope to come back to that later. I am sure he will pick me up on that if I do not address it sufficiently.
At this point, I should declare a small, non-financial family interest. A couple of years ago, my wife was appointed to the House of Lords. When she was appointed, I had to point out to her that I had a long track record of voting multiple times to abolish her, and anybody like her, from the House of Lords in due course. She has forgiven me and I am sure the House will be delighted to hear that relations over the family breakfast table are not too strained. However, I can reassure hon. Members that my personal views have not changed, despite the family involvement. Given the chance, I would vote to make them far more democratically legitimate.
I started by assuming, I think not necessarily entirely correctly, that the SNP was exclusively and purely a unicameralist party. I think we have heard support for that view during the debate from many SNP Members, the hon. Member for Luton North and, to some degree, my hon. Friend the Member for Cleethorpes (Martin Vickers). I hope I am not putting words in anybody’s mouth, but I think I heard some degree of qualified willingness to at least consider a more democratically legitimate second Chamber as an alternative to the perhaps favoured unicameralist view.