Queen’s Speech

Lord Sikka Excerpts

Monday 16th May 2022 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I will speak briefly on three issues. The first is the economy, the second is financial services reform and the third is auditing.

A sustainable economy cannot be built without boosting people’s purchasing power, but the Government’s policies are doing the opposite. People’s purchasing power is depleted by the rate of inflation, which is expected to be around 10% by the end of this year. Higher inflation is due to profiteering by supermarkets, banks, oil and gas companies, energy companies and others, yet the Government have offered no policy to check this profiteering, which is creating inflation. Their blunt instrument is to increase interest rates. How is forcing people to pay higher charges for mortgages and borrowing going to reduce corporate profiteering and address the rate of inflation? It is the wrong remedy at the wrong time, and it will harm people.

The tax burden is the highest for 70 years and the Government have crushed the poor. Even before the pandemic, the poorest 10% of households paid 47.6% of their income in indirect and direct taxes, compared to 33.5% paid by the richest 10%, yet the word “redistribution” gets no mention in any government Statement. The Government are carrying on with the policies that led to this crisis. There is austerity for public sector workers, who are getting pay rises far less than the rate of inflation. On top of that, the Government are removing £7.5 billion from household budgets this year by imposing income taxes through stealth. Over the next three years that will add up to another £40 billion. This is the economics of the madhouse.

The Government could raise another £25 billion a year simply by eliminating the perks enjoyed by the beneficiaries of capital gains. If those were taxed in the same way as earned income, and if they were forced to pay national insurance, it would raise £25 billion, yet tax reform gets absolutely no mention anywhere.

I also take issue with the Minister’s opening statement that the finance industry is paying £75 billion a year in taxes. That is wrong. That number was taken from a press release by a trade association in the City of London. The actual taxes borne by the finance industry total £34.1 billion. It simply collects the other £41 billion from customers in the form of VAT, PAYE and national insurance. Perhaps the Minister could explain why she privileges the statements of a trade association, rather than giving us the hard numbers that HMRC cannot provide. This £75 billion cannot be independently corroborated; it is simply a guess.

The Government’s proposed reform of financial services is just going to lead us into another race to the bottom. It will give us more scandals than we have had, so I hope the Government rethink that. It is disappointing that there are no proposals to regulate shadow banking, which is bigger than retail banking. Hedge funds and private equity are playing havoc on the high street. They are killing businesses; Debenhams and Maplin are good examples, and there are many others. There is no focus on their reform.

Finally, the audit reform proposals are very disappointing. They do not deal with a fundamental problem. The BHS audit partner from PwC spent two hours on the audit and 31 hours on consultancy. The audit team was led by somebody with only one year’s post-qualification experience. Most basic tasks were not performed, and the PwC partner backdated the audit report. Nothing in the Government’s Bill would check any of that. Now we know that KPMG also fabricated—forged—audit documents and handed them to the regulator. Without reform of auditor liability and threat of prosecution and prison for the offending partners, nothing will change. Why are the Government handling the audit industry with kid gloves?