Creditworthiness Assessment Bill [HL]

Lord Bates Excerpts

2nd reading (Hansard): House of Lords
Friday 24th November 2017 Lords Chamber

[The Minister of State, Department for International Development (Lord Bates) (Con)]

I am sorry to rise on such a discordant note from the noble Lord. I have a slight memory of being a Back-Bencher in this place on the Opposition Benches when there was a certain very distinguished Deputy Chief Whip by the name of Lord Davies of Oldham. He knew how to deal with Private Members’ legislation when it did not quite fit with the Government’s approach at the time. I assure the noble Lord that that is not the approach we are taking towards the Bill. The announcement, which I will come to shortly, was not rushed out 48 hours before. It happened to be part of a Budget Statement that had as its main theme helping people into the housing market, which is at the heart of what the noble Lord, Lord Bird, said.

I have to place an interest on the record. The noble Lord, Lord Bird, was a hero of mine long before he arrived in this place. He has done more to help the poor of this country than virtually anybody else I know. It is fantastic that he is here and it is wonderful that he continues to be an advocate—a voice for the voiceless—in our society.

The Creditworthiness Assessment Bill is about Britain’s rental tenants having restrictions placed on them in the availability of credit. They are fortunate indeed to have such a powerful champion in the House of Lords as the noble Lord. The issue at hand concerns the ability of lenders and credit reference agencies to accurately assess the creditworthiness of prospective borrowers. Currently, a history of meeting rent payments is not routinely recognised in people’s credit scores and is not commonly taken into account when banks conduct mortgage affordability assessments. For those without a long history of borrowing on a credit card, this raises the cost of borrowing. The noble Baroness, Lady Grender, articulated that point. This leads to a state of affairs where the poorest pay the most, as the noble Baroness, Lady Thornton, mentioned in her remarks. This problem is commonly described as the “poverty premium”. Those words were used in the debate. It also creates a significant barrier to getting on to the housing ladder because it raises the costs of getting a mortgage.

I recognise that banks must take into account other factors when assessing mortgage applications, including the multiple additional costs that come with home ownership. None the less, rental payments are usually an individual’s largest monthly outgoings and are therefore a significant indicator of one’s creditworthiness. For this reason—I underscore this sentence—it is right that a history of successfully paying rent should be recorded and recognised.

In addition to the noble Lord’s Bill, my colleague Paul Scully in the House of Commons brought a petition by 147,000 people who wanted their rental payments considered in their mortgage application. Their views are echoed by many hundreds of letters sent to Members of the House of Commons and received by the Treasury each month. This is clearly an idea whose time has come.

The Bill states that all firms carrying on credit-related regulated activities, including mortgage lending and providing credit scores, should be required to,

“take into account rental payment history and council tax payment history when assessing a borrower’s creditworthiness”.

I share the Bill’s objectives. We have a clear unity of purpose in seeking to help rental tenants get a fair assessment when they use financial services. Our concerns are ones only of means, not ends.

I am trying at this point not to get drawn into rehearsals of speeches that may have been given in the letting fees abolition efforts of the noble Baroness, Lady Grender, but I believe that the solution to this issue should avoid imposing further regulatory requirements on lenders, landlords or credit reference agencies. Additional regulatory requirements could generate a significant burden for these businesses. For example, given that mortgage lenders currently lack easy access to rent payment data, this approach would force them to go out and acquire it before making each new loan, which represents a significant logistical and technological challenge. This would not be in keeping with our aim to make Britain the best place in the world to do business.

Furthermore, anything that places a burden on lenders could negatively impact the availability of credit in the future: if we make it harder for lenders to offer mortgages to rental tenants, they may decide to offer fewer of them. That would of course be counterproductive to the objectives of the Bill. At minimum, additional operation costs would be likely to be passed on to consumers in the form of higher prices. Both those outcomes would be counterproductive, in our view. My noble friend Lady Wilcox has been a formidable champion of consumer rights over many years, and it was wonderful to have her contribution.

We share a common ambition in seeking to help as many hard-working families as possible get access to credit, ensuring that tenants get due recognition for a history of meeting rent payments on time, but we must endeavour to find a market-based solution rather than a top-down imposition—a solution that works for both consumers and businesses. That is why I am pleased to inform the House that, in the Autumn Budget Statement, the Government announced the rent recognition challenge, a £2 million competition, open to all, challenging the UK’s world-leading technological firms to develop new applications to enable rental tenants to record and collect their own rental payment data and share it with lenders in mortgage affordability assessments and credit scores. Furthermore, these apps could be used in a revolutionary new way, given that open banking technology comes into force in January 2018.

When a tenant pays rent out of their current account, this transaction is encrypted and secured, meaning banks have no easy way of accessing or verifying the information. However, with open banking, individuals will be able to use innovative new solutions to share this current account data through secure channels in a way that they were unable to do previously. Creating this competition allows the Government to serve not as a disrupter of the free function of markets but rather as a catalyst; to promote action, drive innovation, and harness the ingenuity of the private sector. Rather than placing the burden on businesses, this approach aims to empower consumers by giving them the necessary tools to collect, control and share their own data. The challenge will open to applications in January 2018: I encourage all firms with an interest in this important policy area to apply.

The noble Lord, Lord Bird, in his excellent introduction to this debate, asked how it benefits social housing tenants. The challenge is designed to produce solutions applicable to both the social and private rented sectors. We also support the rental exchange scheme, which does important and effective work. The noble Baroness, Lady Thornton, asked about the cost of credit. It is too high for people on low incomes. The Financial Conduct Authority proposes to clarify that firms should consider not just whether a consumer can repay, but whether they can pay without causing financial distress.

The Government’s introduction of a cap on the cost of payday loans was widely welcomed. We have introduced the concept of fee-free banking for many families, to encourage them to have a digital presence and therefore increase their ability to access credit. A key part of that is to ensure that we have people in work and, through measures such as the national minimum wage, to ensure that they can afford it. The noble Baroness, Lady Grender, mentioned raising the tax threshold, which has made a significant difference, taking 4 million people out of paying tax altogether.

I thank all Members who participated in the debate and particularly the noble Lord, Lord Bird, for bringing the matter to the House’s attention. I also thank him for the work that he, the Big Issue and Experian have done over a period of seven years in this role. I encourage them to recognise that their efforts are not in vain. They are making progress and this issue is being raised up the agenda, a fact which was recognised in the announcement that my right honourable friends the Chancellor and the Economic Secretary made in relation to the Budget.

In the aftermath of the damage incurred by the global financial crisis, reforming the financial services sector to work better for consumers has long been among the Government’s top priorities. The rent recognition challenge is the next step in this effort. Creating new and innovative solutions to allow tenants to record and share their rental history would make the credit assessment process fairer, provide a helping hand to aspiring home owners and help to build a better Britain for rental tenants, which is the end that we all seek.

Rohingya: Refugees

Lord Bates Excerpts

Thursday 23rd November 2017 Lords Chamber

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government what assessment they have made of the long-term needs of the Rohingya refugees in Bangladesh; and what further assistance they will provide.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Department for International Development has started planning for the scenario of a protracted refugee crisis in Bangladesh. Discussions with the Government of Bangladesh and key partners have begun to identify acceptable solutions that protect and respect the rights and freedoms of refugees.

[Lord Foulkes of Cumnock (Lab)]

I am grateful to the Minister and the department for what they have done for the refugees. As the Minister knows, I was there two weeks ago and saw for myself the appalling situation: the malnutrition, lack of sanitation and lack of hope. That is why we must welcome the provisional agreement between Myanmar and Bangladesh, because the only way that these 800,000 people can have hope for the future is if they return to their homeland in Myanmar. However, they need a guarantee of their safety so that there is no more persecution and, effectively, genocide, which has taken place. Will the British Government do everything they can to support this agreement and to get guarantees that the refugees will return safely and have hope for the future?

[Lord Bates]

I am very happy to give that undertaking. Like the noble Lord, I welcome the news today that an agreement on safe return has been reached at a high level between Bangladesh and Burma. That is a key part of the UN Security Council presidential statement of 6 November, which called for the safe return of those refugees to their homes, and, of course, their safety while there. The noble Lord makes a very important point—namely, when they go back, great dangers await them. Therefore, the other part of the presidential statement calls for access to the area for the UN Human Rights Council fact-finding mission and international humanitarian organisations as an essential part of providing the safety and security to enable that outcome to happen.

[Lord Hague of Richmond (Con)]

My Lords, does my noble friend agree that the Burmese military’s denials that there has been mass orchestrated rape and sexual violence against women and girls are devoid of any credibility given the numerous eye-witness accounts, and that this is a crime against humanity? While I welcome the Written Answer I have received, which states that Foreign Office experts will be deployed to assess the needs of the victims, will the Government step up urgently and for the long term the provision of specialist medical care for those victims, assistance in dealing with the stigma of rape and the documentation of these crimes for future accountability, all of which the United Kingdom is in a strong position to provide?

--- Later in debate ---

[Lord Bates]

We are in a strong position to provide it because of my noble friend’s work when he was Foreign Secretary and the leadership he has taken in this important area. As a result of that, one of the first things we did was to ensure that counselling was available for 10,000 women who had been subjected to gender-based violence, and 2,000 who had been subjected to sexual violence in conflict. That is only part of our wider effort on this. There is no doubt that significant crimes have been committed and those responsible need to be brought to justice. The events in The Hague yesterday should remind us that, however long it takes, the resolve of the international community will ensure that happens.

[Baroness Sheehan (LD)]

My Lords, DfID’s support for the almost 1 million Rohingya refugees in Bangladesh who have fled such horrific violence would be effectively demonstrated by implementing its recommitments to the Grand Bargain and releasing funds to local first responders swiftly, paying particular attention to women, so that they can lead the response to the 448,000 women and girls who have suffered devastating sexual and gender-based violence. To what extent is this happening and by what mechanism? Secondly, has the FCO team specialising in responding to gender-based violence been deployed? I understand that is now the case.

[Lord Bates]

That work is going on: the International Organization for Migration and the UNHCR are working there, and we are co-ordinating with all the organisations. We have committed £47 million and should take pride in the UK being by far the largest bilateral donor, with $63 million pledged. Next is the United States, with $38 million, then Sweden, with $23 million. We are proud of that, but it is not just about the money; it is also about driving the political and international pressure.

[Lord Alton of Liverpool (CB)]

My Lords, on bringing people to justice, in addition to the security that is required, does the noble Lord accept that the root cause of this was the denial of citizenship to the Rohingya people? Will he say what discussions we have had with Daw Aung San Suu Kyi and the Government in Burma to that effect, and whether we will impose sanctions on members of the military who have been responsible for these depredations?

[Lord Bates]

The noble Lord’s point on the loss of citizenship is absolutely at the core of this. One of the recommendations made by Kofi Annan’s Rakhine advisory commission is that the 1982 law, which stripped them of their citizenship and underlies this ongoing injustice, needs to be tackled. We recognise that that is an important part of it and we want to see that situation resolved, along with the others.

[The Lord Bishop of Coventry]

My Lords—

--- Later in debate ---

[Baroness Kinnock of Holyhead]

I am being urged to carry on. Thank you. Does the Minister recognise that continual genocidal attacks have driven over 700,000 injured Rohingya people out of Burma, and many who remain exist in the terrible misery of detention camps? Is it not therefore clear that these realities mean that repatriation would be not a solution but a terrible punishment? Therefore, instead of hoping for the Rohingya to return, will the Government make it their absolute priority to encourage the Bangladeshi Government to enable major NGOs to provide long-term humanitarian and development aid for these oppressed, homeless people so that they do not have to fear a return to hell?

[Lord Bates]

I fear that is correct. As I said in my opening Answer to the noble Lord, we are preparing for a protracted refugee crisis. However, we have to keep the pressure up by saying that we want those refugees to be able to return home in safety and for that to be part of a wider solution that addresses their human rights.

Kashmir

Lord Bates Excerpts

Tuesday 21st November 2017 Lords Chamber

[Lord Hussain]

To ask Her Majesty’s Government what is their assessment of the human rights situation in Indian-held Kashmir.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Government monitor closely the situation in India-administered Kashmir. We encourage all states to ensure that their domestic laws are in line with international standards. Any allegations of human rights abuses must be investigated thoroughly, promptly and transparently.

[Lord Hussain (LD)]

I thank the Minister for that Answer. For decades, the Indian army has been reported for illegal detentions, torture, rape and murder in Kashmir. Last year, it started to use pellet guns on civilians in the region, often blinding them. According to the Amnesty International report of September this year called Losing Sight in Kashmir, of the 88 people named in the report 31 suffered injuries in both eyes. What will Her Majesty’s Government do to get those human rights abuses investigated independently and impartially?

[Lord Bates]

We are certainly aware of the accusations that were made. The United Nations High Commissioner for Human Rights said that there will be remote monitoring of the human rights situation in Kashmir and the findings will be made public in the near future.

[Lord Ahmed (Non-Afl)]

My Lords, given that India has formally registered a reservation against Article 1, on the right to self-determination, of the 1966 International Covenant on Civil and Political Rights, widely acknowledged as the bedrock of international humanitarian law, on what basis can the UK Government support an Indian claim to a permanent seat at the UN Security Council?

[Lord Bates]

The situation that the noble Lord refers to is highly complex and dynamic, and we are very sensitive to it. It has been the long-standing position of the UK that it can neither prescribe a solution to the situation in Kashmir nor act as a mediator; it is for the Governments of India and Pakistan to find a lasting solution, taking into account the wishes of the Kashmiri people.

[Lord Gadhia (Non-Afl)]

My Lords, does the Minister agree that we should be cautious in lecturing the world’s largest democracy on human rights, which are enshrined in its constitution, protected by a well-established legal system and accountable to an independent judiciary—not to mention a large and vibrant investigative media and an active civil society? In the meantime, we should support our ally, India, to combat cross-border terrorism sponsored by Pakistan and Pakistani infiltrators, who are the real threat to peace, stability and human rights in that region.

[Lord Bates]

Both Pakistan and India are close friends of the United Kingdom and we want to maintain that strong relationship. Of course, we wish for a peaceful outcome to negotiations. We welcome the fact that the Government of India have recently appointed an interlocutor but we feel that, as in all conflicts, the countries themselves—the parties to the conflict—must be the parties to the peace.

[Lord Collins of Highbury (Lab)]

Could the Minister outline what practical steps the Government are taking to ensure that all parties are brought together and that we build peace and reconciliation? In the previous question, the noble Lord raised freedom of speech. One of the biggest concerns we have on these Benches is that limitations on freedom of speech will harm and hinder that process of reconciliation.

[Lord Bates]

The practical situation is that the British high commission in New Delhi monitors human rights in the country and in Kashmir as a whole, or certainly in the Indian-administered portion of Kashmir. We look at that fairly closely. However, we have to recognise that the situation is extraordinarily sensitive and that our words and actions, even in this House, can contribute to instability in that area. It is in everybody’s interests that an open dialogue is maintained. We do not want to do anything that would detract from that.

[Baroness Nicholson of Winterbourne (Con)]

As the Minister will be aware, countless thousands of families seek to meet other family members from whom they have been parted for 30 to 40 years. Is my noble friend able to influence the Pakistan Government, who are the block on those families meeting, as I saw myself on the ground as the European Parliament rapporteur for Kashmir for many years?

[Lord Bates]

I recognise my noble friend’s great expertise in this area. However, I repeat that we believe it is for the Governments of Pakistan and India to initiate an open dialogue. As I said, we are encouraged that the Government of India have appointed an interlocutor but it is for them to initiate the process. However, the absolute wish of Her Majesty’s Government is that those talks should happen and be productive, so that there can be a solution and the types of issues that my noble friend raises can be resolved.

[Lord Singh of Wimbledon (CB)]

My Lords, the Minister said that both India and Pakistan are friends of this country. Does he agree that friendship has no relevance to the abuse of human rights and that we should be even-handed in our condemnation of human rights abuses wherever they occur?

[Lord Bates]

Human rights are important. Whenever meetings take place between Ministers, be it Mark Field recently and my noble friend Lord Ahmad, human rights issues are always on the table and are always addressed. However, in conflict situations we also need to recognise that there needs to be a dialogue towards a peaceful resolution of the problem, so that human rights, and most crucially, human development, can take place.

[Baroness Northover (LD)]

My Lords, what are the Government doing to encourage the Indian Government to secure justice and closure for the families of those who have disappeared in Kashmir? Might we share with India the lessons from Northern Ireland on how transitional justice can help to facilitate peace?

[Lord Bates]

The noble Baroness raises a very interesting point about lessons from our own experiences of conflict but, again, I come back to the point that it would be for the Governments of India and Pakistan to invite people to take part in that process. It is not something that we feel we should impose, other than to express our overwhelming will that an open, continuing dialogue should commence and take place.

VAT: Evasion

Lord Bates Excerpts

Monday 20th November 2017 Lords Chamber

[Lord Lucas]

To ask Her Majesty’s Government what progress Her Majesty’s Revenue and Customs have made in closing down VAT evasion by overseas sellers trading in the United Kingdom through online marketplaces; and what remains to be done.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Government recognise that this issue has a significant impact in preventing a level playing field for legitimate UK businesses. That is why the Government took decisive action at Budget 2016 to tackle VAT non-compliance by overseas traders who sell goods to UK customers via online marketplaces.

[Lord Lucas (Con)]

My Lords, that is a very welcome reply—albeit that it has been a very long time coming. For several years now, the Inland Revenue has known that it is losing £1.5 billion in VAT, and that we are losing £6 billion a year in economic activity, but has done nothing, so I am delighted to hear that things are changing. Will my noble friend please make sure that the Chancellor emphasises to HMRC that fairness is important, and that having teams of heavies go round to UK taxpayers and then do nothing about enormous abuse by Amazon and its serfs really gets people’s goats, does not make people love the taxation system and does not make them like the Government, either?

[Lord Bates]

First, I pay tribute to my noble friend for being a consistent campaigner on this issue, which has brought about significant change. We introduced the change where there is joint and several liability. The problem here is that non-EU importers are bringing in goods to the UK at wholesale prices, storing them here, selling them on at retail prices and not paying the VAT, thereby undercutting small businesses. We responded to that by introducing joint and several liability for online providers. That has meant that the number of non-EU traders registered in the UK has gone up from 700 to 17,500 just over the past two years—so we believe that we are making progress, but there is a lot more to do and we have further ideas in that area.

[Lord Anderson of Swansea (Lab)]

My Lords, before the revelations of the Paradise papers, was Her Majesty’s Revenue and Customs aware of the device involving the Isle of Man used by a famous racing driver? If so, why was nothing done about it? If HMRC was not aware of it, will it now close that loophole?

[Lord Bates]

VAT is a matter for the Isle of Man to deal with, but we have said that we are aware that there is a potentially significant problem here. Her Majesty’s Treasury has been approached by the Isle of Man Government and asked to provide technical advice on how to assess and close that loophole. We hope that will be a way of moving forward to ensure that everybody pays the taxes that are due.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the Minister for pointing out what is in the new Finance Act—namely, the aim to catch non-EU businesses selling goods in the UK and avoiding VAT. However, the application of the scheme is set to widen post Tory Brexit as the EU/non-EU distinction will no longer apply. What additional resources will be allocated to this issue, given that at the same time resources will be needed to implement Making Tax Digital in April 2019, and the new customs declaration service?

[Lord Bates]

The noble Lord is absolutely right to say that there is a big change from traditional sorts of trading to online trading. It is therefore essential that HMRC tracks that in moving towards making tax digital. That is what we are trying to do. We are also saying that fulfilment houses, which are a device used to store goods for onward selling in the UK, will need to register from April next year. Perhaps most relevant to the point that he raises, we are also looking at the idea of having split taxation so that, rather than going through the declaration element, the minute that a transaction is triggered online, the tax immediately goes to the Exchequer. That seems a more sensible way forward. We consulted on that and will come forward with our proposals on it very shortly.

[Lord Davies of Oldham (Lab)]

My Lords, as the noble Lord, Lord Lucas, has clearly exposed, the Government have been somewhat tardy in dealing with this issue—as they have been on so many issues which involve the multinationals. Will the Minister recognise that legislative time is no excuse as the Government introduce a Finance Bill every year in which they could, and should, address these significant issues? Does he appreciate that the Government ought to have a comprehensive plan to restore transparency to our tax system—which is what a future Labour Government will deliver?

[Lord Bates]

Before we wait for the future one, we might reflect on what the last one did or did not do in this area. The truth is that these are fast-moving instruments; people are arbitraging the system and looking at how to exploit advantages from a trading point of view. HMRC has been vigilant and has come forward with ideas—and when it does, we implement them. That is why we put them forward in the Finance Bill and are bringing forward the measures we are talking about. That is also why the 75 measures on tax evasion and avoidance that we have introduced since 2010 have raised £160 billion for public services.

[Lord Watts (Lab)]

My Lords, can the Minister explain why the BBC seems to know more about tax evasion than the Treasury? What is the Treasury doing?

[Lord Bates]

I think that the particular case the noble Lord refers to is about how some employees of the BBC are remunerated using taxation. There is a standard briefing in my pack here, which says that I cannot refer to specific individuals and their taxation status. However, suffice it to say that, thanks to the BBC, we are all now aware of them— including HMRC.

[Lord Christopher (Lab)]

My Lords, I declare some of my past life, which is in the register and which should be taken note of. There is no prospect whatever of the Inland Revenue getting on top of the range of activities which you now require without more staff— not just in numbers but in quality, experience and knowledge, and a capacity for doing forensic work. Will the Government undertake a review of what is required?

[Lord Bates]

Since 2010—this is absolutely right—the Government have invested £1.8 billion in trying to tackle avoidance. However, it is clear that, as well as looking at the headcount issue, we should also look at the additional revenues that are generated. In that regard, HMRC has a very positive story to tell. However, we need to be smarter and use more technology to ensure that all people who have a liability to pay UK tax, in whatever form, do so.

Brexit: Least Developed Countries

Lord Bates Excerpts

Thursday 16th November 2017 Grand Committee

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I join with others in paying tribute to the noble Earl for securing this debate and for the way he has set the scene. I particularly thank him for his good wishes to the new Secretary of State, Penny Mordaunt. She has already addressed staff at DfID stressing her priorities, one of which will resonate with many in this Room—disability. She was Minister for Disabilities at DWP, an area I know well and on which we are already doing a great deal of work. We can look for that to be enhanced in the future.

The focus of this debate is on the implications of exiting the European Union; our trading relationships with developing countries; our future development partnership with the EU; and annual UK development assistance. On the sums referred to by the noble Lord, Lord Collins, this morning we had the timely publication of Statistics on International Development 2017, which gives the latest figures for 2016. These show that the annual development assistance channelled through the EU was £1.5 billion in 2016. This comprises 15% of the EU development funding and consists of contributions to EU Budget Heading IV instruments of £1.031 billion and to the European Development Fund of £473 million.

The noble Lord, Lord Collins, asked what arrangements there might be going forward. We will continue to work closely and in parallel with the EU in many areas. I will come on to these later and particularly touch on the Sahel. However, there are structural changes that the EU will need to make. For example, the European Development Fund would not allow a non-member state to be a member. Although I accept that it is a well-performing fund, it would need to be opened up and made available to non-members if the UK was to continue to be part of it.

The EU’s development priorities are closely aligned with the UK’s—indeed, they have to a considerable extent been shaped by the UK during our EU membership. However, where the EU currently provides development assistance to more than 140 countries, UK aid is focused on 32 priority countries—the noble Earl referred to this, saying that where aid is needed most is in the difficult areas, in the tough areas. My noble friend Lord Eccles referred to the mission of CDC as being to work in the most difficult and challenging areas. That is where we focus our effort.

I join the noble Lord, Lord Jay, in paying tribute to the work done by British NGOs around the world. One of the most shocking statistics we see is that for the deaths of humanitarian workers. Sadly, in many conflicts humanitarian workers are targeted for delivering humanitarian aid. We should honour the sacrifice that so many of those NGOs make. I was asked by the noble Lord, Lord Collins, whether I had met the NGOs. I had a round table recently with the major NGOs that work with DfID, including Bond, where we discussed this very issue. I have relayed its concerns and we are working with the Department for Exiting the European Union to ensure that our world-class NGOs are not disadvantaged by any changes.

The question of how much will be reallocated to DfID is subject to agreement with the Treasury. DfID has a tried-and-tested resource allocation process that has enabled us to deliver the Government’s target of 0.7% of GNI for five consecutive years. I am confident that we would be able to absorb any additional funds allocated to us. Of course, it would be premature to announce detailed spending plans, not least because there are significant areas of uncertainty, such as the point at which the UK will stop making contributions to the EU—the noble Lord mentioned that many such contracts are long-term engagements. That needs to be fully clarified. Another area is how the EU will respond once UK funding ceases; specifically, whether member states will increase their ODA contributions to compensate for a 15% reduction in the EU’s development budgets. Finally, it is uncertain what the UK’s ODA budget will be in future years, as it is linked by law to gross national income, which by its nature fluctuates.

The noble Lord, Lord Hughes, touched on power supply, which is a crucial element. Just as with economic development in this country the maxim is that investment follows infrastructure, so it is true everywhere else. Where there is investment in infrastructure, it acts as a catalyst for investment. As my noble friend Lord Eccles mentioned, it is a prime reason why we are increasing the resource available to CDC. In some of the areas I work on, I am struck by how many incredible solutions—in education, for example—can come through use of tablets and computers, yet the absence of electricity makes them a non-starter. In economic development, mobile payment technology is liberating parts of east Africa through the TradeMark East Africa project, but some people are missing out simply because they do not have electricity. Therefore, the advance of solar power, particularly small-scale solar power, is revolutionising what we can do in those areas.

I remind noble Lords of our recent commitment to remain the largest donor to the International Development Association, which in its next cycle will double the resources going to fragile states, as well as of our decision significantly to scale up our contribution to CDC to support its job-creating investment activities. Together with our multilateral reform efforts, this will deliver a higher volume and quality of resources to the least developed countries.

We have incredible expertise here, including former Permanent Secretaries—I think that the noble Lord, Lord Jay, was at the Foreign Office at the time of the incredible Gleneagles agreement, which was certainly a landmark under the previous Labour Government. Our longest-serving Overseas Development Minister, my noble friend Lady Chalker, talked about close working between the FCO and DfID—a number of noble Lords, including the noble Viscount, Lord Craigavon, mentioned this as well. For the first time, we now have joint Ministers between departments in Rory Stewart and Alistair Burt. We have new cross-Whitehall funds: the Conflict, Stability and Security Fund; the prosperity fund; and the empowerment fund. They are distributing aid and, together, forcing that effort of co-ordination. I would like to be able to say, hand on heart, that the Addis Ababa experience will not be repeated, but I think the chances are reduced, especially now that when you visit a lot of these missions, we are co-located with the Foreign Office in buildings. That seems a very sensible way forward.

Turning to the future, it is in the UK’s interest that the EU remains a strong development partner after we have left, and that we work coherently on helping the world’s most vulnerable. On 12 September we published the future partnership paper referred to by the noble Viscount, Lord Craigavon, and the noble Lord, Lord Collins. In it, we expressed our desire for future co-operation with the EU that goes beyond existing third country arrangements, building on our shared interests and values. We look forward to formal discussions in phase 2 of the negotiations. In the meantime, as a member state, we are engaged in discussions with the European Commission and other member states on a successor to the Cotonou agreement. Through those discussions, we are pushing for more flexible EU development instruments after 2020 to allow greater co-operation with non-member states.

I turn now to a point made by my noble friend Lady Chalker and the noble Lords, Lord Jay and Lord Jones—the situation in the Sahel. The UK is one of the largest donors to humanitarian relief in the Sahel. Between 2015 and 2018, the UK will provide nearly £190 million of humanitarian assistance to support over 2.3 million people affected by conflict. To the noble Lords and the noble Baroness who spoke on this, perhaps the most encouraging part of this update is that, given the ongoing development of the humanitarian political challenges faced by the region, it is significant that the UK will have a new, permanent office in Chad before the end of the year, comprising a DfID/FCO joint mission. I hope noble Lords will be encouraged by that.

I want to make one point to the noble Lord, Lord Jones, on overseas territories. Of the £62 million that we provided immediately for those who suffered Hurricanes Irma and Maria, only £5 million was ODA-eligible, but that did not stop us—quite rightly, as the noble Lord urged—from recognising our responsibilities under law and under the UN charter to care for and protect those important citizens in the overseas territories. The UK Government share a responsibility with overseas Governments to ensure the security and prosperity of British citizens living in those territories. Part of the UK’s support to overseas territories is provided through the EU. The European Commission has already assured our overseas territories that they will receive their full allocation from the EDF.

I am conscious that time is running out, but I know this issue is of great concern. Perhaps I can close with some good news that I have heard through the usual channels: an additional debate in the name of my noble friend Lady Nicholson on the economic development strategy of the Department for International Development has been secured next week; on Wednesday, I think.

[Lord Collins of Highbury]

It might be on Monday the following week.

[Lord Bates]

The usual channels are working in their wonderful way. It may indeed be on Monday the following week—yes, the usual channels have just informed me that it will be on the 27th. I hope that will be another opportunity to follow up on this, but I thank the noble Earl again for an informed, interesting and helpful debate.

Finance Bill

Lord Bates Excerpts

3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Wednesday 15th November 2017 Lords Chamber

Moved by

[Lord Bates]

That the Bill be now read a second time.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the Lords Finance Bill debate gives us the opportunity to bring to bear the wide range of expertise that this House possesses on the issue of tax reforms. I particularly thank the Lords Economic Affairs Finance Bill Sub-Committee for its report, Making Tax Digital, and I am delighted that several members of that committee—including the noble Lord, Lord Turnbull, and my noble friends Lord Wakeham and Lord Leigh—will participate in the debate. I look forward to their contributions and to those of others.

The scrutiny of the Bill that comes both from the Finance Bill Sub-Committee and in this debate is invaluable to making our tax system stronger, and I thank noble Lords for their contributions. This year, the Finance Bill has taken an unusual route to get here. The clauses it contains were introduced first in March and withdrawn from the Finance Bill passed before the general election. This Bill makes sure that all in this country pay their fair share of tax, that our public services have the funds they need and that our tax system is as modern as the economy over which it presides. Fundamentally, it is a Bill to make Britain a fairer and more prosperous nation.

I turn first to the issue of tax avoidance and evasion, which is a major theme of the Bill. This Government have done more than any other in their crackdown on tax avoidance and evasion. The tax gap is at a record low of 6% and we are bringing in £11.8 billion more each year as a result of the new measures introduced. Since 2010, HMRC has secured over £160 billion in additional tax revenue as a result of tackling avoidance, evasion and non-compliance, helping the UK to achieve one of the lowest tax gaps in the world. This includes more than £53 billion from big businesses and more than £2.5 billion from the very wealthiest. The second 2017 Finance Bill introduces over 10 policies to help build on this work.

For too long, employers and their employees have participated in disguised remuneration schemes, hiding salary in interest-free and tax-free loans. This Bill strives to bring an end to that practice by placing charges on such loans. This change alone will bring in an extra £3 billion by 2021, all of which can be spent on our key public services. Alongside that, the Bill works to strip the rewards from those who enable tax avoidance, imposing 100% fines on fees earned from enabling defeated avoidance schemes. This is not about penalising the tax profession. It is about making sure that deliberately enabling tax avoidance is not a profitable enterprise.

Finally, we are granting new powers to HMRC to deal with VAT avoidance by overseas companies using UK-based fulfilment houses. These overseas companies have for too long avoided their VAT obligations, undercutting British business. Now, HMRC will be in a better position to tackle this unfair practice.

Not only are the Government committed to clamping down on avoidance and evasion, but they are also working towards making the whole tax system fairer and more sustainable. In law, since colonial times, permanent non-dom status has become a source of inequity in the British tax system. These people live in Britain for the vast majority of their lives. They draw on public services and the opportunities our country offers but pay a lower rate of tax. There is no denying the contribution that non-doms make to this country. They are in many ways a great import, bringing in talent, skill and cultural diversity. But if you live in Britain for a long time, you should pay your taxes like everyone else. By getting rid of permanent non-dom status and ending the qualification for those who have lived in Britain for more than 15 of the last 20 years, the Bill ends an inequity. Permanent residents of this country should pay tax just like everyone else—and now they will.

As well as reforming the treatment of non-doms, we are also making fair and reasonable adjustments to the way in which businesses can claim interest expenses and calculate their losses. Thanks to these changes, big businesses will no longer be able to claim excessive tax deductions on interest payments or offset their new profits with old losses, getting out of paying fair amounts of tax. Each of these measures brings in vital revenue to help fund the public realm: schools, hospitals and universities. They are fair, proportionate and progressive.

Britain faces a historic challenge and opportunity. The economy is changing and developing rapidly. For the Government to keep pace with the increasingly digital world, the way we interact with people must be modernised, too. This goes for our tax system as much as in any other area. That is why, over the next five years, we will be making tax digital. Every year, avoidable errors cost HMRC £9.4 billion—money that could be spent on key public services. By digitising our tax service, we will make it easier for businesses to get their tax right. The new system will help make tax an integral part of their business, rather than a burdensome process to be completed separately.

However, we understand that this is a big change. Indeed, various challenges faced by businesses in this transition were highlighted by the Lords Finance Bill Sub-Committee in its report, which I referred to at the beginning of my remarks. I will now respond to some of the points raised in that helpful report by setting out the Government’s position.

The sub-committee asked that making tax digital should be implemented from 2020. We saw the benefits of allowing businesses more time to adjust and have pushed back any mandatory implementation until 2019. Even then, it will be only on VAT and only for larger businesses. We believe that this strikes the right balance between allowing us time to properly pilot the changes and ensuring that businesses and the public purse see the benefits of the new system as soon as possible. The sub-committee recommended that businesses trading below the VAT threshold could not be expected to be ready to implement only a year after larger businesses and that it was unfair to subject them to an untested system. We heard that and we saw that it was right. Businesses below the VAT threshold will be able to adopt making tax digital on a voluntary basis and at their own pace.

The sub-committee raised a number of points about the scope and timetable for the programme and we have responded. It also had concerns about having time to test making tax digital. The pilots have already begun and we are encouraged by the aspects of the system that we have been able to test so far. We will ensure that making tax digital is shown to work before we introduce it for taxes other than VAT. This is a change that is as good for business as it is for government, and we will make sure that it goes ahead and is a success.

It has been pointed out that this is a long Bill, and there is no denying that. It is long because we have made vital changes to complex law, especially around interest expenses and loss calculation. It is not a good idea to avoid length if it means neglecting certainty and precision on tax obligations. We have avoided doing just that—for which it seems strange to have to apologise, but I recognise that it is a weighty document.

This is a forward-looking Bill that makes our tax system fairer and more progressive and readies it for the future. Its measures will bring in extra revenue for our public services while making sure that our tax system remains competitive and that Britain remains a place where businesses can thrive. It will reform non-doms to make sure that people pay their fair share; crack down on tax avoidance to force businesses to comply with the spirit, not just the letter, of the law; and bring tax into the modern age by making it digital. It has been consulted on, critiqued and strengthened by the wide-ranging scrutiny of Parliament, including this House, and the business world. It is thorough and it is necessary. I therefore commend the Bill to the House and beg to move.

--- Later in debate ---

[Lord Bates]

My Lords, I thank all noble Lords for their contributions in this short but very helpful debate, which was significantly strengthened, as many noble Lords said, by the excellent report on making tax digital prepared by the sub-committee, which I again pay tribute to. There were, rightly, some concerns about consultation and the steps which have been taken. My noble friend Lord Wakeham, although very generous towards me personally, then lulled me into a false sense of security by reminding me of the limitations of consultation. As he was saying that, I was thinking back to a text that used to be above the kitchen steps in my parents’ home, from Proverbs 16, verse 18:

“Pride cometh before a fall”.


I certainly do not want to go down that route, but we in your Lordships’ House can be proud of the contribution that it has made in terms of improving the way in which these measures have been introduced.

In no particular order, I will try to address some of the issues in the time that I have available. The noble Baroness, Lady Kramer, asked how we expect the process of making tax digital to bring in more tax. In 2014-15, more than £3.5 billion was lost due to mistakes in VAT tax returns alone, and the Office for Budget Responsibility will certify costings for the revenue programme and how yields from taxation are forecast to increase in the course of the Budget.

The noble Baroness also said that not enough action was being taken to dissuade tax avoiders. Clause 65 and Schedule 16 introduce a new penalty for any person who enables the use of tax avoidance arrangements which are later defeated by HMRC. Tax avoiders face significant financial costs when HMRC defeats them, but those who enable them to bear little risk; they gain financially as their clients foot the bill. One of the purposes of this legislation is to tackle that injustice.

The noble Baroness asked whether there would be a general anti-avoidance rule rather than a general anti-abuse rule. The Government are legislating on the general anti-abuse rule, drawing on the recommendations of an independent expert study group led by Graham Aaronson QC. It is robustly founded. The Bill takes forward a number of specific and significant provisions that will tackle areas of tax avoidance.

My noble friend Lord Leigh referred to some of the issues raised by the committee’s report, and raised concerns regarding the administrative burden of making tax digital for VAT. As VAT already requires quarterly digital returns, no business will need to provide information to HMRC more regularly that it does now; nor will it need to provide extra information.

The noble Baroness, Lady Kramer, mentioned the difficulties of filling in VAT tax returns, and I can empathise with that, having filled them in myself. It is a tortuous process. But digitisation of this, we believe, can actually make tax recording simpler in the long term by making use of the technology that is available.

My noble friend Lord Leigh also asked about spreadsheets. Businesses can continue to use spreadsheets as part of maintaining digital records and performing tax calculations to meet making tax digital requirements. Any business choosing to keep its digital records in performing tax calculations using spreadsheets must ensure that it meets the making tax digital requirements, including automatically sending the required digital updates and other recording to HMRC. As part of the pilot started earlier this year, HMRC has already received the first update from someone keeping their records on a spreadsheet. It is also worth saying, more generally, that the Government will not force the system on anyone who cannot handle it—a point which the noble Lord, Lord Turnbull, rightly led on. Indeed, 3 million businesses under the VAT threshold will be able to move forward towards making tax digital at a pace that works for them. Even larger businesses will be asked to use making tax digital for VAT only from 2019.

My noble friend also brought the attention of the House to Clauses 48 to 59 on fulfilment houses and the previous Finance Act 2016 provision that allows HMRC to make online marketplaces jointly and severally liable for the unpaid VAT of their non-EU sellers. Together, this package of measures, first announced in the Budget, is expected to raise £875 million by 2021.

I, too, enjoyed the contribution of the noble Lord, Lord Campbell-Savours; it was a thoughtful contribution on the wider issue of taxation. It was nice to see cross-party consensus between him and my noble friend Lord Leigh. The noble Lord, Lord Davies, also mentioned talking more about the principles of taxation, and I agree.

The noble Lord asked whether inheritance tax should be paid by the beneficiary rather than from the estate. This would be a very large-scale reform, with significant impacts across a wide range of situations and would need careful consideration. He raises the example of Germany. That was not one that I was aware of, but I am keen to look at that. The Government keep all taxes under review, and I will ensure that the noble Lord’s remarks are brought to the attention of my colleagues in the Treasury.

The noble Lord, Lord Turnbull, asked when a revised impact assessment will be published. It will be released shortly, following the Budget. He also asked whether there will be at least one year of systems testing before introduction. The making tax digital for VAT pilot will commence by the end of the year, starting with small-scale technical testing, followed by a wider live pilot in the spring. This will allow for more than a year of testing before any businesses are mandated to use the system, and testing of all MTD elements and processes. I hope he will feel that that is a step towards what he was asking for.

[Lord Campbell-Savours]

The Minister referred to the specific issue of inheritance tax, but what about stamp duty?

[Lord Bates]

I was coming to that.

[Lord Campbell-Savours]

Fair enough. I thought he had dealt with me—that was all. Forgive me.

[Lord Bates]

I would never be so pompous as to pretend that I should deal with the noble Lord, but I shall certainly be responding to his comments. I said earlier that because I have not been able to sort my papers into chronological order, I was just taking them as they came, but I will certainly come to his point on stamp duty.

The noble Lord, Lord Turnbull, asked about businesses that have difficulty in engaging digitally. The noble Baroness, Lady Kramer, also referred to this. The Government have been clear from the outset that those businesses which are unable to go digital will not be required to do so. We are legislating to exempt taxpayers who cannot engage digitally. All businesses currently digitally exempt for VAT will continue to be so under MTD. This will be based on existing VAT online filing exemptions, which stakeholders have recognised as a sensible definition.

I turn now to the question raised by the noble Lord, Lord Campbell-Savours, about whether the stamp duty surcharge was harming the market and should be reformed. He referenced a report by Newham Council. I have not seen it, but I will certainly make sure that it is drawn to colleagues’ attention. Since 1 April 2016, higher rates of stamp duty have been charged on purchases of additional residential properties, such as buy-to-let. This is part of the Government’s commitment to supporting home ownership, alongside other measures on both the supply and demand side of the market. This Government keep all taxes under review.

I thank the noble Lord for his contribution. He asked specifically about Newham, which is an issue that the Government take seriously. HMRC reduced the tax gap in 2015-16 to an historic low. On the time-specific matter raised by the noble Lord, I shall be happy to write to him and endeavour to answer his questions on the Newham experience. That applies to all other points raised by noble Lords which I may not get the chance to cover in my remarks.

My noble friend Lord Wakeham asked about the wider lessons for HMRC’s consultation arrangements. I was almost tempted to say that I would be delighted to invite him back to his former parish at the Treasury where he could meet us and talk about the consultation exercise. I think that that would be a very good thing, so I put it on the record, and my colleagues will ensure that that happens. He talked about the informal conversations and people talking through particular problems. That would be helpful. There are standard guidelines on how consultations are now supposed to be undertaken in operation across government, and there are areas where that could be improved.

The decision to move to a single, annual autumn Budget allows more time to consult before tax changes take effect. The Government have made significant commitments to improve tax policy-making since 2010, and we remain committed to them. On a point raised by the noble Lord, Lord Davies, I recognise that the Bill is a very substantial piece. He rather unkindly referred to parts of it being somehow dealt with in the wash-up before the general election.

There is a general point here. I know that there is always a tension: do you make changes explicit in law, and therefore run the risk of criticism for producing a Bill of 664 pages, or do you establish general principles? Because that often leads to contested cases going through the courts, trying to determine what was in the mind of the legislators, we recognised that we should try to be explicit about our intentions wherever possible. We are introducing some significant changes, and 70% of the clauses in this Finance Bill were announced prior to the spring Budget in 2017 and consulted on extensively. Effectively, we will continue that discussion, including through the publication of draft legislation. There are over 390 pages of draft legislation: 98 clauses and 22 schedules were published for technical consultation in December 2016. Further draft legislation was published for technical consultation in January 2017: seven clauses and six schedules in over 200 pages of new draft legislation.

The noble Lord, Lord Leigh, asked about the Office of Tax Simplification, which was established by the Government last year, and placed on a statutory footing. It is dedicated to reducing tax compliance burdens on both businesses and individual taxpayers. It investigates where the tax system is overly complex and advises government on how to reduce that complexity.

I am conscious that time is moving on and that I have addressed a number of the points raised by noble Lords, though not all. A number of the points were worthy of more detailed consideration so, with the leave of the House, I undertake to reflect on the debate, which has been thoughtful and of a very high quality, and to write, perhaps following the Budget, to update colleagues as we go forward. With that, I commend the Bill to the House and beg that the House grant this Bill a Second Reading—or words to that effect.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time, and passed.

Brexit: Financial Settlement

Lord Bates Excerpts

Monday 13th November 2017 Lords Chamber

[Lord Spicer]

To ask Her Majesty’s Government what estimates they have made of the impact on the eventual financial settlement with the European Union of those European Union assets towards which the United Kingdom made a financial contribution and which at Brexit will remain part of the European Union.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, the treatment of the European Union’s assets will need to be agreed as part of the negotiations. The Government are now performing a line-by-line analysis of our potential commitments. We recognise that the UK has obligations towards the EU and the EU has obligations towards the UK.

[Lord Spicer (Con)]

My Lords, have we not got it exactly the wrong way round with Brussels? How on earth are we meant to decide on the financial matters before we know the more general direction of what has been proposed?

[Lord Bates]

That fits very much with what the Prime Minister said in her Florence speech on 22 September, when she said that nothing is agreed until everything is agreed. We see this very much as a single negotiation. We want all of the elements to it agreed—and an important part of that will be the financial settlement.

[Lord Rooker (Lab)]

How can you negotiate on a legal obligation?

[Lord Bates]

Forgive me?

[Lord Rooker]

The Minister said it was a question of negotiation. Surely the question of the finance is a legal obligation. How can you negotiate on a legal obligation?

[Lord Bates]

There are parts of that which are related to it. We have said that we want to be fair in the exit and some elements cover, for example, pensions and liabilities for ongoing programmes. Indeed, as the Prime Minister set out in her Florence speech, no country should have pay in more during the current budget cycle and no country should receive less. That is a generous way of recognising that we have obligations, but as part of a wider negotiation.

[Lord Bridges of Headley (Con)]

My Lords, following on from my noble friend Lord Spicer’s question, does the Minister agree that Monsieur Barnier’s position today seems entirely contradictory to the position he set out in the negotiating guidelines published in April, which state:

“In accordance with the principle that nothing is agreed until everything is agreed, individual items cannot be settled separately”?

[Lord Bates]

My noble friend has great experience in this area. He draws my attention to a significant part of the setting out of the principles which the Prime Minister’s speech of 22 September chimed with exactly. Some of the comments coming from the other side do not necessarily recognise that, so it is good to be reminded of it.

[Baroness Smith of Newnham (LD)]

My Lords, in light of the fact that sterling has fallen yet again, does the Minister agree that EU denominated liabilities will increase the greater government uncertainty and instabilities? Is anyone in control? Is it not time for the Prime Minister to get a grip?

[Lord Bates]

She has a grip. That grip was demonstrated in her Florence speech, where she set out our negotiating position, which is very strong and fair. Any settlement would of course be denominated in euros as the currency—we recognise that—but that, too, needs to be taken into account as we agree what the final settlement should be as part of the wider negotiations.

[Lord Cormack (Con)]

My Lords, the Prime Minister may well have a grip. That is good, but some of us are absolutely fed up to the back teeth of reading, as we did this morning, of two Cabinet Ministers publishing their attack on a third. This is appalling, and something up with which she should not put.

[Lord Bates]

I think my noble friend would recognise that there can be full and frank negotiations in Cabinet between colleagues.

[Noble Lords]

Oh!

[Lord Bates]

There is no doubt that the entire Cabinet signed off on the position of the Florence speech, and that remains the position David Davis is pursuing with vigour and ability in Brussels at present.

[Lord Davies of Oldham (Lab)]

My Lords, the temptation to follow the noble Lord, Lord Cormack, is almost overwhelming, but on this occasion I will resist, to return to the main issue of the Question. We in the Labour Party accept the referendum result, but we will seek to remove the concept of “no deal”, which wrecks confidence as far as British business is concerned. The Minister refers to the fact that other noble Lords have had experience at the Dispatch Box on Treasury matters, but they do not last very long, do they?

[Lord Bates]

I had the benefit of seeing the faces of the noble Lord’s colleagues behind him when he was asking that question, which reminds us that the negotiation is not necessarily easy for any of us, in any party. Where do the Opposition stand on free movement and the single market? The only thing they seem to agree on is that we ought to sign up to whatever is put in front of us. We are saying no—this is a negotiation and we have the right to say no.

[Lord Tugendhat (Con)]

My Lords, does my noble friend agree that these matters are very complicated, that it is very important for the United Kingdom to get the best deal it can and that in putting a date in the Bill, the Government are handing negotiating cards to the other side and making it much more difficult for them to secure their own objective?

[Lord Bates]

I beg to disagree with my noble friend, although I recognise his immense experience in this area. All that has been proposed is to make explicit what has been implicit and what has been set out in the Florence speech and all the way through the process, ever since Article 50 was triggered.

[Lord Grocott (Lab)]

My Lords, we are back to the question of finance. Can the Minister confirm that over the past 40 years, we have been huge net contributors to EU funds? Can he also confirm that we are currently being asked to pay large sums of money to depart the EU? I wonder if he could get someone from the Commission to come along and explain to the British people—who I think would find it difficult to understand— that the more we pay into the organisation, the more it costs to get out.

[Lord Bates]

The noble Lord is absolutely right in pointing to the fact that there are assets of the European Union. Those are highlighted in the consolidated report and account, the difficulty with which is that it shows assets of £162 billion, but liabilities of £234 billion. In agreeing what our share of the assets is, we also have to be fair and recognise that there may be some concomitant responsibility for some of the liabilities.

[Lord Wigley (PC)]

My Lords, further to the point made a moment ago about the date being written into the Bill, does that not mean that on that date in March 2019, if all is not agreed at that point, nothing is agreed, and we would leave without even any semblance of a security agreement?

[Lord Bates]

That is a fact that should be borne in mind by all parties for the negotiation.

Overseas Aid and Defence Expenditure

Lord Bates Excerpts

Monday 13th November 2017 Lords Chamber

[Lord Lee of Trafford (LD)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and declare an interest in shareholdings as set out in the Register of Members’ Financial Interests.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, according to the latest available data, the ratio of defence expenditure to overseas aid expenditure in 2016 was more than 3:1. The UK Government spent £42.2 billion on defence and £13.3 billion on overseas aid in 2016. Both defence and overseas aid budgets are published on a calendar-year basis, in line with international standards.

[Lord Lee of Trafford]

My Lords, is the continuing hollowing out of our Armed Forces not a betrayal of all those veterans who proudly marched and paraded over the weekend? The defence budget is under huge pressure, our Army is below strength, we would be hard pushed to deliver 12 escort vessels and there is speculation over cuts to our amphibious capability, to our Royal Marines and to our minesweepers, to say nothing about finding money for the Joint Strike Fighter for our new carriers. While many of our aid programmes are vital and commendable, is it not time to revisit the 0.7% commitment? Is not the current ratio of overseas aid expenditure to defence expenditure now just unsustainable? Does development aid really need its own department?

[Lord Bates]

Perhaps I may answer the second part of that question. If we look just at the past year, overseas aid has provided humanitarian assistance to 17 million people. Some 28.7 million people have received immunisations, saving 475,000 lives, while 7.1 million children have been provided with education and 27.2 million have been provided with access to clean water. So the answer to the second part of the noble Lord’s question is yes, it is needed, and the Department for International Development is doing good work.

On defence, I do not accept the noble Lord’s premise that the Armed Forces have been hollowed out. The defence budget is increasing in real terms year on year by 0.5% over the current spending review period. In terms of aircraft—I see that the noble Lord may wish to come in on this at some point—there is our shipbuilding strategy, the details of which I will perhaps elaborate on later.

[Lord Sterling of Plaistow (Con)]

My Lords, on the point that has been brought up, I am totally in favour of supporting crises in which defence plays a major part. No one could possibly argue with that, but we have to be able to assess how the other 85% is faring. In July the National Audit Office said the following:

“With only one of the four of the UK Aid Strategy’s objectives supported by measurable targets, it is not possible to assess progress in its implementation”.


If we take the next 15 years, this country will be spending well over £200 billion on aid. No organisation that I know of is prepared to spend without being able to judge additionality. Therefore, how long can this country truly justify spending moneys which cannot be assessed for additionality?

[Lord Bates]

I agree to this extent with my noble friend: we do not want to waste money. That is one of the things we have been driving very hard on in the Department for International Development. I am very happy to meet with my noble friend to discuss how the aid budget is being used and the lives which have been saved as a result of it. I happen to think that one of the things we can be proud of in this country, particularly when we think of the act of Remembrance which took place yesterday, is that we are the only country in the world which actually meets its 2% obligation under the NATO agreement along with our 0.7% aid commitment. That is the type of global Britain which we can all be proud of.

[Lord West of Spithead]

My Lords, in the last two debates on defence, it has been made clear by speakers on all sides of the House, apart from the Government Front Bench, that defence is in crisis and that not enough money is being spent on it. Everyone has said that, and indeed the noble Earl took that message back to the department, so to say that all in defence is fine and rosy is incorrect. One wonders if the Government need to have a reality check on this. I am very proud of 0.7% being spent on aid, but can the Minister assure me that the defence budget is going to get the same protection and be looked after in the same way as the aid budget? I ask this because in the final analysis, strong defence forces help stability, make us all safer, and enable aid to actually be used in these places abroad.

[Lord Bates]

As I just mentioned, the defence budget differs from the aid budget in the sense that it will increase each year in real terms by 0.5%, which is greater than is going into overseas aid. We have announced a national security capability review which is being conducted at the present time. The noble Lord will also be aware of the national shipbuilding strategy which has put in an order for five Type 31e general purpose frigates in addition to the Type 26 frigates ordered in July. We can do both, and we are.

[Baroness D'Souza (CB)]

My Lords, as I understand it, is not an increasingly large amount of the development aid budget now dispersed among other departments where the same standards of evaluation do not apply, and are certainly not as rigorous as those applied by the Department for International Development?

[Lord Bates]

It is true to say that around 26% of the overseas aid budget is dispensed by other departments, and a lot of it is spent by Department for Business, Energy and Industrial Strategy. It is investing in education and research, particularly in medicine, along with development matters that will help developing countries. However, we are clear that everything has to be categorised as overseas development assistance; it must meet the primary purpose test, which is that it is for the economic development of the least well-off countries in the world. We are absolutely confident that that target is being met. If it is not met, the money is not categorised as overseas development assistance and therefore we do not meet the 0.7% target. That is why we take it very seriously.

[Lord Davies of Oldham (Lab)]

My Lords, I congratulate the Minister on his answers to this Question. Is it not essential that we continue to commit ourselves to 0.7% for the aid budget? It would be quite wrong to raid it in order to solve the problems of defence.

--- Later in debate ---

[Lord Bates]

The noble Lord is absolutely right and we share that concern. It is a joint commitment, which had widespread support on all sides of the House when it went through. We can stick to the legislation and be proud of it because we are saving lives.

[Lord Boyce (CB)]

My Lords, if the Minister believes that there is no problem with the defence budget, why at the moment are illustrative savings being looked at, for example to close out an Army brigade, do away with the Army Air Corps, and completely undermine and shred our amphibious capability?

[Lord Bates]

The noble and gallant Lord will be aware that a national security capability review by the national security adviser is under way. As part of that all options are being looked at, as he would expect when a review takes place, but no decisions have been made at present and the comments on the budget remain.

[Lord Campbell of Pittenweem (LD)]

My Lords, if everything in the garden is lovely, why have the Government reduced their order from Boeing for replacement Apache helicopters from 50 to 38, if it is not from budgetary pressures?

[Lord Bates]

I am not making the claim that everything in the garden is rosy. People are having to make tough decisions but what I have highlighted on this Question is that we are fulfilling our obligations under NATO. We are actually going beyond them, as we have spent more than 2%. In answer to the point made earlier by the noble Lord, Lord Lee, we have spent 2.1% while at the same time protecting the 0.7%. I think we can be proud of that record but how we spend on aid and defence is a matter that we should keep under close review.

Household Debt

Lord Bates Excerpts

Monday 13th November 2017 Lords Chamber

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I join other noble Lords in paying tribute to the right reverend Prelate, not only for securing this debate but for the work he has done in this area over many years to highlight a major problem. It is a social and a spiritual problem in many parts of this country. I thank him for securing this debate, as I thank noble Lords for their contributions.

Perhaps I may begin by setting one or two things in context and then come to some of the points that have been raised. In the UK, we have seen the financial positions of households improve substantially since the financial crisis. The right reverend Prelate the Bishop of St Albans mentioned that in the late 1990s, the level of debt per household was in the 90% range. It then went up to 160% at the time of the financial crisis in 2008. It has come down now to 140% but it is still at a historically high level.

Mention has also been made of debt interest payments. Those payments are of course coming down, as we have seen historically low interest rates. Whereas interest payments as a proportion of income were 4.3% in the first quarter of 2017, that is a fall from 10% in quarter 1 of 2008, as a result of the fall in interest rates. I put these points on record simply to place some context for the debate and not in any sense to detract from the major issues, which I will come to later.

Ongoing financial and economic stability is an essential priority for this government. That is why, following the financial crisis, the government set up the Financial Policy Committee to monitor and assess potential risks, and to take any action necessary to mitigate them. In 2014, the Financial Policy Committee acted to guard against any potential risks associated with the build-up of mortgage debt and prevent a significant rise in the number of highly indebted borrowers. The right reverend Prelate referred to responsible lending, and mortgage lenders are now required to place a limit on lending at loan-to-income multiples at 4.5 or above. That is a particular focus for the FPC, which also offered guidance to mortgage lenders on affordability testing to ensure that new borrowers would be able to afford their repayments if interest rates were to rise, as they did earlier this month. In June 2017, the Financial Policy Committee assessed that the growth in consumer credit represented a pocket of risk and that increased vigilance was warranted. The noble Lord, Lord Sharkey, referred to that point.

Let me come to some of the points which were raised. The noble Lord, Lord Haskel, asked whether we support the living wage. He is a generous Member of this House, and I am sure that he would recognise that the Government deserve some credit for introducing the living wage, which is equivalent to a £910 pay rise for those who are in full-time work and were previously on the minimum wage. We have also raised the tax threshold so that many people on the lowest incomes have either been taken out of tax altogether or have had a reduction of £1,000 in their tax bill.

This brings me to a key point raised by the noble Lord, Lord McKenzie, the right reverend Prelate and the noble Baroness, Lady Lister. They spoke about why people get into debt. The primary reason why people are driven into debt is job loss. Second to that, but some way behind, is the onset of sickness or disability. There is also persistent low income and relationship breakdown. These are points that the noble Baroness, Lady Donaghy, touched upon as she looked at those areas. The noble Baroness, Lady Coussins, asked about public sector debts and what we are going to do in respect of breathing space. Several noble Lords referred to that. The Government have published their call for evidence. We will not prejudge the outcome of that, but we believe it is an extensive consultation and we are looking forward to receiving the evidence. The Government have recently called for that evidence to be provided in respect of the six-week breathing space. I heard what the noble Baroness, Lady Lister, said about the level it should be, but we are calling for that. This call for evidence is the next step in implementing our manifesto commitment. It is important that we get this right, so we are seeking to take views widely in this regard. After considering all responses to the call for evidence, the Government will bring forward a consultation on the specific policy proposal soon with a view to publishing draft legislation by the end of next year and certainly no later than 2019.

[Lord Stevenson of Balmacara]

I appreciate the Minister giving way as this is a time-limited debate. I wonder whether we can reflect for a minute on that. We have tabled an amendment for Third Reading of the Financial Claims and Guidance Bill, which was referred to by the noble Baroness, Lady Coussins. What the Minister has just said does not square with where we think we are on that issue.

[Lord Bates]

The consultation period is ongoing now. There is a schedule coming forward for Third Reading, which will be discussed. I was outlining the call for evidence that we have had and the consultation that we will have upon it. Of course the Government will make their position clear in respect of any specific amendment that may be brought forward at Third Reading.

The Monetary Policy Committee has made its decision to raise interest rates on a broad set of economic data, working closely with the Financial Policy Committee to understand its impact on households’ balance sheets. The independent FCA is responsible for the regulations in place to protect customers in their dealings with financial services firms. They include at their heart the requirement that firms must deal fairly with customers in payment difficulties. Its rules require lenders to consider a variety of options to help a borrower cope with difficulties. The right reverend Prelate paid tribute to a number of organisations that are working in the area of debt resolution. I pay tribute to the work of the noble Lord, Lord Stevenson, with StepChange and that of the noble Baroness, Lady Coussins, with the Money Advice Trust. I have seen the work of Christians Against Poverty. What it is doing is quite extraordinary, but more needs to be done.

The noble Baroness, Lady Coussins, asked when the financial inclusion forum will be set up. The forum’s objective is to bring together Ministers in departments with a remit to promote financial inclusion, regulators, especially the FCA, and key stakeholders to address financial exclusion. The financial inclusion forum will be co-chaired by the Economic Secretary and the Minister for Pensions and Financial Exclusion. The forum will be attended by Ministers from other departments, regulators and representatives from industry and consumer groups. It will meet on a biannual basis and review recent initiatives and progress.

The noble Baroness, Lady Donaghy, asked how concerned the Government were about the rapid growth in consumer credit as a potential risk to the economy. The FPC’s most recent assessment of the growth in consumer credit is that it does not present a material risk to economic growth, as consumer credit represents 11% of overall household debt. But again, that is not to suggest that we do not consider that it is a significant factor. The noble Baroness, Lady Donaghy, also asked what the Government are doing about the high cost of credit. The Government have transformed regulation of consumer credit through the use of the Financial Conduct Authority’s review of high-cost debt. We put a cap on payday lending and the egregious interest rates that were being charged there, which has led to payday loans halving in number since it was introduced.

The noble Lord, Lord Sharkey, asked specifically about car finance. Car finance companies are required to meet the standards the FCA expects of lenders, including making affordability checks and providing adequate pre-contractual explanations to customers. The FCA’s chief executive, Andrew Bailey, who the noble Lord referred to in his speech, said that he does not see the growth in personal contract purchase finance as a problem per se, as it recognises that a car is an asset. The FCA is looking at the car finance market to assess whether consumers are at risk of harm. The FCA is focusing on four areas: affordability checks; conflicts of interest between lenders and dealers, a point raised by the noble Baroness, Lady Donaghy; quality of information from firms to consumers, and whether firms are adequately pricing risk.

The noble Baroness, Lady Donaghy, asked whether advice agencies have enough funding. We set up the Money Advice Service, which has spent £49 million, and over 440,000 free-to-client debt advice sessions have been undertaken. We are setting up a new single financial guidance body, bringing together the Money Advice Service, Pension Wise and the Pensions Advisory Service. This will be more efficient, and I think less confusing for customers, and will direct money to front-line services.

The right reverend Prelate, the noble Baroness, Lady Lister, and the noble Lord, Lord McKenzie, referred to universal credit. DWP research shows that the majority of people claiming universal credit are comfortable managing their budget, and any need for financial or budgeting support is discussed at the outset. For those who cannot wait until their first payment, advances are available which provide up to 50% of a claimant’s indicative award straightaway, although I accept the point made by the noble Baroness—

[Lord Stevenson of Balmacara]

I am very grateful to the Minister for giving way. I gather that what is called inspiration may have arrived from the Box in response to my earlier point, and I would like to give him the opportunity to correct the record before we finish.

[Lord Bates]

I am very grateful for that. In response to the noble Lord’s earlier intervention on breathing space, the position has changed since that section of my speech was last drafted, and I will write to him—this is dynamic government, unfolding by the minute and of course responding, as always, to the reasoned arguments presented by the noble Lord.

The noble Baroness, Lady Donaghy, asked what we are doing to ensure that workers in the gig economy are protected from problem debt. Information, advice and guidance is available for free from the Money Advice Service, which provides specialist support for the self-employed through its funding of the Business Debtline, which supports sole traders in dealing with debts that they may incur. Around 25,000 small business owners were supported by Business Debtline last year, and 90% of those who accessed support from it stabilised or reduced their debt after its help. Again, that relates to the right reverend Prelate’s point that people out there who are facing considerable distress need to recognise that help is available and that the sooner they call on that help, the easier their problems will be to solve.

Finally, the right reverend Prelate asked whether the Government will be bringing forward legislation on a breathing space. I do not want to go over that territory again, so I will simply say that it has been a fascinating debate for all Members of the House, not least the Minister. I thank the right reverend Prelate for pursuing this matter, giving us the opportunity to debate these important issues which touch many people’s lives, and we look forward to continuing our discussion.

Israel: DfID Secretary of State Meetings

Lord Bates Excerpts

Tuesday 7th November 2017 Lords Chamber

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, with the permission of the House, I will repeat in the form of a Statement the Answer given by my right honourable friend Alistair Burt to an Urgent Question in another place earlier this afternoon. The Statement is as follows:

“Mr Speaker, may I start by explaining that the Secretary of State is on a prearranged government visit to Africa to focus on how we are breaking down barriers to trade, helping African countries achieve their development ambitions, reducing dependence on aid and helping build Britain’s trading partners of the future?

I welcome this opportunity to update the House on the Secretary of State’s trip to Israel earlier this year. The Secretary of State made a public statement yesterday. In it, she explained that she had the opportunity to meet a number of people and organisations in Israel. A list of whom she met and what they covered was published yesterday as part of the statement. The Secretary of State realises in hindsight that these meetings were not arranged following the usual procedures, and she has apologised for that. The Foreign Office has said that UK interests were not damaged or affected by the meetings on this visit.

I hope that honourable Members will therefore agree that, now she has made that apology and published details of the meetings, we should accept that and refocus on our vital work of tackling extreme poverty and humanitarian crises across the world”.

[Lord Collins of Highbury (Lab)]

My Lords, this is fundamentally about transparency and accountability. The Foreign and Commonwealth Office only became aware of this visit a full day after it had taken place. Numerous meetings had taken place without the FCO being aware. More importantly, no officials from even her own department were aware or present. It appears that the only person who may have been present was a Member of your Lordships’ House. I think that requires proper investigation and a proper declaration of interest.

The noble Lord said that an apology had been made and accepted and that that was the end of the matter. I do not accept that. I hope he will agree that it would be extremely valuable if this matter were formally referred to the Cabinet Office for an investigation, so that lessons can be learned by all concerned. It is not good enough simply to apologise and say that the matter is at an end.

[Lord Bates]

On that point, the Secretary of State made clear the meetings that occurred. In her statement yesterday she said:

“In hindsight, I can see how my enthusiasm to engage in this way could be misread, and how meetings were set up and reported in a way which did not accord with the usual procedures. I am sorry for this and I apologise for it”.


But we need to recognise that the Secretary of State was having meetings in a country that is a major ally, a democracy, a major trading partner and a friend. During part of her trip—this was listed in the meetings that she set out in her statement yesterday—she visited a number of NGOs, including Save a Child’s Heart, which works with Palestinian and Israeli children, and Wheelchairs of Hope. One can see that the Secretary of State was, in her enthusiasm, as she says, carrying out her work passionately even during her vacation. That said, she recognises that the usual procedures were not followed in the way that they should have been. She has learned a lesson from it and the Prime Minister has accepted her apology. That is why we are moving on.

[Baroness Sheehan (LD)]

My Lords, the Secretary of State for DfID has repeatedly admonished her department for not being sufficiently transparent in making sure that every single penny of UK taxpayers’ aid money gives value for money, yet she herself goes rogue. She meets with the Israeli Prime Minister. Regardless of what the Minister says, it is a very sensitive region indeed—particularly in this year, the centenary of the Balfour Declaration. Nevertheless, she meets the Israeli Prime Minister, in secret, without her officials, without the prior knowledge of the Foreign Office and without the prior knowledge even of Prime Minister Theresa May herself. Furthermore, on her return to the UK, she attempts to influence government policy by asking that UK taxpayer money be handed over to the Israeli army for aid work in the illegally annexed Golan Heights. Does the Minister agree that she has comprehensively broken the Ministerial Code, forfeited the respect of colleagues and officials and should, in all decency, go?

[Lord Bates]

I do not accept that. Indeed, Section 8.14 of the Ministerial Code states:

“Ministers meet many people and organisations and consider a wide range of views as part of the formulation of Government policy”.


It does not make a specific point on that. That is why the Prime Minister has responded today to say that we need some clarification. It is important that people see that these meetings are occurring, and that that is important.

The Israeli Defense Forces’ Operation Good Neighbor in the Golan Heights provides emergency medical support to Syrians crossing the border. It has received widespread humanitarian recognition for what it is doing, and that was something that was explored. But our policy is that, because it is part of the Occupied Palestinian Territories, we would not support such a programme because we do not believe that the Israeli Defense Forces should be there. Therefore, the answer was no to that.

[Lord Cope of Berkeley (Con)]

My Lords, can my noble friend tell the House whether the Secretary of State took the opportunity while she was there to visit any part of the Occupied Palestinian Territories? In particular, did she go to the DfID office in occupied East Jerusalem? It is in a part of East Jerusalem where there is a good deal of illegal Israeli settlement activity, which she could have observed. Of course, both there, in Gaza and elsewhere, DfID has very important programmes which she should have investigated. If she did not visit on this occasion, will he do his best to urge her to make an early visit?

[Lord Bates]

All I can say to my noble friend is that, in the list of 16 meetings that were published as part of the statement, no specific location was given that appeared to be in the Occupied Palestinian Territories. But it could well be—we need to check this out—that one of the charities that she visited, Save A Child’s Heart, could have been located there. The wider point that my noble friend makes about the importance of DfID’s work in the Occupied Palestinian Territories, working with UNRWA and others in that area, is very important. We are spending £68 million this year in that area and it is providing important humanitarian relief. I will relay his points about the importance of visiting and viewing those places to the Secretary of State.

[Lord Hannay of Chiswick (CB)]

My Lords, will the Minister clarify one point about his Secretary of State’s activities during her busman’s holiday? Will he say whether, having held all these meetings, including one with the Israeli Prime Minister, she recorded what passed and circulated the records to all the departments that have responsibility for relations with Israel? If he is unable to give a positive answer to that, could he take the issue way and ask her to rack her brain and write a few records?

[Lord Bates]

These were private meetings that took place.

[Noble Lords]

Oh!

[Lord Bates]

Just a minute—I was making that point. To answer the specific point made by the noble Lord, Lord Hannay, on who is responsible, the Secretary of State provided detail in her statement yesterday of what was discussed in the meeting with Prime Minister Benjamin Netanyahu: the Secretary of State’s family background, her personal journey, the Israeli domestic political scene, India, the Prime Minister’s forthcoming visit to the UK and prospects for closer collaboration between Israel and the UK on development. Should those discussions have been circulated earlier? That is why the Secretary of State apologised and why the Prime Minister accepted that apology.

[Lord Beith (LD)]

The Ministers of this country are representatives of the Government of this country, whether on holiday or official visits. Clearly, there are principles, are there not, which ought to be clear about the support Ministers should have and the kind of reporting that needs to take place. Are these not principles that apply, whatever country was involved?

[Lord Bates]

This case has highlighted some ambiguity in the operations in travelling overseas for Ministers. The benefit that will come from this is greater clarity on what those rules and procedures should be. Clearly, we are entering a very important stage in the UK’s global relations. We want to make sure we are as joined up as possible, working together as a team and leveraging all our personal contacts around the world for the UK national interest. Lessons will be learned, not least by the Secretary of State.

[Lord Robertson of Port Ellen (Lab)]

We have the Secretary of State for Foreign and Commonwealth Affairs telling a Select Committee of the House something that was not correct, and now we have another Secretary of State—for International Development—telling the press and the world that she had told the Secretary of State for Foreign and Commonwealth Affairs in advance of her visit, then saying that she did not do it. What do you have to do in this Government to get sacked?

[Lord Bates]

The point the noble Lord raises is one of procedure, in terms of how these meetings take place. The noble Lord was a very senior Cabinet Minister for many years and has held many senior positions; he will know that one of the great benefits he gained from that time is personal contacts and friendships around the world that occasionally, even on unofficial visits, it is possible to have. That is for the good of the country. Therefore, using those contacts is something the Secretary of State has done; she has said that she is sorry for that, that she did not do it in the right way and that in future she, and all other Ministers, will behave differently as the changes to the ministerial code come into play.

[Lord Reid of Cardowan (Lab)]

My Lords, the noble Lord is making—