HM Revenue and Customs

Mark Field Excerpts

Tuesday 5th February 2013 Westminster Hall

[John McDonnell (Hayes and Harlington) (Lab)]

I am grateful for hon. Members’ attendance this morning at this debate about Her Majesty’s Revenue and Customs and its capacity and resources. Over the past decade or so, tax debates in Westminster Hall have usually been attended by the usual public administration anoraks—a club that I am a member of—or failed accountants who have been elected to the House of Commons, which is even worse. Not any more, however: the recession means that we all take an interest in public expenditure and look at every element of public income. A tax justice campaign is being waged as a result of the recession, and I pay tribute to tax justice campaigners John Christensen and Richard Murphy for their work over the years, as well as to UK Uncut, whose direct action campaign brought the issue to the attention of the public. It is concerned about the scandal of unpaid and uncollected tax. The debate reveals that our system does not work effectively.

There is another scandal associated with our taxation system: not just how much taxation is avoided or evaded, but how badly our tax collection and administration is managed overall—and, to be frank, how it has been mismanaged by politicians over the past few decades. At times, there has been almost catastrophic short-sightedness and incompetence. The genesis of the debate was a lobby by the Public and Commercial Services Union that happened in the past six months, and meetings with members. I chair the PCS parliamentary group, and the union represents 55,000 staff at Her Majesty’s Revenue and Customs. There have been many meetings with Members, and meetings in constituencies, to express the overwhelming sense of frustration, which has at times verged on anger that, as professionals, staff have been held back from fulfilling their role of ensuring that taxes are collected efficiently.

There is a particular sense of frustration because during the recession HMRC could, through tax collection, make a significant contribution to tackling the economic crisis and, indeed, the overall deficit. Staff feel that they are being held back professionally, and undermined by cuts: staffing cuts, office closures, deteriorating work conditions resulting in low morale, and the lack of appropriate professional and legislative tools to do the job. Time and again the view has been expressed that more and more policy changes load responsibilities on to them—more work for an overstretched and overburdened work force. The expression used by many of the staff is that they have been set up to fail—in some instances so that their jobs can be privatised. I want to explore the current situation in HMRC and consider the remedies that are needed. The Government need to stand back at this point, and consider staffing resources and the challenges that staff face.

What is the job? It dates back to the time of Chaucer, the earliest famous tax collector—a putative PCS shop steward. It is simply to collect taxes. The Institute of Chartered Accountants in England and Wales circulated an excellent brief before the debate, and summed it up. HMRC simply makes the tax system work: that is what it is meant to do, but the reality is that it struggles to do so. We know that from the evidence that is available to us. If the main role of HMRC is to collect the taxes, it is clear from the recent evidence that it has not the resources and legislative tools to do so. That is clear from the evidence of the tax gap—we have debated the tax gap at length in this Chamber and I appreciate that there are disputes about using it as an overall assessment of performance, and about the overall level of the tax gap itself, but we know that the range is anything from the £70 billion to £120 billion estimated by Tax Research UK, under Richard Murphy, and the HMRC’s and the Minister’s estimate of between £30 billion and £40 billion a year. In other words, even on the Government’s own assessment, half the current deficit is not being collected in taxes, because of tax avoidance and evasion.

The scale of tax avoidance and evasion has caused anger throughout our communities. It is not only the tax justice campaigns and the media that have been railing against them—so have the Government. In December the Chancellor said that people are “right to be angry” about companies not paying their fair share of the tax, and I fully agree with him. The Secretary of State for Business, Innovation and Skills said in November that it was “completely unacceptable” that companies could get away with what he described as gaming the system, to avoid tax, and referred to “appalling stories of abuse” within the tax system.

Last week, the Public Accounts Committee, which has been consistently complimented on its excellent role, under the chairmanship of my right hon. Friend the Member for Barking (Margaret Hodge), tore aside the veil that covered the operation, mainly in secret, of the major accountancy companies of devising, and ruthlessly implementing, large-scale—massive—avoidance schemes described by some as obscene. It is worth repeating the scale of what we have seen, in example after example: Starbucks paying only £8.5 million in corporation tax since it was launched here in 1998, despite £3 billion of sales; Google paying £6 million in tax last year on a turnover of £395 million; Apple paying £14.5 million in tax on £1 billion of sales. Numerous other examples have been highlighted by the PAC and others in the investigations of the past year.

[Mark Field (Cities of London and Westminster) (Con)]

The hon. Gentleman has listed a range of selective statistics, but he is well aware that tax is paid on profits, not turnover. Part and parcel of sales is VAT, so taxes other than corporation tax are involved. Does he think that a big danger in the debate is the intermingling of the sense of tax evasion, which is absolutely illegal, with tax avoidance? Not only is tax avoidance legal, but it is bizarre for politicians in government to rail about it, as they have it within their power to change the law to remove loopholes.

[John McDonnell]

That is an excellent point, which goes to the heart of the debate, because I agree with the Prime Minister that much of what is happening is morally repugnant, but the onus is on us to ensure that the system works effectively in relation to tax evasion and avoidance, and other matters, so that we serve the community that elected us well and so that HMRC does its basic job of collecting taxes. That means giving it sufficient staff and the right resources, so that they can do the job.

--- Later in debate ---

[Mark Field (Cities of London and Westminster) (Con)]

Let us cut to the chase. Among the vast number of businesses and UK taxpayers, HMRC has a not entirely undeserved reputation as a byword for incompetence, opaqueness and arbitrary action, verging on shambolic. In his passionate opening speech, the hon. Member for Hayes and Harlington (John McDonnell) expressed some specific concerns, and I want to touch on some of the issues.

I am a Member of Parliament who represents a constituency that is an important part of the UK economy, and there is a real problem—we will, no doubt, discuss it at greater length in other debates—about tax and the increasing feeling of unfairness, which is dangerous for society. I have spoken about that in the House, and particularly against the backdrop of the protests at St Paul’s cathedral a little over a year ago. Many—dare I say this?—middle-class Conservative voters feel that somehow the rules of capitalism are skewed against them. The narrow politics of that is obviously dangerous, but it reflects a real feeling of concern about where we are going with tax.

I want to mention a few warning signs about some elements of the political game scoring that goes on. We need a far better pre-clearance system, certainly if we are to have a new anti-avoidance rule that is both equitable and, more importantly, effective. The Government have made it clear that they want to introduce such a rule in the Budget within six or seven weeks. Therefore, the pace of change of tax law must alter. I have served on many Finance Bill Committees, both as a Front Bencher in opposition and as a Back Bencher in government and opposition. Our system is horribly and terribly complex, and our code is much longer than the much-derided Indian system of the past. We should all aspire to a simpler tax system because complexity is the godfather to the complex avoidance schemes that we have heard about at great length during this debate.

Taxation of small businesses must be better understood. I was a small business man for seven years before I became a Member of Parliament in 2001, but thank goodness, I am not still in business. I speak to businesses of a similar size in my constituency—I had a dozen staff with a £2 million turnover—and they have appalling problems trying to get their tax right, not just with HMRC, but with all tax authorities.

There is a danger that, in the perennial chatter about the failings of the tax system and politicians’ understandable reluctance not to play to the gallery, tax regulation will become much more arbitrary. One of this nation’s greatest assets as a place to do business is our reputation as a predictable, reliable and certain jurisdiction that is underpinned by the rule of law. We undermine at our peril that timeless tradition of being an open place to trade and prosper.

If large international corporations are arranging their affairs to avoid playing their fair share of tax, Governments and Oppositions—at least, Front Benchers—should cease moralising about that and get back to legislating such loopholes out of existence. The sheer complexity and size of the UK’s tax code, which is now larger even than that in India, has created the highly remunerated guild of tax avoiders, of which my hon. Friend the Member for Redcar (Ian Swales) may have been a member.

What should worry us most is that, when the tax authorities are empowered to make ethical judgments on the affairs of global corporations, before long they will turn their attention to ordinary taxpayers—the easy target—who may not have access to an army of professional advisers to allow them to make a long and protracted case. Ordinary taxpayers have every right to feel that once settled, their tax affairs should not be reopened on a whim.

My impassioned plea is to use our money wisely. I appreciate that, in the resources battle, it is not easy at this difficult time to justify employing vastly more people, but we need a much better relationship and more co-operation between tax advisers, companies and individuals, and HMRC, instead of its role being portrayed as a battle with a presumption that every taxpayer is trying to rip off the system. I hope that we will have better pre-clearance and that such debates will be consigned to history.

--- Later in debate ---

[Julie Hilling (Bolton West) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Howarth. I start by congratulating my hon. Friend the Member for Hayes and Harlington (John McDonnell) on securing this important debate.

In 2010, the Public and Commercial Services Union commissioned one of the most comprehensive calculations of the UK tax gap ever undertaken. The report, by Tax Research UK, estimated that the tax gap could be as big as £120 billion a year. I accept that the report was criticised by tax professionals, Ministers, HMRC and many large companies, but we have learned since 2010 that that estimate is likely to be more accurate than HMRC’s estimate of £35 billion.

What is the tax gap? The tax gap includes tax lost to avoidance, which is people seeking to minimise their tax bill without deliberate deception, but contrary to the spirit of the law. A good example was seen when tax for those earning £150,000 a year went up to 50% and some payments were brought forward, so that people subject to the 50% tax rate did not pay tax on that amount of money. As we see now, payments such as bonuses are being paid late, so again, they miss the 50% tax rate. That is immoral, as I am sure that many in the Chamber would agree, but it is not illegal. There is also tax lost to evasion, which is the illegal non-payment and underpayment of taxes by making a false declaration. Interestingly, that includes not only fraud, but error and neglect, which I will briefly come on to later. The tax gap also includes late or non-payment of tax—tax not due or not paid on time.

Whether the tax gap is £35 billion, £120 billion, or somewhere in between—or, as some of the recent scandals with well known names show, possibly even higher—it is a heck of a lot money, and it could make a real difference at this time of austerity and devastation of public services. All Labour Members will argue that we need to grow our way out of a recession, and we can see the current consequences of trying to cut our way out of it, as the triple-dip looms. However, fundamental to that growth must be the effective collection of tax, and it seems the closure of local offices does not make financial sense.

When Starbucks, Amazon, Google, and the others were exposed for arranging their tax affairs so that they did not pay their taxes here, all of us could recognise that something was wrong. All who used their shops and services could say, “Hang on a minute. How could enormous companies like that be paying such little tax in this country?” They are household names. We could all question it.

[Mark Field]

It is important in the context of Starbucks and the other companies to point out that much as there was public outrage, they pay significant amounts of value added tax on the products that they produce, and they pay significant amounts of employers’ national insurance on the number of people that they employ. I accept that there was a lot of unrest, but to suggest that they pay no tax at all misrepresents the situation.

[Julie Hilling]

I accept the hon. Gentleman’s point, but it is like saying, “I pay VAT when I buy things in shops, and I pay other taxes.” People who are employed by all of us pay national insurance, but there is that whole bit of tax that should be paid, and there are those who are not doing so. As we know, many individuals and companies manage to avoid paying it, and as has been said, the tax system is so complicated that it makes it easy and possible for people to avoid tax. It is wrong, and in my view, absolutely immoral that people, particularly at this time of austerity, do that.

If Fred Bloggs of Bolton or Freda Brown of Wigan do not declare all of their tax, how will the tax collector in another area have any idea of the scale or scope of their business when they are not household names? Local knowledge is invaluable and it is a real asset in ensuring that the right tax is paid. As other hon. Members have said, it is also an important service in the local area. It is about assistance so that people can try to get their tax right, so that they are not evading tax by error or neglect—unwittingly or unwillingly. They should have people to talk to on their doorstep. Again, as others have said, HMRC is an important local employer with an important role in the local economy.

It is a disgrace that 20 million calls were not answered in 2011-12, that the estimated cost of calls was £33 million, and that the value of customers’ time was £103 million. How can we support and run a system that costs businesses so much? We need to be working to build our economy. How can it be right that trying to talk to people about paying tax costs industry that amount of money? It is a service that earns money. It beggars belief that we are cutting it to the level that we are, and reducing staff by almost 50%.

I am running out of time, but I hope that the Minister will explain how he expects to collect all the tax that is due by nearly halving the number of tax inspectors, by closing local offices, and through the cuts that are taking place. Having served on the Finance Bill Committee and seen even more taxes introduced from the previous Budget, I hope that the Minister will explain what the Government will do to simplify tax as a whole, so that people do not either manage to avoid or unwittingly evade their tax.

Corporate Tax Avoidance

Mark Field Excerpts

Monday 7th January 2013 Commons Chamber

[Mark Field (Cities of London and Westminster) (Con)]

I congratulate the hon. Member for Redcar (Ian Swales) on initiating this very important debate, although I must confess that I did not agree with everything he said. I am rather concerned by the strongly anti-business approach to this issue shown by certain Members.

I have a great deal of sympathy for the leaders of all the political parties in formulating what would be regarded as an adequate response to the hot potato of corporate tax avoidance. In today’s 24/7 media world, there is a constant demand on political figures to provide a running commentary on populist media campaigns following the high-profile cases to which the hon. Gentleman referred, including global businesses such as Google, Amazon and Starbucks.

I can fully understand the temptation to brand this as a moral issue, appealing to corporates’ consciences when the legislative framework has failed, but it is a temptation that we in politics should try to avoid. In sparking a debate on morality in relation to the payment of tax, I fear that elite politicians open up a dangerous flank, because it suggests that the Government are either impotent or are being disingenuous in their outrage. That applies to Governments of all colours. After all, Parliament must ultimately set the rules within which companies operate. As my hon. Friend the Member for South Norfolk (Mr Bacon) said, the precedent that has now been set, with Starbucks paying an amount of tax that it alone has determined sufficient publicly to salve its conscience, is a very odd one.

I am very concerned about the whole idea of mob rule. I am sorry that the right hon. Member for Birkenhead (Mr Field) is not in his place. He speaks eloquently about issues such as immigration, and he would be unwise to think that mob rule is a way of dealing with immigration problems, for example. We must recognise that we are a democracy and that this is the forum within which the rules should be made. We should not try to inspire mob rule, whether on the payment of tax or for any other purposes within our society.

I have lost count of the number of times that media commentators have remarked that they would be delighted to apply the same approach to their own tax affairs by paying what they feel like rather than what the Government demand of them. However, I have a much wider concern—that investors will begin to sense that UK policy on tax and regulation is becoming ever more arbitrary, governed more by sentiment and the news cycle than by the strict rules that should be enforced by HMRC and ultimately by the courts. The UK should be proud of its traditional place as a bastion of commercial certainty attracting investment from every corner of the globe, and, as my hon. Friend the Member for Lincoln (Karl MᶜCartney) pointed out, that will be undermined by high-profile rows such as this.

That is not to say that all is well. As we saw in my own constituency with the protest outside St Paul’s cathedral only a year or so ago, there is deep-seated concern that the rules of capitalism are being skewed. None of us should take this issue lightly, not least—dare I say it?—Conservative Members, as middle-class Tory voters often feel most strongly about it. To focus on arbitrary media campaigns or to invoke mob rule, as several Members have, is entirely the wrong way forward.

Too often, as my hon. Friend the Member for South Norfolk said, coalition Ministers have conflated the concepts of avoidance and evasion in debating taxation policy. The ideal solution is for aggressive tax avoidance schemes to be stopped in their tracks before they are marketed. That requires constant dialogue and the re-establishment of trust between HMRC and tax intermediaries. As a matter of urgency, therefore, the Treasury needs to promote a much better and more extensive pre-clearance regime to allow companies, individuals and tax advisers to road-test their proposed schemes. HMRC must start investing more time in developing and managing relationships with accountants and tax lawyers.

Meanwhile, the Treasury is committed at the time of the next Finance Bill to introducing general tax anti-avoidance provisions. It is clear that any such general power of anti-avoidance will feature some retrospective taxation. That is wrong in a free society, and it will risk further damaging our nation’s reputation as a free, open and transparent place to set up, develop and run businesses.

[Ian Swales]

I hope that the hon. Gentleman did not interpret my remarks as being anti-business. Does he not worry about the competitive situation if certain companies get away with these practices and are then competing with other companies that do not have the ability to do so?

[Mark Field]

I do. Andy Street, the managing director of John Lewis, has made that point, but it obviously applies to many of the smaller independent companies. I represent a central London seat where a lot of big businesses are based and operate. Nothing is more important than encouraging independents, whether they are restaurants, wine bars or book shops, rather than just relying on big multinationals. No one wants to see all our high streets entirely dominated by large international corporations, many of which may involve themselves in what is currently regarded as aggressive tax avoidance.

[John Pugh]

The hon. Gentleman said that retrospective taxation is a threat. Does not the previous Government’s pre-approval scheme, which puts proposals through the Treasury to find out whether they are sound, get round that and remove that fear?

[Mark Field]

Not entirely, because it does not work as well as it should. There is no doubt that this is going to be a much more high-profile issue, and I will be interested to hear what the Minister has to say about my suggestion.

The underlying lesson is that the UK tax code and regime remains far too complicated. The godfather of tax avoidance is complexity and uncertainty in the system. When even tax experts find it impossible to understand the workings of the tax code, people begin to question whether everyone is really paying their fair share. This, in turn, creates a sense of greater acceptability in the avoiding and evading of tax. Furthermore, a complicated and opaque tax system will always be vulnerable to misrepresentation, particularly by the media, and that again weakens confidence and encourages further avoidance. People think, “If Amazon can get away with not paying its fair share, why should I bother to stump up?” I can understand why that is a general sentiment, but it frustrates many of the corporates that, as the hon. Member for Redcar said, have paid in an open and transparent manner and will ultimately undermine their whole business framework.

Government can make piecemeal efforts to address particular instances of avoidance—they can play catch-up to a certain extent—but responses tend to involve making the entire system far more complex, thereby reinforcing the very factors that have driven avoidance in the first place, displacing the activity and giving rise to a whole set of new avoidance techniques. Instead, the Government need to take an entirely different and fresh approach. They should look at how they can overhaul the entire system so that avoidance and evasion offer a similar, smaller reward and will therefore be seen as far less acceptable. Fundamentally, that can mean only lower taxes and a radically simplified tax code. For example, a single income tax applicable to income, however it is received, at the same single rate is the best way of stripping out of the system any incentive to avoid income tax. A simpler tax code would also free up HMRC resources to concentrate on tackling the real problem of tax evasion while making transgressions easier to identify.

It has been a pleasure to make a brief contribution to this debate on an important issue to which we must all return. However, I am concerned that too much of the rhetoric coming from this place almost suggests a sense of powerlessness that gives rise to the view that there is an aggressive anti-business approach in this country. We do need to have a thriving business sector. Global businesses can, of course, choose where they locate their business. We should be proud in this country of having a track record of being open to business, but I also accept that we want to ensure that businesses pay their fair share, because we have a huge deficit and a huge debt that has to be paid off if we are not to burden future generations.

I hope that we will look at the whole issue with that in mind, but above all I hope that the Minister will take on board the idea that HMRC needs to have an approach that is much more open to the pre-clearance I referred to. We must also, as a matter of urgency, look at the complications in our tax code that are allowing some of the high-profile avoidance to take place.

Transferable Tax Allowances

Mark Field Excerpts

Wednesday 28th November 2012 Westminster Hall

[Mr Jackson]

As usual, my hon. Friend makes an excellent point. It will be noted that family policy is low on the agenda for Her Majesty’s Loyal Opposition.

The Prime Minister has said during Prime Minister’s questions:

“I believe that we should bring forward proposals to recognise marriage in the tax system. Those in our happy coalition will have the right to abstain on them, I am happy to say, but I support marriage. We support so many other things in the tax system, including Christmas parties and parking bicycles at work, so why do we not recognise marriage?”—[Official Report, 2 June 2010; Vol. 510, c. 428.]

That was a seasonal reference. I could go on, but I hope that I have made the point that delivering transferable allowances, about which we have talked so much, is now of central importance if we are to be deemed to be reliable and trustworthy.

[Mark Field (Cities of London and Westminster) (Con)]

I thank my hon. Friend for leading this debate. Does he recognise the concern that many of us have—we will no doubt be feeling it in the months to come—that the changes to child benefit are another example of where the rhetoric about marriage will be undermined? A stay- at-home parent in a household earning only £60,000 will be deprived of all their child benefit if those proposals go through, yet two working parents earning £45,000 each, so with 50% more income, will not lose a single penny of their child benefit. That is one of the unforeseen circumstances of this ill-thought policy.

[Mr Jackson]

My hon. Friend makes an astute point and I hope that the Chancellor is listening. We will hear his autumn statement a week today. In fairness to the Government, they have sought to ameliorate the cliff-edge effect of the changes that were announced in October 2010, but uprating benefits by 5.2% while seeming to punish people who are aspirational and have done well for themselves sends a confused message, and the Chancellor should seriously think again about that policy. With respect to the Minister, I am not convinced that the infrastructure is even in place to enact that policy change to the maximum degree, but I must not meander on to child benefit.

Back in February 2007, the fact that Britain came bottom of the UNICEF league table for child well-being hit the headlines and rightly caused a stir. On 16 February 2007, that was picked up in an important speech by the then Leader of the Opposition entitled “Nothing matters more than children”. He gave a strong affirmation of the importance of marriage for child development and said,

“I want to see more couples stay together, and we know that the best way to ensure this is to support marriage. Not because it matters how adult men and women conduct their relationships. But because it matters how children are brought up. Nothing matters more than children.”

Who in this Chamber could disagree with that?

Why is marriage so central to child well-being? As “Breakthrough Britain” demonstrated, fewer than one in 10 married parents have split by the time a child is five, compared with more than one in three couples who were not married. That is hugely important because although most single parents do a fantastic job in very difficult circumstances, the evidence is clear that, on average, children brought up in married families do better than those brought up in single-parent families on every significant measure: educational attainment, health, likelihood of getting into trouble with the law, and alcohol and drug abuse.

As the Secretary of State for Work and Pensions said in February 2011:

“The Centre for Social Justice has found that those not growing up in a two-parent family are: 75% more likely to fail at school; 70% more likely to become addicted to drugs; and 50% more likely to have an alcohol problem…And the Joseph Rowntree Foundation has found that children from separated families have a higher probability of: living in poor housing; developing behavioural problems; and suffering from a host of other damaging outcomes, whose effects spill over to the rest of society.”

Some might be tempted to respond to that by suggesting that the principal cause for those different outcomes is not marriage, but wealth, and it just so happens that wealthier people are more likely to get married. However, that analysis does not add up. No one is trying to argue that marriage is the only important consideration or that wealth is not relevant. However, as the Under-Secretary of State for Education, Lord Hill of Oareford, has noted, research from the millennium cohort study suggests that the poorest 20% of married couples are more stable than all but the richest 20% of cohabiting couples.

In that context, the least we should do is to ensure that getting married in this country is no more difficult than in other developed countries. Given that Britain is unique among large, developed OECD economies in failing to provide any kind of spousal allowance or credit, the fact that it is relatively insensitive to couple and family responsibility must come as no surprise. In making that point, I am aware that when the recognition of marriage in the tax system is mentioned, it provokes in some quarters embarrassed smiles and sarcastic comments such as, “I got married for love.” I hope that we all did—those of us who are married—but such comments demonstrate a complete failure to understand the situation in which we find ourselves.

Let me be clear that people do not fall in love for fiscal reasons. However, when they fall in love and decide that they want to be together, they face a choice. Do they marry or cohabit? Do they make a public lifelong commitment to each other in front of families and friends that is recognised in law, or do they just move in together relatively casually and see how things go? The suggestion that that judgment is in no way impacted by financial considerations can be made only by people whose wealth is such that they are entirely insulated from the real-world considerations that impinge on the lives of most, and they are in danger of seeming very out of touch—I hope, again, that the Deputy Prime Minister is listening.

What of the pertinent financial considerations? The latest international comparison figures demonstrate that one-earner married couples on an average wage with two children face a tax burden that is 42% greater than the OECD average. Why should we make it so much more difficult for people to marry in the UK than in other OECD countries? That is a pressing question, especially when considered in the context of polling.

--- Later in debate ---

[Mr Jackson]

My hon. Friend makes a good point. We are fortunate that the ministerial teams in the Treasury and the Department for Education are thinking carefully about how important child care is. Balance is important. We must not send a message through the tax system that child rearing, caring for children and bringing up a family are less important than going out to work, but at the same time we must, as Conservatives, take a liberal approach, so we should not put disincentives in the tax system for those who want to work. One of the abiding negative legacies of the previous Government is the appalling, mismanaged tax credit system, which tied so many people up in knots and was a disincentive for them even to consider any form of work.

I will not detain hon. Members too much longer, because other colleagues wish to speak. In addition to the marriage and fairness argument, there is also the important “making work pay” argument. In his Conservative party conference speech this year, the Prime Minister placed great emphasis on the goal of building an aspiration nation. Realising that goal necessitates addressing the principal obstacle, namely that our marginal effective tax rate is currently a staggering 73% for many people in receipt of tax credits. This is hugely out of line with international best practice. The comparable OECD average is just 33%. I am afraid that the elusive right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) must bear that huge burden. Clearly, he has better things to do today than attend this debate and listen to descriptions of the mess he made of the tax credit system.

We have got ourselves into such a situation because we moved from placing the burden of recognising family responsibilities on both the tax and benefits systems, as in most large, developed economies, to placing it entirely on the benefits system. That necessarily inflates benefits and, in so doing, creates an inflated marginal effective tax rate and a huge disincentive to work one’s way out of poverty, wherein the person concerned only gains 27p in every additional pound earned. Across the OECD, comparable employees take home on average 67p for every additional pound earned. The introduction of a transferable tax allowance will restore to the tax system some responsibility for recognising family responsibility and thereby float some poorer families off benefits, releasing them from high marginal effective tax rates.

The transferable allowance policy is timely for those wanting the UK economy to grow, such that those trapped under the burden of crippling marginal effective tax rates are released—liberated into productive, constructive employment, wherein they can deliver the aspiration nation goal.

To date, Ministers pressed on the transferable allowance point have always reaffirmed the Government’s commitment to the policy and said that they will introduce it at the appropriate time. However, the truth is that if they do not act at the next Budget in March 2013 the appropriate time will have passed, because it will take at least 12 months from the passage of the legislation till the law can be implemented, because of information technology and other preparatory changes that Her Majesty’s Revenue and Customs will have to implement. We have now reached the crunch point, which is why I call on the Chancellor to announce in the autumn statement, a week today, that the 2013 Budget will introduce transferable allowances.

I am told that the cost of a transferable allowance restricted to married couples with a child under three would be less than £1 billion. If it were restricted to married couples with a child under six, the cost would be £1.4 billion. The cost would be £2.4 billion if it were restricted to married couples with dependent children or in receipt of carers’ allowance. These are not insignificant amounts, but they must be seen in context. At 2010 prices, £13 billion is being found to raise the threshold for everyone to £10,000, and some £3.3 billion is being found to increase the basic personal allowance by £1,100 next year.

[Mark Field]

For context, my hon. Friend will know that £2.4 billion is roughly eight days’ borrowing for this Government.

[Mr Jackson]

I am sure that the wise point made by my hon. Friend will be heard by the Minister, the Front-Bench spokesman for the Treasury.

In presenting these options, I hope that the Government do not opt to introduce the limited partially transferable allowance mooted in The Sunday Telegraph just published, which would be worth only £150, or £3 a week. If the limited funds available are such that we have to start with a limited transferable allowance proposal, it would be much better to focus a transferable allowance on those with young children, providing such families with a meaningful transferable allowance, rather than something minimal spread over all one-earner families.

Infrastructure (Financial Assistance) Bill

Mark Field Excerpts

Monday 15th October 2012 Commons Chamber

[Mr Redwood]

Yes, indeed. My point, which is not hostile to the Minister and is merely an attempt to inform the debate, is that we are discussing a set of very different projects and we are not sure what we are talking about because the Bill is very generic and general. We can probably all come to the conclusion that for this to work we will need precise control over what is being proposed—of how much of it is public, how much is private, how much involves a direct charge on the taxpayer and how much involves a guarantee or indemnity.

If a guarantee or indemnity is involved, I am sure that the Minister, with his forensic financial backgrounds and skills, will be able to keep control of it and to reassure the Committee that it is unlikely to be called on unless it was absolutely essential and a very important project would not go ahead without it, which would mean that it was a reasonable risk to run. I am happy at that end of the spectrum, as we will have to trust the Minister’s judgment and this is a good Minister with the skills and ability to do such things. We need to probe when such projects are proposed, however, as we are the custodians of public money and do not want to end up with white elephant projects with huge guarantees and indemnities that will in due course have to be met by some Government.

I am also concerned about the projects in which there is more of a mixture or a muddle, because they must be fitted in to the public expenditure plans. That does not prejudge whether the expenditure should be higher or lower, and there will be different views on that in the Committee, but they will need to be fitted into the plans. A large sum is involved—£50 billion—and we do not know the time scale. The Government might want to come back and ask for more money, and a provision allows them to do so by order, so I want a little more information from the Minister about how such projects will fit into the public expenditure plans and how Ministers collectively will evaluate the mixed projects that receive a big flow of public subsidy and, more particularly, those that really are public sector projects. They might be dressed up as private sector projects, but as far as I am concerned if all the money for the provision on behalf of customers or users of the service comes from the state, that is a public sector project and the private sector is merely a franchisee or agent of the state. If all the money comes from the state, I expect the state to have a grip of the project and to satisfy us that it represents value for money that is being organised in the best way.

I am not ideologically driven as regards the provision of state services. I think that should be done in the cheapest possible way, provided that they offer good quality, and that always causes problems, but I hope that the Minister will give us some guidance about how he will differentiate and seek reassurances about the granting of those indemnities and guarantees and about what proportion of the projects will involve pure public spending, as the Bill entitles him to spend as well as offer guarantees.

[Mark Field (Cities of London and Westminster) (Con)]

Although I accept much of the thrust of what my right hon. Friend has to say, does he not accept that if too much time and Treasury orthodoxy are spent on evaluating schemes at this stage, many of the infrastructure projects will simply not be built? We need to move ahead with getting them under way at the earliest opportunity if there is to be economic growth and some of the evaluation process to which he refers might be better placed at a later date.

[Mr Redwood]

I normally agree with my hon. Friend, but I am afraid that I do not on this occasion. There is not now an excuse to go in for projects that do not make any economic sense just because we all want some more growth and jobs. Indeed, that would be a very good way of setting us all back further as it would damage the public finances without giving us the benefit of a good project that people wanted to use and that produced plenty of user revenue. When one is in a financial hole, as our country is, one needs to be very careful. We look to the Treasury, in particular, to evaluate such matters carefully and I want a little more guidance because £50 billion is a huge sum. I am not surprised that so few MPs want to discuss it—if we were debating £500 million, the place would probably be packed, but because we are discussing £50 billion everyone has gone off for a tea or a coffee—but to me it is a serious sum of money and I want some reassurance that we will get something worth having for it.

--- Later in debate ---

[Mr Blunt]

I am extremely grateful to the hon. Gentleman for his customary self-criticism and generosity.

The Minister must give us the necessary clarity. I note that the right hon. Member for Greenwich and Woolwich (Mr Raynsford) has tabled an amendment on housing schemes that would add the words “of national significance”—or words to that effect. It is at that point that alarm bells start ringing for me, as the Member for Reigate, a constituency wholly within the metropolitan green belt. We have had a significant increase in housing, particularly through infill but also through new housing schemes that were agreed and supported by the local authority, and there has been development in parts of Redhill, but that has actually led to a shortage of infrastructure to support the people in that housing.

We desperately need two new primary schools locally, and then there is the small matter of the M23 never being finished. In these circumstances, when we are looking for capital schemes, it might be rather nice if the M23, several decades later, was finally finished properly where it joins the A23. In addition to the schemes that the Government will come forward with, which I anticipate will be announced in the expenditure statement, I hope that we can begin to look at some of the schemes that have been around for a long time and that these funding mechanisms will help to enable expenditure on them to take place.

I am seeking the same level of reassurance that my right hon. Friend the Member for Wokingham seeks. I have the same implicit trust that he has in the ability of the Economic Secretary and the team of Treasury Ministers to manage these things satisfactorily, but Parliament is owed proper accountability on this.

I am concerned that we will find housing schemes, particularly those of national significance, being imposed in the way they were under previous regional development strategies, with housing numbers simply being cascaded down from Whitehall to the regions, to the counties and then to local authorities, such as mine, in a way that leaves the borough councillors, as owners of the planning policy, completely unable to do anything other than mitigate the consequences. They have never been in the position that we, as a localist Government, want them to be in, in which they can judge between the economic and social need for housing locally and the environmental consequences of such development. Those are the balances that local authorities are there to draw.

The Bill will suddenly enable a substantially greater amount of new expenditure to take place, but where is the link with the rhetoric about planning policy? I just want to raise that concern, as I did on Second Reading. I do not want the financial provisions set out in the Bill to be combined with planning policy debates that take place elsewhere, and then suddenly find that in constituencies such as mine the powers of local representatives are being overridden in some rush to develop housing, which by no stretch of the imagination is infrastructure in the proper sense of the word.

[Mark Field]

Does my hon. Friend agree that the experience of the past 15 years is that there has been very little cascading down, despite all the intentions to build new housing? Is he perhaps becoming over-concerned that the inclusion of housing as one of the infrastructure heads might mean that only a number of housing schemes—relatively small ones; not necessarily national housing schemes—become the shovel-ready schemes that the Treasury is looking to encourage given that some of the other heads might mean that considerably more time is required before anything is built?

[Mr Blunt]

That is fine, but the borough councillors of Reigate of Banstead, as the planning authority, have a mandate from their local electors and they are perfectly capable of making decisions about the requirements for housing in the area and to weigh up the competing factors. That is the mandate they enjoy from local people and, as far as I am concerned, there is no need for the view that the gentleman in Whitehall knows best. If there is going to be a wider economic case for building, it needs to be made with great clarity. If that needs to be done with infrastructure of major national significance, there are bound to be occasions when local interests will have to be overridden in the wider national interest. As far as housing is concerned, the arguments are certainly significantly weaker in that regard than they are for actual national infrastructure, the benefits of which we will enjoy for decades to come. If we have too much jerry-built housing, we will then have to live with the environmental consequences for generations.

Finance Bill

Mark Field Excerpts

Monday 2nd July 2012 Commons Chamber

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. As hon. Members can see, a number of Members are standing and wish to contribute in what is a relatively short space of time, and the Minister still needs to respond, so please be mindful of other Members when making contributions.

[Mark Field (Cities of London and Westminster) (Con)]

I must confess that I support the principle behind the clause but share many of the concerns expressed by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) about its practicality. However, I accept that there is an overriding need to reduce the vast fiscal deficit, and all of us who feel that way must look at the provisions, whether in the Budget or elsewhere, and support what is being done to try to get the deficit down. Apart from everything else, it is a moral case: we cannot pass these huge debts on to the next generation. Even now, in an era that the Opposition have identified as one of austerity and savage cuts, the Government are borrowing £1 in every £5 they spend.

There is an absolute crisis in the welfare state and we must wean ourselves off this huge amount of public expenditure at the earliest opportunity. One of the most important areas to look at is that of universal benefits, particularly universal middle-class benefits, which must be up for consideration. Housing benefit, which has been discussed, and child benefit are certainly important. I believe that wealthy pensioners should not get free TV licences, bus passes or winter fuel allowances, although I accept the political difficulty of that, given the promises made just before the general election.

The Minister is an intelligent man and must realise that the practicalities of the system will make it an absolute nightmare. The hon. Member for Kilmarnock and Loudoun has made quite clear how she feels about it, but let us for once in politics be wise before the event, rather than after it.

[Nadine Dorries (Mid Bedfordshire) (Con)]

My hon. Friend talks about the practicalities of the system, but is he aware that there is no practical mechanism by which wealthy parents can opt out of the system if they do not want to claim child benefit?

[Mark Field]

There will be by next January, because they will not qualify for it.

The broader issue is that there is a risk that the proposal is potentially a penalty on aspiration for those who earn roughly between £50,000 and £60,000 a year. It is a disincentive for families with one parent who stays at home to look after children. What of the broader tax incentives? One of the reasons I am so keen on reducing the higher rate of tax to 45% is that I think there is a mass incentive in having lower rates of tax, yet the concern for those earning between £50,000 and £60,000 who have three children is that they will be paying a marginal rate, often of over 60%, which does not seem to be a sensible way forward. Those are the theoretical issues.

There are a number of major practical issues that the Minister will have to look at. This system will be incredibly difficult to implement. The reality is that many people now earn consulting income and do not know nine months into a year, let alone at the beginning, whether they will earn between £50,000 and £60,000. We will see some strange disincentives that will encourage people to arrange for invoices to go out just after the financial year, so that one year they earn £49,000 and the next they earn £80,000 or £90,000. It strikes me that much of this will rely on IT systems, which have been a reputational nightmare for both HMRC and the Treasury. I think that this system will be very tough to administer. As has been mentioned, the implementation will be in January, rather than, as normal, at the beginning of the tax year, which will make for additional difficulty.

I want this to work. I think that all of us who want to see the deficit reduced want to see Budget measures working well for the Treasury and HMRC. My biggest concern is that we will end up returning to the House, perhaps in January or slightly later next year, at the beginning of the next tax year, recognising a system that is going to be discredited, not least because huge amounts of money will be uncollected and, if the schemes goes ahead, because large amounts will have to be repaid.

--- Later in debate ---

[Helen Goodman]

One reason for not taking up the proposal is that one group in society which is most likely to be in child poverty is children in families with lots of children.

[Mark Field]

I accept that, but we are looking for a simple system—[Interruption.] No, the issue at stake is trying to find a straightforward and simple system that bears down on the idea of universality, which we should try to do if our welfare system is to retain any credit.

I hope that even at this late stage the Minister will give some thought to the matter. I work on the basis that I want the measure to work, but nothing would undermine our tax system more than the benefit before us being undermined, as many of us fear, through the practical difficulties that are almost inevitable. Let us for once, as I say, be wise before the event.

[Helen Goodman]

Normally, one begins a speech by saying what a pleasure it is to speak, but it is not a pleasure to speak in this debate; it is a great disappointment. This is the third time that I have spoken about the problem with the child benefit proposals in the Budget that the Chancellor of the Exchequer announced.

The first time I spoke I thought that there were four arguments against the Government’s proposals; I now discover that there are 14. First, there is the impact on distribution and horizontal equity, the point well expressed by my right hon. Friend the Member for Birkenhead (Mr Field). The Institute for Fiscal Studies’ independent analysis of the impact of changes made by the Budget looked at households with and without children, and households with children are losing most. From all the changes in the current year, households with children will lose 1.3% of their annual net income compared with 0.5% for those without children.

On the changes implemented so far, the loss is 3.5% for households with children and 2.1% only for working-age households without children. By 2014 there will still be inequity between households with children and households without. By then, even assuming that universal credit is as good as the Government say it will be, which I doubt, households with children will have lost 3.7% of their income—£1,411 on average—whereas those without children will have lost 2%, or £646 a year. How it can be fair to take more money from families with children than from those without, I do not know.

There is clearly also unfairness among those people who are just above and just below the thresholds, and among families in which one person earns £50,000 and those in which two people earn £40,000. We have discussed all that before.

New problems have emerged since we debated the issue. There is the possibility of people planning their tax to avoid the charge; administrative problems have been referred to; and we have repeatedly asked the Minister how he will preserve independent taxation, given the implications for it. That point has been raised to a significant extent by the professions; the Chartered Institute of Taxation and the Office of Tax Simplification are very concerned about the issue.

One thing that is not at all clear is how Ministers intend to implement the measure, given that, as far as I can see—the Minister can correct me if he wants—in schedule 1 there is no obligation on people to share information about their incomes, so it will be extremely difficult for people to know what is going on. The Minister is calm about that, but given that families’ incomes and circumstances change over time, the measure is highly likely to lead to a large number of practical difficulties.

Another thing that is odd from a Government who claim to be in favour of the family is that they are introducing a charge that is, in effect, a couple penalty. At one stroke of a pen, they have achieved both a penalty for couples and the destruction of the independent taxation of women. It is a masterstroke of its kind.

LIBOR (FSA Investigation)

Mark Field Excerpts

Monday 2nd July 2012 Commons Chamber

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I inform hon. Members that there is very important business after this statement and I will therefore be unable to fit everyone in. I plan to let the statement run for another 10 minutes or so, so short questions and short, direct answers would help enormously.

[Mark Field (Cities of London and Westminster) (Con)]

For the reasons the Chancellor has set out, I very much agree that the long path back to trust in banking and financial services is served by a banking Bill, but will he take on board some of the concerns expressed just now by the hon. Member for Brighton, Pavilion (Caroline Lucas)? Many feel that the LIBOR scandal might be a turning point. In addition to looking at ring-fencing, is he open-minded enough at least to consider the prospect of a fully fledged separation of casino or investment banking from retail banking?

[Mr Osborne]

I say to my hon. Friend, whose constituency expertise and personal expertise I have a great deal of time and respect for, that one of the purposes of asking John Vickers to do this work was to resolve the issue for our country. We brought together a commission with broad experience. It specifically looked at this issue and came to the conclusion that a ring fence was better than actual separation. I think that we should stick with its recommendations in order to give the industry some stability.

Banking Reform

Mark Field Excerpts

Thursday 14th June 2012 Commons Chamber

[Mr Hoban]

What we have been clear about, following the Vickers proposals on the timing of implementation—Vickers suggested that the measures should be implemented by 2019—is that we are taking steps now to ensure that there is a framework in place, so that banks understand what the rules will be and can respond. Today’s White Paper is part of that, and we will produce a draft Bill later, which will be subject to pre-legislative scrutiny as well. There will therefore be a transparent process to ensure that we implement the proposals. The proposals that Sir John Vickers made, such as ring-fencing, are vital to ensure the stability of the banking system and the stability of the economy.

[Mark Field (Cities of London and Westminster) (Con)]

In the 14 months since the publication of John Vickers’s interim report, which other major global financial centres have gone down the route of proposing either a ring fence along these lines or the gold-plating of capital requirements, which is also proposed, on top of Basel III, which was supposed to harmonise capital arrangements?

[Mr Hoban]

A number of countries have argued for the freedom to go further and impose higher capital surcharges—Switzerland is one and Sweden, which has introduced higher capital surcharges, is another. It is our responsibility to ensure that we protect the stability of the UK economy and the interests of the taxpayer, and respond to the structure of the banking system in the UK. Bank balance sheets in the UK are many times larger than our economy. We are much more exposed to risk. It is therefore right that we should take actions in the UK that help to protect the economy and the taxpayer, which is why we are introducing these proposals today.

IMF

Mark Field Excerpts

Monday 23rd April 2012 Commons Chamber

[Mr Osborne]

The hon. Gentleman has, for all the time I have been in the House, consistently argued against British membership of the euro and consistently raised questions about the viability of the euro. I completely respect him for that, but to say that the IMF cannot get involved in the eurozone’s problems would be just a remarkable abnegation of the IMF’s commitment to deal with the world’s economic problems. The eurozone is at the centre of the world’s current economic problems because those involved have not been able to convince the markets that they can deal with their debts in the way that we have been able to. So I do not think it would be sensible for the IMF to just say, “There is a very important part of the world, which is at the epicentre of the world’s economic problems, but we are not going to get involved there.”

[Mark Field (Cities of London and Westminster) (Con)]

I entirely support the Chancellor’s contention that the interests of the City of London and the UK’s financial services industry are best served by unequivocal backing for the IMF at this time. Will he now pledge that by the time of the Whitsun recess he will have come to this House to make a statement on the Government’s strategic policy towards our relationship with the eurozone?

[Mr Osborne]

I thank my hon. Friend for his support, which is very welcome. As the representative in this Parliament of Europe’s largest financial centre, he completely understands our huge national interest in a stable world economy and in institutions that can try to bring stability to that world. I will give thought to his suggestion of a statement on the broader eurozone problems and will come back to him.

Financial Services Bill

Mark Field Excerpts

Monday 23rd April 2012 Commons Chamber

[Mr Tyrie]

As a number of colleagues across the House will have noticed, the Treasury Committee took the highly unusual step of tabling a new clause, which is signed by all but one member of that Committee. As hon. Members will be aware, the Committee feels strongly that this Bill is defective in a number of respects, and needs a good deal of attention and improvement. That is because the Bill will hand the Governor of the Bank of England

“unprecedented new powers to shape the British economy. While continuing to set interest rates, the Bank will take over the supervision of commercial banks and insurers, be responsible for…tackling threats to financial stability…and have the power to restrict lending on mortgages, or order banks to increase their capital…one…man or woman will wield all these powers. This individual will arguably be as powerful as the chancellor”.

As drafted, the Bill seems to fly

“in the face of all ideas of modern governance, let alone parliamentary accountability.”

Those are not just my personal views; they summarise reasonably well the views of the whole Treasury Committee. As it happens, I have not said anything off my own bat yet; everything that I have said so far is a verbatim quotation from an article by the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling).

[Mark Field (Cities of London and Westminster) (Con)]

I entirely endorse what my hon. Friend has said. May I also say, in my role as the Member for the City of London, that although I am not suggesting for one minute that the views he has just espoused are universally held within the square mile, many practitioners have deep concerns about elements of the Bill, particularly the aspects to which he has referred?

[Mr Tyrie]

I have heard a good number of those concerns from the practitioners to whom my hon. Friend refers. What they say, what he has just said and the fact that I was quoting a former Chancellor all illustrate an important point: new clause 1 is not just supported by the Treasury Committee and by many independent experts who have taken a look at it. My impression, which has been gained from talking to fellow MPs and many others, is that the purpose behind the new clause is supported right across the House of Commons.

New clause 1 would bolster parliamentary accountability in two ways. First, it would place a duty on the court of directors to conduct retrospective reviews of the Bank’s performance and publish the results for Parliament to examine. Secondly, it would require the court to publish its full minutes. Those two suggestions sound, to me at least, pretty reasonable, but they encountered a wave of objections from the Bank. The Bank’s frequent refrain to us has been that the current accountability arrangements are pretty much okay just as they are. We need to be clear that the current arrangements for the court simply will not do. The board of the Bank—the court—is currently prohibited from examining the Bank’s performance and it cannot make recommendations about what it may discover if it does ask any questions. The court’s role is strictly confined to process—mainly to auditing the budget. Any well-governed institution must have a board capable of examining its performance and permitted to comment on how to learn lessons from mistakes or from successes. That is why we propose that the court be required to conduct and publish reviews of the Bank’s policy. Of course that would also give Parliament an opportunity to make recommendations on what it should look at.

--- Later in debate ---

The second part of new clause 1 would require the court to publish its minutes, as the Monetary Policy Committee already does, subject to some specific confidentiality concerns. The Treasury Committee finds the notion that that might be inappropriate a little strange to say the least. It must be right for Parliament to have at least that measure of transparency in respect of the affairs of the Bank. It is very disappointing that we have been asking the court for its minutes for the period of the crisis for more than a year and still have not received them—that simply will not do. The fact that we have not been given those minutes only illustrates the need for a statutory duty of accountability on this unprecedentedly powerful institution.

[Mark Field]

Given that, as my hon. Friend puts it, we are dealing with an unprecedentedly powerful institution, would he care to speculate as to why there has been this reluctance, in the face of repeated requests from the Treasury Committee, on the part of the Bank of England to do as he has asked?

[Mr Tyrie]

My hon. Friend tempts me towards a place I would very much enjoy going, but—in the interests of I cannot think what; let me suggest brevity, or something like that—I will not go there.

There has also been a concession on the minutes, but it goes somewhat short of what is appropriate. The concession is that a record of court meetings will be published—I am citing the phraseology used—but it seems to me that that will not do either. The court should publish full minutes, not doctored minutes. I do not want to sound too pejorative, but the minutes should not be written especially for the purposes of a certain type of scrutiny by Parliament. The full minutes should be published, as is the case with the Monetary Policy Committee, subject to the confidentiality provisions to which I alluded earlier.

New clause 1 addresses only a small part of what is needed to knock this Bill into shape. Much more time should have been devoted to it. The need for all this to be on the statute book by the end of this year is yet to be explained to us. It would be far better to let the timetable slip for a few months and to get the Bill right. The crisis has afforded us a once-in-a-generation opportunity to overhaul the legislation and the Bank and it seems to me that we are not fully taking it up.

It is also regrettable that all this work is being done in the form of amendments to the Financial Services and Markets Act 2000, which is itself an immensely complex piece of legislation. As the Governor of the Bank argued before the Committee and elsewhere, we would have done better to write a new Bill from scratch, but we were told that that would take too long. Again, there is a rather curious interaction between trying to get something right and the arbitrary timetable that is imposed.

I very much hope that the other place will get to grips with some of the other shortcomings of the legislation, many of which are relevant to amendments in this group. Let me list a few. The first is the effect on the accountability and governance of the complex web of interacting committees that are in place or being created—the FPC, the MPC, the Prudential Regulation Authority, and the sub-committee, NedCo, in particular. The second is the need for stronger accountability to Parliament as regards macro-prudential tools, and I note that amendment 23, tabled by the hon. Member for Nottingham East (Chris Leslie), addresses that issue—intelligently, if I may say so. The third is the heavy circumscription of the powers of the Chancellor to intervene in a crisis, which will, I understand, be addressed on day two on Report. More work is certainly needed to get this legislation right. The fourth is the need for Parliament and the Treasury Committee to engage in the process of the appointment of a new Governor, which has been in the papers over the past few days and is dealt with by amendments 46 and 47, tabled by the hon. Member for Hayes and Harlington (John McDonnell). The fifth concerns the FCA, which seems to be the poor relation in all this legislation, and a similar duty to publish minutes and conduct reviews of its work. That is touched on in amendment 27, tabled again by the hon. Member for Nottingham East.

--- Later in debate ---

[Mark Field]

It is a pleasure to be part and parcel of such an interesting debate. I especially commend the speech of my hon. Friend the Member for Chichester (Mr Tyrie). The hon. Member for Nottingham East (Chris Leslie) also made a thoughtful contribution, which covered a range of issues. As he said, it is regrettable that much of the real scrutiny of the Bill will be carried out in the other place, partly because of the guillotine but also because of the way in which votes on amendments are driven through here. I do not think that that reflects at all well on the House of Commons, which should be a place for genuine scrutiny rather than one that railroads Bills through their stages.

I do not go quite as far as the hon. Member for Nottingham East does in amendment 28. I do not think that we should get rid of clause 5 altogether. However, there is little doubt that the regulatory changes proposed in the clause, and the creation of the new supervisory architecture, will do little to address some of the significant risks that currently exist in the market. I say that as someone who speaks to practitioners every day in my role as Member of Parliament for the City of London.

A central issue is the ability of the FCA to carry out prudential regulation of firms that have sizeable assets and, often, complex structures. The recent failure of firms such as MF Global, Arch Cru and Keydata—all of which would have been prudentially regulated by the FCA—demonstrates the need for firms that have sizeable assets and are engaged in complex activities to be properly managed. One outcome of the failure of those firms has been that the liabilities of other UK businesses to the financial services compensation scheme are increasing in line with larger payouts to UK consumers. A wider effect has been that smaller and more innovative companies which, by their very nature, have less capital available to pay compensation on behalf of other firms face increased risk and rising costs. That will ultimately erode the attractiveness of London and, indeed, the UK as a venue for financial services businesses.

The FCA will not be a specialist prudential regulator. The experts will be located in the Prudential Regulation Authority, and it will be important for the FCA to work closely with the PRA to ensure that complex firms within its scope receive an adequate quality of prudential regulation. It is therefore crucial for the Bill to contain adequate safeguards and assurances that robust information-sharing agreements will exist between the two regulators. That important detail is lacking in both the Bill and the draft memorandum of understanding.

The Government should provide greater protections in clause 5, specifically in regard to the relationship between the FCA and the PRA. That would enable the two regulators to share information on systematically important companies to ensure that the PRA could make a judgment on whether they needed macro-prudential regulation. A key question is whether the FSA has learned from the problems of Lehman Brothers and the events of the past three and a half years or so. Despite the financial crisis, the FSA has failed to adjust the manner in which it supervises firms. The Turner review, published in 2009, provides a detailed analysis of the causes of the economic crisis and the areas of the financial and economic system in which the FSA and other, global regulators failed to identify growing problems.

The review promised a new philosophy of regulation that it describes as “intensive supervision”. That amounts to a huge number of new initiatives and commitments: a significant increase in the resources to be devoted to the supervision of high-impact firms; an increase in the resources devoted to sectoral and firm comparator analysis; investments in specialist skills, with supervisory teams able to draw on enhanced central expert resources; a much more intensive analysis of information relating to key risks; and an investment in specialist prudential skills.

Three years on from the publication of the Turner review, the FSA has increased the number of conduct interventions, a proportion of which have not involved consumer detriment—for example, in client asset and financial crime cases—but it has not been able to prevent the failure of a number of non-systemic companies.

The most worrying feature of what is going on at present, with the collapse of MF Global, Arch Cru and Keydata, is that under the new regulatory system they will all be prudentially managed by the FCA. It is set to be a competent financial conduct regulator, but it is no secret that it is not an expert prudential regulator. The prudential experts will all be located in the PRA. That is fine when the firms that are prudentially regulated by the FCA are small and relatively straightforward with few systemic risks, but none of the three firms to which I have referred can be regarded as small or straightforward businesses.

We are going to hear a lot more about MF Global in this House in months and years to come. It was involved in complex transactions as an intermediary on a range of financial products. The estimated gap owed by MF Global to futures customers is as large as $1.6 billion following bankruptcy. The total cost for MF Global UK has been estimated in the region of £600 million, and about $1 billion of client money remains locked in other financial institutions according to its administrators, KPMG. The total liability to consumers when Arch Cru collapsed was some £100 million, and a £54 million financial redress scheme was agreed between the FSA and the other professional organisations, Capita, HSBC and BNY Mellon.

[David Mowat]

I completely agree with my hon. Friend’s comments about MF Global and the fact that we did not learn quickly enough the lessons of that or of Lehman. Is there not one major aspect, however, that the Bill does not address particularly well, perhaps because it cannot: the fact that the regulation of such firms must mirror their organisational structure, which is international? Neither the FCA nor the PRA, nor any other regulatory body, can do that without much more effort being made.

[Mark Field]

I do not disagree with what my hon. Friend says. However, the special administration in respect of MF Global—which, as I have said, will be high profile in years to come—seems to be considerably better organised in every other jurisdiction than it is in the UK. That is doing great damage to the reputation of the UK as a destination for financial services.

Following the failure of the firms to which I have referred, the Financial Services Compensation Scheme has announced it will need to raise an additional £60 million in the investment intermediation sub-class, resulting in rising costs for firms in that category, and in the coming year both MF Global and Arch Cru will, I fear, generate further liabilities of some £600 million or more.

[Alun Cairns]

My hon. Friend is making very forceful points, especially on the FSCS. As that is currently funded by the industry itself, and given that the FCA cannot have detailed knowledge of the workings of every product, does my hon. Friend agree that in order to ensure that there is adequate protection, the FCA must work with the industry and accept the intelligence that comes from it?

[Mark Field]

My hon. Friend is absolutely right about that.

I want to touch on the impacts, however. Smaller firms dominate the advisory and investment sector, and they clearly do not have the capital available to make the sizeable pay-outs that are an integral part of the scheme on behalf of other companies. The larger banks are present in most major financial centres, but it is the success of innovative smaller companies that marks out Britain’s financial services industry, or at least has done hitherto.

I am aware, as I have spoken to this company in recent days, of a FTSE 250 firm whose costs have risen by 270% under the compensation scheme, year on year, from 2009 to 2010. That includes some £4.7 million of interim levy costs for Keydata, a current cost of £470,000 for MF Global—again, I fear that that is an interim cost—and some £700,000 for Arch Cru. The company had predicted that its total cost for MF Global could end up being as high as £9.5 million.

This situation is an enormous concern. Firms are facing increased liabilities through the compensation scheme and the future structure of the supervisory regime does not suggest that prudential regulation of these firms is likely to be improved. This matter should be addressed in this Bill, as the FCA will not be a specialist prudential regulator. As I say, the experts are located elsewhere, so it is crucial that the Bill contains adequate safeguards and assurances that robust information-sharing schemes are to be put in place between the two regulators.

I briefly wish to discuss my new clauses 2 and 3, which seek to amend section 166 of the Financial Services and Markets Act 2000. Section 166 sets out arrangements for a report by a skilled person, and the whole section urgently requires changing. The FSA has the power to insist on an investigation without determining who does it and without paying for it. The result has been that too many recent section 166 reports have cost the players in the financial services market huge sums, without producing anything of great value. Under the current regime, firms are guilty until proven innocent, and they have to pay for their own prosecution, regardless of whether guilt is proved or not.

The number of section 166 reports has, perhaps understandably, risen dramatically since the 2008 financial crisis. Nevertheless, such reports are increasingly used as a standard regulatory method, rather than being reserved, as they should be, for the most serious cases. They are becoming a phenomenally big burden on hard-pressed small firms. The costs can run into hundreds of thousands of pounds in each and every case, and companies often cannot recoup the costs, even if there is no evidence of wrongdoing.

I know that others wish to speak, but I just wish to put on the record the breakdown of the cost of section 166 reports. As I say, this is now an issue of major concern. In 2006-07, there were just 18 such cases, at a cost of £3.8 million. That number increased to 29, 56, 88 and 95 cases respectively for each of the four succeeding years, with the costs increasing from £3.8 million to £32.2 million for the year 2010-11. It is essential now that the FSA, which has not previously selected skilled persons to have a direct line of accountability, changes its whole approach on this matter. There is much more that I would like to say and I am sorry that time is so limited this evening. I hope that this matter will come back for further scrutiny, although I am afraid that that will be in another place.

[Several hon. Members]

rose—

Finance (No. 4) Bill

Mark Field Excerpts

Thursday 19th April 2012 Commons Chamber

[Ben Gummer]

My hon. Friend is full of vigour and will be going a long time, so I hope not.

The key challenge facing us is the extraordinary rate of demographic change in this country. Between now and 11 minutes past 3, the average age at which people are expected to die in this country will increase by 15 minutes. As a consequence, by 2041, the amount we spend on old-age pensions will have increased from about £80 billion now to £250 billion, even with the changes introduced by my right hon. Friend the Chancellor and his colleagues. Even with the reforms that the Government have initiated, we will deliver to our successors in this place—including the shadow Chief Secretary to the Treasury—a formidable challenge, and not only have we not properly faced up to the challenge but we are not talking properly to the public about it.

I can understand why Labour Members have tabled amendments on VAT and other matters—they can make their political points about the balance in the Budget and the Finance Bill with complete justice—but I am seriously disappointed that they have tabled amendments on this issue, because it is the most modest start to trying to deal with what is a really big and fundamental problem for us all.

[Mark Field (Cities of London and Westminster) (Con)]

My hon. Friend is making a sensible and thoughtful speech and some important points. The hon. Member for Leeds West (Rachel Reeves) prayed in aid changes made by Sir Winston Churchill 87 years ago. However, the numbers qualifying then for any sort of pension, let alone an age-related one, were minuscule compared with the numbers qualifying today and in decades to come.

[Ben Gummer]

My hon. Friend is entirely right. When Sir Winston Churchill served in Lloyd George’s Cabinet and the Liberals introduced the universal pension—one of that Government’s great achievements—a quarter of people never reached pension age. They never got to the point where they could draw down their pension. We are in a completely different place now.

I am not proposing to the Committee that we start now to think about the wholesale and widespread pension reform that is required, but surely we should start by trying to change some of the anomalies, and this anomaly is such a glaringly obvious one. At the moment, Members on both sides of the House, including those of us who represent constituencies with many low-earners—low-earners with families struggling desperately—are telling our constituents to pay a different rate of tax from pensioners, who, only because of their age, qualify for a different allowance.

--- Later in debate ---

[Ben Gummer]

I wish we could deal with this canard. I did not want to be political about this—[Interruption.] No, I tell the hon. Member for Nottingham East (Chris Leslie) that I did not. Five times more revenue is being taken from the wealthiest people in this country as a result of the Budget than from reducing the top rate of tax. That argument has been dealt with and, although it is pity, I suspect that that is why the hon. Member for Leeds West, who is a serious-minded and intellectual member of the Opposition Front-Bench team, realises that the only way she can make an argument about this issue is by trying to shackle it to a false argument about the top rate of tax, to which it has no relation whatever. This is about beginning to reform provision for people who are retiring in our country. If we do not begin to make these small changes, we will not even be in a position to make the changes that will be necessary in future.

[Mark Field]

Will my hon. Friend give way?

[Ben Gummer]

I will give way once more.

[Mark Field]

My hon. Friend was absolutely right when he said earlier that we have collectively been living well beyond our means. That over-consumption by today’s Britons, including today’s pensioners, will have to be paid for by generations to come, and that cannot be justifiable. Given the interventions on him from the Opposition, does he agree that we made it clear before the election in our manifesto that we would maintain intact all the universal benefits—in particular, TV licences, the winter fuel costs and a lot of the travel allowances, along with a significant number of other pension-related benefits—that we have been true to our word and that we will remain so for the rest of this Parliament?

[Ben Gummer]

My hon. Friend represents a seat with a huge personal vote. I was not lucky enough to take over from a Conservative Member of Parliament with a huge personal vote such as his. I was therefore targeted in the last few weeks of the campaign by the Labour party and its union friends, who issued a series of postcards claiming that we would abolish the winter fuel allowance, free TV licences and all those other things. It is a matter of great pride to me that even in coalition, when compromises must be made, those promises, made by my right hon. Friend the Prime Minister, were kept.

--- Later in debate ---

[Margot James]

I wanted to begin by setting the scene and explaining why I thought that the Budget represented a step forward, but as the debate is actually about the age-related allowance, I will make a bit of progress on that subject now.

[Mark Field]

rose—

[Margot James]

However, I will give way to my hon. Friend.

--- Later in debate ---

[Mark Field]

I thank my hon. Friend. I entirely agree with what she said about the importance of promoting enterprise.

It was suggested earlier that 14,000 millionaires would benefit from the tax reduction. I am not sure how Labour Members arrived at that figure, but surely the notion that all our problems could somehow be solved if the rich paid their way is the nub of the issue. Given the relative scarcity of rich people in comparison with the vast majority of the electorate and as a proportion of the United Kingdom’s population of over 60 million, it is an absolute myth that we could solve all our problems by imposing heavy taxes on bankers and other rich people.

[Margot James]

I thank my hon. Friend for his intervention, which prompts me to remind the House that the top 1% of wealthy people in this country account for 30% of tax revenues. As my hon. Friend has pointed out, they constitute a very small segment of the population, and I think that if they are required to contribute any more than a third of the total, many will choose to go overseas where they will be taxed less.

--- Later in debate ---

[Margot James]

I thank the hon. Gentleman for his comments, but I should not take any more interventions as other Members wish to speak.

[Mark Field]

Will my hon. Friend give way?

[Margot James]

Yes, but for the final time.

[Mark Field]

It cannot be bad that a U-turn should come so quickly. Seriously, however, I wanted to make the point that there are some very poor pensioners in my constituency—it is more socially mixed than many colleagues might imagine—and they are suffering greatly. However, the message I get from many of my pensioner constituents is that they worry for their grandchildren. They worry about their opportunities and about the difficulties they will face in getting on the housing ladder and in having the quality of life that their grandparents perhaps took for granted. Many of my pensioner constituents understand my hon. Friend’s point that the burden of getting the deficit down must be shared across the generations.

[Margot James]

My hon. Friend has, in part, responded to the point made by the hon. Member for Stoke-on-Trent South (Robert Flello), and I was going to say that some 5 million older people will not be affected by this measure. We can split hairs on this issue, but I accept that the measure does amount to an additional payment. However, although the allowance freeze results in an increase in tax payable, it does so only by an average of £84 a year. I accept that that is not nothing, but it is a relatively small sum. The measure is raising so much money for the Exchequer by dint of the fact that so many people are in receipt of state pensions. The pain, as it were, can therefore be shared by many, and the resulting amount per person is very small. I apologise for the fact that I shall not take any more interventions, but so many other Members still want to speak.

To address the other point made by the hon. Member for Stoke-on-Trent South, the Government have a good record in protecting people on pensions. We have restored the earnings link. The Labour party had 13 years in which to restore the link, and Barbara Castle called for that every year until her death. We have done it. We have also secured it with the triple lock.

The hon. Member for Leeds West (Rachel Reeves) was ungenerous in arguing that we appeared to be proud of the inflation rate. If she had remained in the Chamber, I would have told her that that inflation has largely been driven by increased oil and commodity prices, which Governments have no control over. It is to the credit of this Government that they were brave enough to say, “We will increase the state pension by either 2.5%, the rate of inflation or the rate of earnings, whichever is the greater.”