Income Tax

Mark Garnier Excerpts

Wednesday 5th November 2014 Commons Chamber

[Geraint Davies]

I do not want to say anything rude about David Beckham. Tony Blair was obviously a very successful Prime Minister, and as I have already pointed out, he increased the size of the British economy by 40%. If we were not sitting here after four years of the Tories borrowing more than Labour did in 13 years and with the debt going up and up, we would not have to think of measures to raise more money. It is because of the economic incompetence and failure of this Government that we need to raise more tax at this point.

I have pointed out that there are people who already pay marginal tax rates of 62p—national insurance plus income tax. They are doing that and they are not suddenly leaving the country. This is a sustainable tax that can be borne at this point in the economic calendar, and we need to do it to protect the very poorest. As I have already pointed out, we are ripping £400 million—incidentally, the area most affected by the bedroom tax is Wales, where 42% of council households face it—away from people who have virtually no money. It is simply unfair that those judgments are made.

[Mark Garnier (Wyre Forest) (Con)]

The hon. Gentleman has said on a couple of occasions that under Labour the economy grew by 40%. He is absolutely right: it did grow by 40% under Labour in the years leading up to the 2008 crisis. However, that came from a massive asset bubble that was fuelled by a colossal rise in household debt. One of the greatest crimes of the Labour Government in the lead-up to the financial catastrophe was that it allowed household debt to increase by £1 trillion. It went from £450 billion to £1.45 trillion, an increase of household leverage from 100% to 175%. That debt is still with millions and millions of people.

[Geraint Davies]

I am very grateful indeed for that intervention. The reality is that less than a third of the deficit inherited in 2010 was due to the Government. The Government were spending more than they were earning to gear us out of recession, which was the right thing to do to stop a world depression. We had growth at that time, but thanks to the Chancellor of the Exchequer, the right hon. Member for Tatton (Mr Osborne), suddenly announcing in May 2010 that he was going to sack 500,000 people, everyone stopped spending money in the public sector and demand flatlined. We have had no growth so we do not have the tax receipts.

On debt, what is happening now, as I mentioned earlier, is that banks are lending 30% less to businesses to invest in productivity, entrepreneurship and growth, and they are giving the same amount as they did in 2008 to household debt to buy houses. That is not to build new houses, but to inflate houses in the south-east. There are no new houses, and it is ratcheting up the debt the hon. Gentleman rightly refers to. That is being inspired by the Government’s right-to-buy schemes and so on. That is completely irresponsible, so I am grateful to the hon. Gentleman for making the point about how irresponsible and poor the Government’s financial strategy is.

On infrastructure, a disproportionate sum is being spent in London and the south-east, when it should be spread across the country. Finally, if we want to get away from a low wage, low tax receipt economy, we need to invest in productivity. We need to think again about our strategy for tuition fees versus Germany and elsewhere. Ultimately—I am coming to a conclusion, Madam Deputy Speaker—we find ourselves in a situation where the poor are getting so poor that eventually they turn to parties like UKIP and worse. They start to blame immigration and all the rest of it, and we have social fracturing that will only continue unless we bring about a more equal, robust, fairer and stronger economy. This measure is a step towards that.

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[Mark Garnier (Wyre Forest) (Con)]

Let me start by confessing—it is no secret to hon. Members—that before I came to this House I was an investment banker and a hedge fund manager. Now that I am a politician, I have had the three most unpopular jobs known to humanity! As a result of my previous life, I happen to know a great many people who were paying the 50p tax rate when it applied and the 45p tax rate now. At risk of having myself excluded once and for all from the dinner party circuit of all my friends, I have to say that when I hear their bleating and complaining about the higher rate of tax I have absolutely no sympathy for them whatever. I feel that everybody with the broadest shoulders should absolutely pay their fair share of taxation—and I do not think that any Member of any party would disagree with that fundamental premise.

There is no doubt that a very low earner, earning barely above a subsistence level, has no freedom or choices to make, as my hon. Friend the Member for North West Leicestershire (Andrew Bridgen) said. It is right that the Government raised the tax-free threshold to £10,000, and they have every intention of raising it to £12,500 in the next Parliament. It is absolutely right, too, that this Government have recognised that the 40p tax rate at £41,000 to £42,000 is cutting in at an earlier point than was ever intended when it was first introduced. It is right for the better-paid nurses and the better-paid police officers to have their higher tax threshold raised to £50,000 by the end of the next Parliament.

What I think is crucial to this debate—I do not want to take up a huge amount of time talking about it—is to recognise that the way to address youth unemployment, mentioned by the hon. Member for Bethnal Green and Bow (Rushanara Ali), and to get those 800,000 people back into work is to create jobs. Crucial to creating jobs and repairing our economy is seeking inward investment in this country. It is vital that we become internationally competitive. That is why we have seen a relentless cutting of the corporation tax rate, resulting in a great amount of inward investment. That is why the personal taxation rates are so important, because entrepreneurs from overseas will look to see what is going to happen here.

I represent a constituency in which the average household income is about £23,000 a year—about a 10th of the earnings of the people I used to work with as an investment banker, which is why I have no sympathy for them. In common with every Member, I care passionately about the constituents I serve and want to ensure that better opportunities are available to them.

I am incredibly lucky because in the last three weeks it was announced that the international automotive supply chain manufacturer Amtek—an Indian company—will be making a significant investment in Wyre Forest, creating 500 skilled jobs in the automotive supply chain. There are reasons why the company came here: we are part of the European Union; we have a substantial and strong automotive and aerospace industry; we have good skills, good rule of law and competitive taxes; and we have competitive personal taxation rates.

An important point behind this has, I think, been missed. It is one thing for us to be able to go out and make an international case that we have the most competitive internal taxation regime in the G20 and that we have the best economy in the G7, but it is vital that we also send a clear and coherent message to the international world when it is considering whether to invest in this country. That message must be, at the very least, some type of tax certainty and must provide some assurance. Companies need to know that if they invest in this country there will not be any political tomfoolery, mucking around with taxation rates at the last minute of a Parliament.

I can remember having conversations—I think that my hon. Friend the Member for Harlow (Robert Halfon) might have been in them, too—with the then shadow Chancellor of the Exchequer prior to the financial crisis. We asked him whether he thought the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) would do anything stupid—laying Trojan horses or elephant traps—in the run-up to the election. He said, “No, no, no; even he would not be that stupid”, yet to our utter dismay the right hon. Member for Kirkcaldy and Cowdenbeath brought in the 50p tax rate at the last minute.

[Rushanara Ali]

I understand that the hon. Member for Harlow (Robert Halfon) said on “ConservativeHome” that the 50p tax rate would make the Conservatives look like they were looking after vested interests.

[Mark Garnier]

The hon. Lady will have to ask my hon. Friend about that. I was referring to the shadow Chancellor and saying that if my hon. Friend was at the conversation he would know what was said. In any case, my hon. Friend has a career in front of him.

We need inward investment. We have talked about the 1970s when we had exchange controls in a very different type of economy. Now we need to set a direction of travel to provide absolute certainty to any company looking to invest in this country. It can never, ever be the case that the message coming out from this place is one where politics overrides the interest of investors coming into the country. The hon. Member for Bethnal Green and Bow talks about vested interests, but if we are referring to the vested interests of someone who is going to invest in this country, I would do everything I could to support those vested interests, because it means bringing jobs for my constituents. The more jobs they bring, the higher the salaries, the better the standard of living. It will work.

[Andrew Bridgen]

My hon. Friend is bringing his knowledge of taxation to the Chamber. Does he agree with me and with Lord Digby Jones, who was the Trade and Industry Minister under the last Labour Government, when he said recently on the BBC of the 50p tax rate:

“It’s great politics but it’s lousy economics…Are we talking politics or are we talking what’s right to create wealth and jobs in the nation?”?

[Mark Garnier]

My hon. Friend makes a fine point. Digby Jones is a wise and sensible—[Interruption.] He was a Minister in the former Labour Government, although he was the only Minister ever not to be aligned with a political party—I concede that point.

The key point about the direction of travel is that we must make every effort to give certainty to those investors coming into the country. Mucking around with the tax rates and providing a confused message about the top level of tax is bad economics. I hope that the Minister—although now may not be the right time—will give us some indication that, should the economic recovery and the recovery of the public finances continue, there will ultimately be a 40p tax rate as a target. I suspect she may not want to commit herself at this point. As I say, mucking around with tax rates is detrimental to our economic recovery.

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[Mark Garnier]

Will the right hon. Gentleman give way?

[Frank Dobson]

No, I will not, because others wish to speak.

Let me make it clear that the Labour Government did not bring down the top rate of income tax to benefit the richest and at the same time freeze the pay of nurses, freeze the pay of doctors and freeze the pay of teachers, while at the same time the bankers got their bonuses. At HSBC, which lost £27 billion in the credit crash, Barclays, which lost £8 billion, and Lloyds, which lost £5 billion, bankers’ bonuses have risen, in 2012 and since then. At HSBC, 239 people are currently receiving £1 million or more a year. The worst off received a £40,000 tax benefit, and most will have received £100,000. For example, Mr Stuart Gulliver, chief executive of HSBC, apparently receives £32,000 a week in what are described as “special allowances”. I do not even know whether he pays tax on those special allowances, but that means that he receives, each week, an amount that is close to the national average annual income that is over and above his pay, yet Members on the Government Benches object to the idea that he should pay 50p in the pound tax on that. All I can say is that, following his and his predecessor’s efforts, he obviously has to spend a lot of time trying to minimise the amount of money he has to set aside to pay off for swindling exchange rates and to pay off for the consequences of money laundering and what happened with LIBOR and, generally speaking, in organising an outfit that might be described as the tax avoiders’ alliance.

We have heard talk of behavioural change reducing the possible income from a 50p rate of tax, but these bankers are really good at behavioural change. They do nothing else. They organise all the way around the world, helping people to avoid tax. With the exception of Lloyds, more than 30% of the subsidiary companies of these banks—in some cases these companies exceed more than 1,000 in number—are located in tax havens, and they are not located in tax havens just because the weather is better; it is because they are involved in promoting tax avoidance.

Bankers also say that their pay is a compensation package. I have checked the Oxford dictionary and compensation means recompense for loss, injury or suffering. What have any of these bankers experienced in the way of loss, injury or suffering? It is the rest of us who have had to experience loss, injury or suffering as a result of their stupidity leading up to the financial crisis. Their incompetence and greed inflicted loss, injury or suffering on the rest of us. I thought at one point that it was a perversion of language to use the word compensation in such circumstances, but I actually believe it is a perversion of mindset. They have obviously concluded that they should be compensated for inflicting loss, injury and suffering on the rest of us.

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[Mr Browne]

I will do, and thank you for your guidance. I will move on to my practical and philosophical points.

My practical point echoes much of what was said by my hon. Friend the Member for Wyre Forest (Mark Garnier). The basics of being a globally successful, wealth-creating economy are not that difficult to grasp. What we have to do is make sure that businesses can start up, expand and create jobs. I was struck by the fact that quite a few contributors to this debate said that they do not have many people in their constituency who earn over £150,000. However, that is not a source for celebration: we want to have more people who are starting companies successfully and are able to earn more than £150,000 because they are employing hundreds of people, exporting around the world and meeting demand in markets. The idea that these people should be reviled is utterly perverse. We want more of these people in every constituency.

[Mark Garnier]

Was my hon. Friend not struck, as I was, by the previous speech, which ended up being an endless rant against the bankers and did not take into account any of the wealth creators in this country such as the entrepreneurs my hon. Friend has just described, or the risk-takers who mortgage their houses to invest in creating jobs? These are the people, who have taken huge risks, who are being punished by this tax. The bankers are irrelevant in this argument.

[Mr Browne]

I do not understand why so many Members of Parliament have such an antagonistic attitude towards people who start up businesses, create wealth and employ people.

Office for Budget Responsibility (Manifesto Audits)

Mark Garnier Excerpts

Wednesday 25th June 2014 Commons Chamber

[Ed Balls]

I have not given up, Madam Deputy Speaker. I am hoping that if the Chancellor turns up he may end up welcoming this proposal, overwhelmed by the clarity and objectivity of the analysis that I am about to put before the House. Let us wait and see.

I accept that this reform, which I first proposed last September and has been widely discussed and debated since, is a radical change. This is the first time that any political party in Britain has said that it wants this kind of independent audit of its manifesto, but it is not without precedent. Countries that have adopted a version of this approach include the Netherlands, Australia, Canada and the United States. For the UK, while it is a radical change from what has gone before, we believe that it is the right thing to do to help restore trust in politics.

When whoever wins the next election is set to inherit not a balanced Budget, as the Chancellor promised in 2010, but on current forecasts a debt set to be £75 billion, it will be important for my party and for all parties to show that all our manifesto policies and commitments are properly costed and funded and independently audited.

[Mark Garnier (Wyre Forest) (Con)]

I am pleased that the shadow Chancellor is trying to build a consensus, and of course he did write his letter in September last year. However, Robert Chote wrote to the Treasury Committee on 15 January this year saying:

“If Parliament wished us to play this role in the 2015 election, we would need a very clear steer in the very near future to have any hope of putting the necessary practical arrangements in place to deliver a smooth process.”

Why has the shadow Chancellor waited for fully six months before doing anything about it?

[Ed Balls]

I spoke to the head of the OBR last Friday, and I will come to my conversation in a moment. I appreciate the serious way in which the hon. Gentleman is engaging in the debate, and timing is one important issue that we need to discuss today. It is important to understand that if we choose not to go ahead we do so in a full understanding of the choices we have, the steps we would need to take and the actions that would be required on the relevant timetable. If we choose not to go ahead, it is important to understand why we are not going ahead. I will come to the hon. Gentleman’s point in a moment.

Owing to its importance, I have set out from the outset to forge cross-party agreement on this important reform. The House will know that the Chair of the Treasury Committee has been a long-standing advocate of this reform, as is the current head of the OBR, Mr Chote, who said at the beginning of this year:

“I believe that independent scrutiny of pre-election policy proposals could contribute to better policy making, to a more informed public debate.”

It is true that when the OBR was initially established there was caution on both sides of the House about this proposal. In the early days, when the OBR was establishing its reputation—I think it has established its reputation now for independence and objectivity—to be fair to the Chancellor of the Exchequer, when asked about this in October 2010, he said that this was

“a legitimate matter for the House to debate and decide”—[Official Report, 12 October 2010; Vol. 516, c. 142.]

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[Ed Balls]

We are trying to have a discussion about an important reform for the future. There have been moments in the life of this House when consensuses have been formed. The Conservatives voted against Bank of England independence in 1998, but in the end they joined the consensus. They voted against the move from self-regulation to statutory regulation in our financial services, but in the end they joined the consensus. I think that there is now a consensus that we should not join the euro, but I wish there was a consensus that we should stay in the European Union, which would be a good thing. On this matter, however, we should be able to form a consensus.

I can agree that regulation of financial services under the previous Government was not tough enough, but I also say that, if he were here, the Chancellor of the Exchequer would agree that he criticised me at every stage, as did the Exchequer Secretary, for being much too tough on financial regulation, rather than too soft. The issue is whether we can form a consensus for the future.

[Mark Garnier]

I am grateful to the shadow Chancellor for giving way; he is being very indulgent. First, has Lord Eatwell joined his consensus or is he still opposed to it? Secondly—this is more relevant to the issue of party manifestos—the reality is that had we done this for the last election it would have been irrelevant, because we ended up with a coalition Government. Elections can have different outcomes, so has the shadow Chancellor thought through how the OBR would be able to make estimates in the event of a coalition Government?

[Ed Balls]

It would be a bit unfair to ask Lord Eatwell, who has returned to academic life and is no longer on our Front Bench in the Lords, for ex-post agreement, although if I had to hazard a guess, I would say that he could join a strong consensus in this House that included a number of Conservative Members, as we have sort of heard today and read elsewhere.

Coalition is an important issue. Going into the last election there was no OBR, but there were costed proposals in manifestos, and, after the coalition was formed, costings for proposals put before this House through the Budget process were audited by the OBR. I do not think the OBR should be drawn into coalition negotiations after elections and manifestos, because it would probably be a mistake to draw it into the political process in that way. I understand the hon. Gentleman’s point, but I do not think it is an obstacle to proceeding.

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[Nicky Morgan]

I will make some progress, because I have already given way to the hon. Gentleman twice.

Secondly, the Opposition do not seem to have acknowledged that think-tanks such as the Institute for Fiscal Studies and the National Institute of Economic and Social Research already have a long and distinguished track record in providing costings to parties in the run-up to elections. This, then, is another example of the Opposition asking the public—hard-working taxpayers—to stump up for something that already works effectively.

[Mark Garnier]

The Minister raises an important point about the cost, and it is worth bearing it in mind that the Dutch Central Planning Bureau, which does this for nine political parties in Holland, has about 350 members of staff. Has the Treasury estimated how much it would cost to resource it properly?

[Nicky Morgan]

I am not aware that we have done any estimates, but my hon. Friend is absolutely right about the Dutch Central Planning Bureau—the figure I have is 170, but he says 350—and the American Congressional Budget Office has 250 members of staff. The point is that the Opposition are asking hard-working taxpayers to pay more money to staff up the OBR quickly so that it can certify and sign off their economic plan, such as it is.

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[Nicky Morgan]

Nothing in politics surprises me any more, so I am not surprised that the shadow Chancellor has done that. I am just surprised that he thinks that the House is going to buy it.

[Mark Garnier]

I am grateful to the Minister for giving way yet again; she is giving up a great deal of her time. Robert Chote appeared before the Treasury Committee, and, while he did say that if he were pressured to an unbelievable extent the work would be possible, he made it very clear that he was not happy with the idea of having to press it too quickly. Moreover, the resources required would be astronomical, and it would be made up of temporary members of staff—

[Madam Deputy Speaker]

Order. Interventions are not opportunities for speeches. They are supposed to be brief, and Members in all parts of the House should adhere to that convention.

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[Mark Garnier (Wyre Forest) (Con)]

It is a pleasure to follow my hon. Friend the Member for East Hampshire (Damian Hinds). It will be a surprise for the hon. Member for Derby North (Chris Williamson) to know that I found a Conservative on a Select Committee who was actually in favour of Labour’s proposals. I refer to the Treasury Select Committee of 2010, which said in its fourth report of the Session:

“Legislation should leave the OBR able to conduct work on fiscal policies of political parties along the lines proposed by Robert Chote in evidence on 16^th September”.

At that time, then, there was a different viewpoint in the House. It is interesting that the shadow Chancellor has managed to develop a political consensus that now includes, but did not at the time, the viewpoint of the shadow Business Secretary when he was a member of the Treasury Select Committee. At the time, the Shadow Chancellor and other Labour Members were opposed to this idea—for reasons I cannot possibly imagine, but I am sure they can speculate on that.

I would like to pose one or two questions suggesting why I think this proposition is completely unworkable at this stage of the Parliament, and why I think that if we are to have a serious debate about this topic, we should have it in the next Parliament. My first question is: who will qualify for appraisal by this type of process? The shadow Chancellor has said that it would include the main political parties and those that have more than 5% of the seats in the House of Commons—not a completely unreasonable proposition. As we know in connection with the debate we hope to have in the run-up to the general election, other parties, including some who polled reasonably well in the European elections, feel that they should be involved in those debates. They would come forward and argue—probably quite powerfully—that they should be allowed to do so. I do not necessarily think they should, but they may well do. What, too, about the nationalist parties? The Scottish National party would probably not want its budget proposals debated ahead of the Scottish referendum, but perhaps we would like to have a close look at that and assess what would happen with Scotland. That is my first point—who is involved? It will be much more complex than suggested.

The second question is: how do we achieve this? Let us stay with the two main parties and the Liberal Democrats—I am sorry for not including the Liberals as one of the main parties. The reality is that only two parties are seeking exclusively to govern this country. The Liberal Democrats have said, quite fairly, that they will act in coalition with one or other of the main parties. That is a reasonable proposition, but their proposals are not “govern-alone budget policies”; they are “modification of other parties’ policies in coalition”. Are we proposing that the OBR should reassess the costs of the policies in the Conservative and Labour manifestos as if they were in a coalition? It gets very complicated.

Finally, on a practical level, how on earth can the OBR be expected to do this? We know that manifestos come out incredibly close to the election, so there will be very little time for the OBR to carry this out. It would need to have advance sight of the manifestos, and possibly publish the figures at the time of their publication. If the parties involved then felt uncomfortable, they would simply say “Actually, that was a bit of work in progress, so please ignore it. We did not really mean to give away huge amounts of money to your pet charity.”

My point is that too many impracticalities need to be solved, and that they need to be solved at a much more leisurely rate. Let me return to my starting point. In 2010, when the Treasury Committee was considering setting up the OBR, it was perfectly happy to recommend this action. However, there was more or less a consensus in the House of Lords that it should absolutely not be taken, and Labour members of the Select Committee were very reluctant to put their name to our report.

The position is difficult. There is too much to be done. I am convinced that the time to do this properly is the beginning of the next Parliament, when we have plenty of time to think about it in a clear, measured and cool-headed way.

Oral Answers to Questions

Mark Garnier Excerpts

Tuesday 24th June 2014 Commons Chamber

[Mr Osborne]

I find it extraordinary that the Labour party is against Help to Buy, which is assisting those who are on low and middle incomes to get into the housing market. The great majority of those homes are outside London and the south-east. Almost none of them has been bought at £500,000 or £600,000, as the hon. Gentleman says, and what we are actually seeing is that the homes that are being built and bought are below the national average. So instead of carping about Help to Buy, Labour should get behind it.

[Mark Garnier (Wyre Forest) (Con)]

A key component of the financial crisis was a debt-fuelled housing bubble. The Governor of the Bank of England confirmed to the Treasury Committee this morning that a failure of regulation and macro-prudential policy was instrumental in that crisis. Is my right hon. Friend confident that the measures that he has introduced, including the new regulatory framework as well as the Financial Policy Committee, will succeed in heading off any future housing bubble-inspired crisis?

[Mr Osborne]

The Bank of England now has very powerful tools to deal with the kind of risks that we saw develop in 2006 and 2007, with such catastrophic consequences for our banking system and for our economy. The new powers that it will receive—subject, of course, to parliamentary approval—on being able to limit loan-to-income ratios and loan-to-value ratios for every mortgage or, indeed, as a percentage of mortgage portfolios, are very powerful tools. It is up to the Bank of England to make independent judgments about when to deploy them, because, as we have learnt with such monetary and macro-prudential policies, it is better that the politicians stay out of it.

Amendment of the Law

Mark Garnier Excerpts

Thursday 20th March 2014 Commons Chamber

[Ed Balls]

I do not think he will either. May I ask the Financial Secretary how it is going since his comments on women and the Monetary Policy Committee? Is he still revelling in that? If things were done on merit, he would be out on his ear.

I hope that the Chancellor will think again and join me, the Chair of the Treasury Committee and the Chief Secretary to the Treasury in supporting reforms to allow the Office for Budget Responsibility to audit independently the spending and tax commitments in the manifestos of the main political parties before the next election. We know from the head of the OBR that that can be done. Let us be honest: it is all a matter of political will. The problem with the Chancellor is that he wants to set traps, but he cannot be transparent on the matter of OBR audits. Why does he not think again, join the cross-party consensus and do the right thing?

[Mark Garnier (Wyre Forest) (Con)]

Why was the right hon. Gentleman formerly so keen that the OBR should not do that? Why did Labour members of the Treasury Committee argue in 2010 that it should not happen?

[Ed Balls]

The irony is that back in 2011 the Chancellor was in favour of it, and now he has changed his mind. The OBR, which we supported from the outset in this Parliament, has established a good track record, and we are happy for our manifesto to be audited. What is it about the Conservative Front Benchers that means that they are scared of independent OBR audit of their manifesto? Who knows?

I return to the welfare cap, and I will give a bit more detail for Government Members. We have had a lot of tough and divisive talk from the Chancellor on welfare over the past three years, but it cannot hide the fact that social security is up by £13 billion compared with his plans, particularly because of his failure on housing benefit. We have called for a cap on social security spending, and we will support the welfare cap next Wednesday, but we will make different and fairer choices to keep the social security bill down. We will introduce a compulsory jobs guarantee to get young people back to work. We will scrap the bedroom tax, which is not only unfair but could end up costing more money, not less. We will also scrap the winter fuel allowance for the richest 5% of pensioners, get more houses built and tackle the low wages that have pushed up spending on housing benefit. That is the fair way to ensure we get people back to work and get welfare costs under control.

Budget Resolutions and Economic Situation

Mark Garnier Excerpts

Wednesday 19th March 2014 Commons Chamber

[Charlie Elphicke (Dover) (Con)]

It is a pleasure to follow the hon. Member for Dumfries and Galloway (Mr Brown). I want to start by welcoming the Budget and reflecting on the legacy the Chancellor inherited before bringing us to where we are today. Let us not forget that we had a deficit of £156 billion a year, which has now gone down by a third to £109 billion a year. There was a structural deficit from 2002 onwards, and throughout the Labour years there was a total failure to regulate the banks and our banking system, which left it massively exposed, and unemployment rocketed.

The Chancellor had the most difficult inheritance in this country’s history in many ways. He has turned things around these past four years so that this country is now on the path to recovery. The economy is growing, jobs are up and the future looks promising for Britain. In the past, the roof was not fixed while the sun was shining, but while it has been raining we have been furiously fixing the roof and doing so with some success.

Areas such as my constituency of Dover and Deal do not have enormous amounts of money and there is a lot of deprivation. The rise in the personal allowance to £10,500—it was £6,475 when I was elected—will make a real difference to those constituents of mine who are not well paid. It will make an enormous difference for people without a lot of money.

The freeze in fuel duty will make a massive difference for the many people in my constituency who have to travel by car. It is now 20p lower than it would have been under the previous Government’s plans. A freeze in council tax year after year makes a massive difference to my constituents, after it had doubled in previous times. Moreover, given that unemployment in Dover and Deal rose by 50% in the previous Parliament, it makes a massive difference to my constituents that it has fallen by 20% in the past year alone: more jobs, more money, more aspiration and more success. Aspiration matters, too: the number of apprenticeships has risen from 440 when I was elected to 880 today, so there are more chances for our young people.

Not everyone in my constituency is extremely badly off; there are areas where people have more money and are trying to find somewhere to save it in order to get a return. I greatly welcome the fact that we are incentivising ISA saving with a £15,000 limit. It is really important that we encourage a savings culture in this country. Let’s face it: it was destroyed by the pensions tax and everything that followed in previous times. We have to rebuild that savings culture, the idea of a rainy day fund and the ability of our constituents to take more responsibility.

What this Government have done is not just about practical help in terms of more jobs, more money, more prosperity and fewer taxes. In my constituency they have made a much bigger difference in terms of infrastructure and investment. When I was elected, the port of Dover was about to be sold off, having been stuffed in a car boot sale by the previous Prime Minister in a desperate bid to raise some cash. It was going to be sold off to the French or whoever—we did not know who. Our hospital had been decimated over the past decade and was not fit for purpose. A new hospital was needed and had been talked about for years. There were stalled construction sites all over Dover and Deal. I ran a campaign against “coming soon” signs, because they had said “coming soon” for so long—for the past decade—that one of them had rotted away and had to be replaced.

Fast-forward to 2014 and the port has been saved: we are now talking about a community-led port that can get the investment that the port of Dover has needed for so many years. A new hospital is being built, which will make a practical difference to people in their daily lives and will open its doors next year. More jobs have made an enormous difference to people. A compulsory purchase order has been served on Burlington house, which scars the seafront of Dover. That is making a difference and giving people more confidence and hope and a greater sense of belief in the town’s future. A fast train now rolls up at Deal—which was previously considered a village—and shortly will do so all day long. That kind of infrastructure makes a massive difference to people’s prosperity, success and aspiration.

Whereas in previous times the regional South East England Development Agency spent £20 million building a business park near Deal without anything on it—there were not even any buildings—now the coastal communities fund and the Homes and Communities Agency are supporting the Hadlow college project at the former pit site of Betteshanger, which promises to create 1,000 new jobs. That sort of practical help on the ground, which goes beyond high-level policy discussions, makes such a very big difference to people in their daily lives.

That is why I regret hearing the Leader of the Opposition’s speech. He reminded me of Marshal Foch saying, “My centre is collapsing, my left is in retreat and my right has gone altogether”—because all the Blairites have been chased away, sacked and discredited or have resigned. The Labour party’s lurch to the left has done it no good whatever. In its centre, Labour Members have no economic policy, except for more spending, more welfare, more debt and more taxes. Those discredited policies of the past will not take this country forward. To try by sleight of hand to say that they will have a current surplus—thinking that people will not notice a 25 billion quid bit of wriggle room and that he will get away with it—is not the right way to do it. The Leader of the Opposition should have come to the Dispatch Box today with a plan and a positive case, but all he did was rage against iniquities largely created by his party in past times or during the previous Parliament.

[Mark Garnier (Wyre Forest) (Con)]

My hon. Friend will also have noticed that the Leader of the Opposition referred to nothing having been done to reform the banks. He seems to have been asleep for the past four years, during which banking reform and financial services legislation has gone through and a huge amount has been done to reform the banks. Does my hon. Friend think that the Leader of the Opposition has been asleep or has just ignored what has happened?

[Charlie Elphicke]

My hon. Friend asks a very important question about what the Leader of the Opposition has been doing for the past four years. He has certainly not been preparing a high-quality response to this Budget, that is for sure.

Even though the Leader of the Opposition wants to say, “Situation excellent; I am advancing”, not only is there a complete hole or collapse in the centre of the Labour party, with the Opposition having no long-term economic plans, but on its left flank, which is in retreat, Labour Members are talking about the cost of living. What will they say if wages rise above inflation in a few months’ time? It little behoves them to talk in that way, because people will start to see through everything they say. They are now saying that long-term unemployment is terribly high and all that sort of thing. However, when they talked about high unemployment, it started falling, and when they then talked about the lack of full-time jobs, people started getting such jobs. The risk is that the number of long-term unemployed will start to fall in a few months’ time, and they will have to look for another selective statistic to cite. Such talk will not do them any good, because people will see through it.

It is therefore time for the Labour party to think more carefully and more long-term about what it can offer this country, because right now it can offer very little indeed. This Government can and rightly do now say that we cannot give back the keys to the people who crashed the car, particularly when they are still drunk, still will not listen and still have not learned anything, but will carry on and do it all again.

Currency in Scotland after 2014

Mark Garnier Excerpts

Wednesday 12th February 2014 Westminster Hall

[Guy Opperman]

I entirely endorse my hon. Friend’s point. I looked at the Scottish Government White Paper, and it states that

“a monetary framework will require a fiscal sustainability agreement between Scotland and the rest of the UK”—

that is, if independence goes ahead—

“which will apply to both governments and cover overall net borrowing and debt. Given Scotland’s healthier financial position”,

after independence, presumably,

“we anticipate that Scotland will be in a strong position to deliver this.”

With respect, that is complete comedy.

[Mark Garnier (Wyre Forest) (Con)]

My hon. Friend is raising some important points. Does he agree that trust in the institutions that used the currency in an independent Scotland would be a necessary part of currency union? That raises significant questions about the regulation imposed in Scotland. Is the SNP proposing that the Financial Conduct Authority continue to be the prime regulator for such institutions? If so, how does it propose that the regulator will have proper oversight so that we can trust such institutions not to fail?

[Guy Opperman]

The arguments on fiscal regulation might appear dry and unexciting, particularly when addressed in the press, but they are utterly key to the future prosperity not only of the whole existing United Kingdom, but especially of Scotland if it were to become independent. Such aspects of fiscal regulation as my hon. Friend mentioned—how a bank would function; how a currency would be managed; what sort of interest rates would be managed; who is in charge of such matters—are totally unaddressed by the SNP. Frankly, they must be addressed if anyone is to have any faith in the SNP’s fiscal approach to the argument.

--- Later in debate ---

[Stewart Hosie]

No, I do not have time. So where would independence while keeping sterling leave us? It would not imply a foreign currency controlling our economy, because the central bank does not control the economy. It works to a single 2% inflation target, which we think is sensible.

[Mark Garnier]

Will the hon. Gentleman give way?

[Stewart Hosie]

No, I do not have time. It would effectively leave us in Scotland in the same place as the rest of the UK, accepting the discipline of an independent Monetary Policy Committee, while leaving Scotland, along with the rest of the UK, in complete control of the rest of its social and economic levers. We would have parity.

[Mark Garnier]

Will the hon. Gentleman give way?

[Stewart Hosie]

I do not have time. I have barely a few seconds left. I do not even have time to comment on the Chancellor’s supposed intervention tomorrow. However, if a Tory toff Chancellor goes to Scotland to bully and to scaremonger, it will be looked on very badly indeed by the Scottish people.

Banking

Mark Garnier Excerpts

Wednesday 15th January 2014 Commons Chamber

[Harriett Baldwin (West Worcestershire) (Con)]

It is a pleasure to follow the hon. Member for Linlithgow and East Falkirk (Michael Connarty). I, too, encourage many of my small businesses to look around and to act as customers. They do not have to stay with the bank they have been with since they were students.

I could not believe the bare-faced cheek of the Opposition motion on the Order Paper when I read it this morning. I am sure you felt the same, too, Madam Deputy Speaker, because you will recall—in your very impartial way—the state of the banking sector when this Government came to power. It is worth recalling the mess that we had to deal with when we took over. We had had the first run on a bank in this country for well over 100 years; we had had the biggest banking failure in the world; and we had had a decision, taken under conditions of panic by the former Chancellor and Prime Minister, effectively to nationalise large parts of the banking system. The Opposition motion should acknowledge that that was a deliberate decision. The natural course of events under capitalism would have been for those banks to fail, for all their employees to lose their jobs and for the branches in all our constituencies to close, followed by a restructuring process taking place outside state ownership. Instead, we have effectively perverted the course of capitalism, and that was a deliberate choice.

[Mark Garnier (Wyre Forest) (Con)]

Will my hon. Friend remind the House who the architect of the Financial Services and Markets Act 2000 was? That Act set up the Financial Services Authority, the regulator that manifestly failed to regulate the banks properly, which allowed the collapse to happen. Will she also remind us who the City Minister was at the time of the banking collapse?

[Harriett Baldwin]

I think I am right in saying that the then City Minister is now the shadow Chancellor. My hon. Friend rightly reminds us that the regulatory architecture that allowed this disaster to occur was also set up by the previous Government. Having been regulated by that regulator for many years, I know how important it is that the regulation of banks has been returned to the Bank of England. That is important because the Bank of England sees the canary in the coal mine when banks have problems with day-to-day liquidity. The Bank of England was able to see such problems in the run-up to the crash, whereas the Financial Services Authority, in its lofty headquarters in Canary Wharf, was at one remove from that, and there was no ability to join up the reaction. My hon. Friend makes an incredibly important point.

At the start of this Parliament, our Government inherited, in effect, a state-owned oligopoly in the banking system, and that is not a good place to be if we want to achieve a competitive and healthy banking system. The Government have embarked on a long-term economic plan to reform the banking system and make it more responsive to the needs of businesses and consumers up and down the land. That cannot be done overnight—it takes time. Step No. 1 was to reform the system of financial regulation. That was an extremely thorough and elaborate process, involving many people from within this House and the other place, and as of last year we had the final enactment and implementation. So we have taken some difficult and long-term decisions to reform the regulatory architecture in a way that will make it impossible for this sort of crisis to occur in the future.

Secondly, we have established a long-term economic plan for people and for businesses in this country. We have reformed the way in which the economy is working: we have lowered the cost of mortgages for home owners; we have lowered the cost of government for council tax payers; and we have lowered the cost of fuel over and above what the Opposition planned, so that people who drive to work do not have to pay that extra £11 in tax that had been planned for them.

Thirdly, I come to the final piece of this journey in passing on to future generations a banking sector that is, once again, fit for purpose: addressing this problem of the state-owned oligopoly. We cannot restructure the failed banks effectively within the Government’s ownership, and the best way to say that we have closed this terrible chapter that we inherited in the banking system will be by privatising the banks that are publicly owned and returning them to the private sector. We have started on that with the sale of the first tranche of Lloyds shares. I sincerely hope that the Minister will be able to reassure us that it is the Government’s plan to return Lloyds shares to the private sector.

I also argue that it is in the best interests of the economy and the country that we move now to return RBS, whose share price is still well below that paid by the former Prime Minister for its shares, to the private sector, even if that means recognising and crystallising a loss which is the price we pay for Labour’s banking failure. At the moment we are in the worst of all possible worlds: we have a system where we need to allow new entrants to come into the space, but a large semi-state-owned dinosaur is taking up a lot of market share. It would be better for that to be restructured effectively within the private sector.

My argument today is that the Government need to get out of the banking business as quickly as possible. It is not the role of government to be setting the compensation of every banker in this country. The Government must set the framework and the regulation, but this level of micromanagement is a function—a symptom—of the terrible inheritance that we received. By getting out, we must recognise that we will reform the banking sector for our children and our grandchildren. It will mean that those banks will then restructure within the private sector, and the socialists will never be able to get their hands back on running a large sector of our economy.

[Andrew Gwynne (Denton and Reddish) (Lab)]

I am grateful to be called in this debate, Madam Deputy Speaker, and to follow the hon. Member for West Worcestershire (Harriett Baldwin). I do not necessarily share her views or her assessment, but she made an illuminating contribution. Given today’s news about RBS, this is a pertinent and timely debate for the Opposition Front-Bench team to have called, and we must take the opportunity to debunk some myths that have been allowed to penetrate into the debate so far.

First, we must point out the fact that the banking crisis was global. The Minister gave a history lecture, but perhaps conveniently the chapter he missed was the one on Lehman Brothers’ collapse in New York in September 2008, which triggered a tidal wave of chaos across most major western economies. I would argue that the action taken by the previous Labour Government was necessary; we all remember the queues outside Northern Rock and the chaos that was created, and default would have been a disaster, for not only the British economy, but for the wider global economy. Confidence would have completely collapsed in the banking sector and we would have seen a run on all major high street banks. The alternatives to Labour’s action would have been disastrous and it is not worth contemplating them. The action was costly to the public purse, but nobody—none of my constituents or those of the hon. Member for West Worcestershire—lost their savings. That is an important fact to remember, as it shows precisely why the banks that think it is back to business as usual just do not get it.

It was not only this bonuses-as-usual mentality from the banks but some of the other structural weaknesses that remain within our banking system that allowed the LIBOR and Euribor rigging attempts for which RBS, Lloyds, Barclays and Deutsche bank were fined by the regulators, to take place. It is also the mis-selling of interest rate swaps and of payment protection insurance—

[Mark Garnier]

rose—

[Andrew Gwynne]

I will not give way because many hon. Members wish to contribute. Clearly, those structural weaknesses remain in the banking sector and the Government should be doing more to address them, both in the UK and globally. I would like the British Government to take a lead on addressing banking reform, not just in this country, but across Europe and across the globe.

The banks also have a social obligation to taxpayers. I said that the Labour Government’s action was costly to the public purse and important to secure people’s savings, but I do not believe, unlike the hon. Lady, that we perverted the course of capitalism, because the alternatives would have been disastrous. However, banks should be doing more to help the Government meet their social needs and the wider social needs of society—those for whom it does not feel as if the recession is yet over. That is why the proposal from my hon. Friend the Member for Nottingham East (Chris Leslie) to have the bankers bonus tax to fund a compulsory jobs guarantee is absolutely right and why I think he gets it. It is also right that the bank levy should also be increased, specifically to fund the expansion of free child care for three-year-olds and four-year-olds from 15 hours a week to 25. The Government try to make out that this is the same pot of money. We are talking about two very different socially responsible measures that will ensure that the banks start to repay what they owe to society

Finally, bank lending and access to bank services are important if the banks are to take on socially responsible roles in securing the recovery and helping local communities. Let me turn first to lending to small and medium-sized enterprises. I despair when companies come to see me as their Member of Parliament and set out perfectly viable business propositions to which, before the banking crisis, banks would have fallen over themselves to lend money, and yet they cannot even get a foot through the door. We must ensure that the Government’s attempts to get banks lending start to work, because it is just not happening at the moment. Indeed, the most recent data show a huge drop-off in bank lending to small businesses, which should cause some concern to the Treasury.

There are still too many communities without good access to banking services, and branches continue to close. That is a huge problem not just in rural communities, but in some of the most deprived urban communities. It is very much a social justice issue. People should have good access to banking services within their community. Perhaps there is a greater role in that regard for the Post Office. One scheme under the previous Labour Government was to increase the number of free cashpoints in our most deprived communities. It was outrageous that people in some of the poorest areas were charged to get cash out of machines. The previous Government were absolutely right to install 600 free cashpoints in such communities. However, some of those measures have stalled under this Government, and there is a lot more that we should be doing to ensure that the most deprived communities have proper access not just to free cashpoints but to a full range of banking services.

In conclusion, we need a vibrant and socially responsible banking sector, and to ensure that bad practices are ended. The Government must recognise that banks have an important role in our communities, offering services and lending to businesses, and they must face greater competition. The Government and the banks must recognise that it is far from business as usual. It is time for proper banking reform.

Financial Services (Banking Reform) Bill

Mark Garnier Excerpts

Wednesday 11th December 2013 Commons Chamber

[Sajid Javid]

It is possible, although it is difficult to answer that question specifically as it would depend on the legal process, as anticipated in the Bill. As I progress with my remarks, the hon. Lady will see the kind of actions that can lead to prosecution.

[Mark Garnier (Wyre Forest) (Con)]

Does the Minister agree that a lot of the changes that are coming through as a result of PCBS recommendations should in some respects be treated rather like the nuclear deterrent? It is not necessarily about trying to punish people; it is about trying to drive behaviour that avoids a crisis in the first place. Had these rules been around at the time, it is far more likely that Fred Goodwin would not have led his bank over the cliff, that we would not have had the financial crisis, and that we would have a more stable banking system as a result. That is the intention behind the proposed law.

[Sajid Javid]

My hon. Friend has explained well the reasoning behind the recommendation from the PCBS—which, of course, he was part of—and the deterrent effect this change could have should not be underestimated.

--- Later in debate ---

“kind of professional standards...that you see in the medical profession or the legal profession”.

[Mark Garnier]

Is the shadow Minister aware that the banks have already initiated the creation of a professional banking standards body?

[Cathy Jamieson]

I thank the hon. Gentleman for that comment. I know that he has done considerable work in his role on the commission, but it is important that these issues be put on the record. It would have been useful to consider them in Committee, and I mention them now to show that significant pressure has been applied to move things forward and bring about change. The Government appeared to resist that and some of the commission’s recommendations until, of course, their recent change of heart following their defeat in the other place on the amendment for the licensing regime. At that point, they felt they had to bring forward their own plans.

The Opposition might have expected the Government to be reasonably gracious and accept the decision of the other place, but today they have tabled an amendment to disagree with and remove Lords amendment 41 from the Bill. To be fair, what they have tabled, under pressure to replace that amendment, is better than nothing, but it does not go anywhere near as far as the amendment they wish to strike out. The main difference essentially concerns the code of conduct. Lords amendment 41 states specifically that the

“licensing regime must…apply to all approved persons exercising controlled functions, regardless of financial sector;…specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules”.

That is important, given that the Government’s position does not call specifically for a code of conduct. In some ways, their regime legislates for the commission’s recommendations, but by failing specifically to legislate for an open and transparent code of conduct, they risk failing to address some of the ethical issues surrounding so-called casino banking. Their more permissive amendment does not focus specifically on a code of conduct.

Several other hon. Members wish to speak, so I shall conclude with some brief comments about remuneration. As hon. Members might be aware, the Opposition have given considerable thought to the regulation of bankers’ remuneration, and there remain certain issues that the Government must consider before the general public can have confidence in the industry. The public find it difficult to understand, and have concerns about, the culture of high risk, high reward that was evident in the previous system and which contributed to the crisis.

--- Later in debate ---

[Emily Thornberry]

There are other things that can be done, and I shall briefly touch on some of them. May I begin with the difficulties that exist in relation to this offence? Under the Bill, it would be an offence for a senior manager recklessly to take a decision. I appreciate that some of the additional 175 pages that have been added to the 35-page Bill have been to backfill exactly what a senior manager is and how they will be defined. That is clearly an improvement, and it is unfortunate that it was even suggested that the Bill would be sufficient in its original form. One must remember that even if a definition of senior manager is now one with which we can all be happy, there have been banks that have been brought down by people other than senior managers. Nick Leeson from Barings bank comes to mind, as does the £2 billion that was lost to UBS by Kweku Adoboli.

[Mark Garnier]

I am fascinated that the hon. Lady chooses to use Nick Leeson as an example, because he went to jail, in Singapore, for four years.

[Emily Thornberry]

The point is that he was not a senior manager and he brought down a bank. This measure will not solve the problem of banks being brought down. An offence of reckless banking that will apply only to senior managers is not by itself sufficient, which is why I want to go on to say what I think should be done instead.

--- Later in debate ---

[Emily Thornberry]

I am more than happy to put it on the record that I am a critical friend of the Serious Fraud Office. Sometimes the emphasis is more on the word critical, especially after what we have seen in the newspapers today, with the crash of yet another serious fraud case because the SFO asked an agent, which clearly had a conflict of duty, to do its investigation. That is yet another mistake that the SFO has made. If we want the SFO to turn a corner, we need to do more than show good will. This Bill provided us with an opportunity to change things. It is unfortunate that more attention was not paid to changing corporate liability.

I listened carefully to what the hon. Member for Chichester (Mr Tyrie) said in his contribution, and I undertake to send him, as a Christmas present, Labour’s policy paper in relation to fraud. If we can change corporate liability to ensure that if an individual within an organisation behaves in a way that is dishonest and to the advantage of the larger organisation, we can prosecute the organisation, unless it can show, in the same way that it can under the Bribery Act 2010, that it has in place controls over its staff, it would have an impact on our banking system. If I may say so respectfully, introducing such legislation will have a greater impact than the measures proposed in this Bill. If we were to introduce a different form of corporate liability, we could increase the fines hugely, and that money could be ploughed back into the Serious Fraud Office. Then we would have an organisation of which people in the City of London would be afraid. They would be prepared in most circumstances to come to an agreement with the SFO to have a deferred prosecution agreement.

DPAs will not ever exist under the status quo. The DPA legislation has been passed but, as I understand it, no one has come forward to say that their company has been doing wrong, that they want to admit that, that they will pay a fine, that they will change their ways, that they want auditors to come and see how they are behaving and that they will point out the individuals who have been behaving in a criminal way. I respectfully submit that that is how to change the culture. That is how we ought to be working and I look forward to discussing it with the hon. Member for Chichester once he has read the Christmas present I intend to send him. If elected in 2015, Labour intends to introduce its own economic crime Act, and I hope that we will take the issues further and develop them. Obviously, I would be interested to hear the hon. Gentleman’s reactions.

[Mark Garnier]

I intend to talk principally about Lords amendment 41, but before I do so let me echo the comments made by the Chairman of the Parliamentary Commission on Banking Standards, my hon. Friend the Member for Chichester (Mr Tyrie), at the beginning of the debate. He said that he was grateful to the Government for moving such a long way along the road towards the commission’s recommendations. That is a tribute to the organisation that he chaired extraordinarily well for about 18 months and that came up with such sound proposals. It was a great honour for me to be part of that process. It also says a huge amount for the Government that they have taken great heed of what the commission said and have moved a great deal further towards implementing the proposals.

On Lords amendment 41, I suspect that there is not too much of a difference of opinion in the House about what we are trying to achieve through the Bill—that is, a change in the culture of banks. I take slight issue with the hon. Member for Islington South and Finsbury (Emily Thornberry), because it is not just about preventing banks from collapsing. It is about getting better standards and better service for consumers. Many constituents will complain about their treatment by banks and that has nothing to do with criminal matters; it is simply about the culture and how certain people address other people in their everyday lives. We want to drive that out and to ensure that the banking culture is one of which we can be proud and which consumers can trust enormously.

[Mr Love]

Is the hon. Gentleman not disappointed that, since 2007, when there has been such a focus on the problems and difficulties of banking, no greater progress has been made in creating the type of culture we all want to see?

[Mark Garnier]

I do not necessarily agree. I speak not only as a Member of Parliament, a member of the Parliamentary Commission on Banking Standards and a member of the Treasury Committee but as a former investment banker and investment manager. My hon. Friend the Financial Secretary is also a former banker, so to a certain extent we have a private interest in ensuring that banking standards are greater than they have been. There has, however, been an enormous amount of progress. We have a new regulatory regime, there have been a number of changes in the banks and we have seen a complete change of culture at the top of many of the banks. Things are moving in the right direction but it will take a long time and this Bill is part of that process.

Although we are all trying to achieve the same thing, the important question is how we will achieve it and who, ultimately, we should ask to ensure that the licensing regime is upheld and looked after. The Parliamentary Commission on Banking Standards was perfectly clear that we felt that the approved person regime was complete and utter nonsense. One of the Bank of England’s greatest thinkers, Andy Haldane, highlighted why that was the case: if regulation is devolved to a regulator, all that happens is that the individuals at the head of the banks think that they have nothing to worry about. It becomes the regulator’s problem to worry about such things, and not that of those individuals.

When we met a number of the banks—particularly UBS, the Union Bank of Switzerland, the senior directors of which appeared in front of us just after it had been fingered for its share in the LIBOR scandal—we discovered that there was an incentive to be ignorant of what was going on within them. The senior managers of UBS who were running the bank when the LIBOR scandal happened within their organisation knew nothing about it until they read about it in the Financial Times three or four weeks before our hearing. That gave rise to the accusation that there was an accountability firewall between the management of the banks and the individuals working on the front line—that is, those at the coal face on the dealing room floors and servicing our consumers.

We were trying to work out how on earth we could reach a system in which those at the top of the bank took accountability for the work and standards of the individuals in the lower part of the bank. That is crucial in leading me to support the Government in rejecting amendment 41: it does not deal with that accountability but rather gets around the problem. That is why it fails to hit the nail on the head.

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP)]

The personal responsibility argument is extremely strong and powerful, but does not the hon. Gentleman see some merit in the fact that Lords amendment 41 talks about a code of conduct? Is not the code of conduct described in the amendment a mechanism that could be used to drive the change in culture throughout the organisation that he describes?

[Mark Garnier]

I agree entirely. A number of professional bodies in the banking industry have a code of conduct. I, for example, am a fellow of the Chartered Institute for Securities and Investment, which has a code of conduct. Many people working in investment banks will be fellows of the CISI. Indeed, Sir Richard Lambert’s proposals, about which we shall hear more in the new year, will include a code of conduct. It is also worth bearing in mind that the banks are producing their own code of conduct that is being fed back to the regulator, which will consider what they are saying.

Let me wind up, because I think the Minister would like to speak at some point. I would be the last person to stand in his way, because I know that he will have some intelligent things to say. Suffice it to say that I think amendment 41 will prevent the behavioural changes we desire, and that is why I will reject it.

[Sajid Javid]

I thank the shadow Minister, the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), for her comments and all other—

Interest Rate Swap Derivatives

Mark Garnier Excerpts

Thursday 24th October 2013 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

May I start by adding my congratulations to my hon. Friend the Member for Aberconwy (Guto Bebb), who has not only been brave in what he has done on this matter, but has shown outstanding leadership in a technical, complex issue?

I wish to develop a couple of points, the first of which has started to resolve itself. I am talking about the big question of the linking of consequential loss to the technical redress. Clearly, the technical redress is people’s money—that is an agreed thing, and it is only right that it should be paid as soon as possible. The consequential loss was always a separate issue, and to have linked it was completely the wrong thing to have done. HSBC has broken ranks and RBS is following suit, and Martin Wheatley is now coming on board, saying that there should be no conditionality between the technical redress and the consequential losses claims. That is a good thing; it is excellent progress, and we can thank my hon. Friend for his work on that.

[Peter Luff (Mid Worcestershire) (Con)]

May I add my thanks to my hon. Friend the Member for Wyre Forest (Mark Garnier) for the leadership that he, too, is showing on this issue? Is it his experience, as a fellow Worcestershire MP, that this scandal, although apparently technical, is affecting well run, long-established and deeply respected real businesses across a wide range of sectors, and that the delay is going to kill businesses that our constituents value very deeply indeed?

[Mark Garnier]

My hon. Friend is absolutely right in what he says. The banks made an incredibly cynical effort to persuade people to enter into these contracts where, in many instances, they should not have done so. Sometimes it was the right thing to do, and I think that many businesses will agree that they just got it wrong, but we need to look after the smaller businesses that were simply mis-sold these products.

[Mark Lazarowicz]

Do not the banks, or at least some of them, also have to be much more proactive in identifying the people who been the business victims of this practice? As we all know, whenever we have a debate such as this, more people come forward who were frightened to come forward before or who did not even realise that they were victims of these schemes. It is up to the banks to be much more proactive in identifying the cases and then trying to resolve them.

[Mark Garnier]

That is absolutely right. Part of the problem, however, is that the banks have an incentive not to get in touch with people, for obvious reasons. That relates to the second point I wish to develop. It is a technical point, but it is incredibly important in terms of why it is incentivising banks to delay technical redress for as long as they can, and it has implications for the financial stability of the banks.

We should not think of these things as stand-alone products, but should recognise them for what they are. They are not stand-alone products; there is another side of this trade. They are swaps for a reason, and it is important to understand what a swap is. Any one of our victims will have been persuaded to take out a contract with the bank that has the beneficial effect of capping interest rate payments at a certain level. That is a virtuous thing and we are all familiar with the financial planning behind the thought process, through things such as fixed-rate mortgages. But these are not fixed-rate mortgages; they are stand-alone products that relate to a loan, but are not part of that loan. Importantly, many people have paid off the loan but still have the outstanding liability on the swap. The quid pro quo of having a fixed cap on interest payments is the collar that has caused so many problems for our victims, whereby they have to pay a relatively high rate of interest in today’s terms. What is not fully understood is that this is not a simple contract with the bank, as it first appears. The bank is not taking a naked bet with its customers that, in the environment of falling interest rates, it has won. It is not receiving as profit the penalty in the increased premiums being paid in interest rates by the victim, because for a swap to actually be a swap, there is a matching trade with a third party on the other side. What the banks receive in higher interest rate payments they are paying to an opposing and third-party counterpart on the other side.

I shall now go into a bit more detail. Businesses may want to make sure that they do not pay too high an interest rate; that is why they are persuaded, rightly or wrongly, to take the swaps. However, an organisation such as a pension fund needs to guarantee its income should a severe drop in interest rates, such as we have seen, occur. It would want to take a position opposite that of the businesses, which are the victims.

The pension fund will forgo a rise in rates while winning the guaranteed floor rate that it will receive. For a business to have a rate cap at, say, 7%, it will guarantee to pay no less than 5%. For a pension fund to be guaranteed to receive a minimum payment of 5%, it would agree to receive no more than 7%. In that way, the business’s and pension fund’s interests are perfectly aligned in opposition.

As both the pension fund and business are clients of the bank, the bank does two simultaneous trades—one with the business, to cap and collar the rate payments, and the other with the pension fund, to collar and cap the interest rate receipts. The bank makes a small margin, but essentially its liability, if everything stands up, is perfectly and oppositely aligned. That is the symmetry of liability and the basis of the swap market.

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

I thank my hon. Friend for his understandable explanation of the product. I will be honest—I am new to this issue, which constituents have brought to my attention. Is it possible to explain the issue to an individual in a phone call lasting one minute and 20 seconds? That, apparently, constitutes the contract between the bank and the client.

[Mark Garnier]

I will try to explain the issue as simply as I can now.

Imagine a second-hand-car dealer. He may buy a dodgy motor on his own books and try to make as big a turn as he can, but he risks not getting his money back. Now imagine a car dealer with a valuable vintage car who aligns a seller and buyer at exactly the same time. He takes a turn with no risk at all, and that is how a swap behaves. Now imagine that, having lined up that trade, he takes the money from the buyer, so has a contractual agreement with them, and agrees a sale with the seller. However, on the way to deliver the car, he writes it off in a crash and is not insured. He still has liabilities on both sides—he still has to deliver a car to the buyer and has to pay the seller. That is the mess that the banks are in. They have caused themselves a massive car crash and have to look after the other side of the trade.

We are fully aware of the losses to the banks on the financial redress scheme—plus, obviously, the consequential loss scheme as well. We have heard about how much has been put aside, and there will be debate about whether that is the right amount or not. However, we have heard nothing yet about the value of the liability on the other side of the swap—the liability to institutions, most likely to be pension funds, that still needs to be honoured. That has implications for the stability of the banks and shows why it is important for banks to keep the redress scheme running for as long as possible.

[Richard Fuller]

rose—

[Mark Garnier]

I see that my hon. Friend wants to intervene, but may I develop my point?

The financial redress scheme has a specific value, based on a number of factors—including, crucially, interest rates and time. Similarly, time to run is a key component of the value of the other side of the swap. With interest rates so low, the longer the time to run, the higher its value to the customer and the higher the liability to the bank. As a result, we get a built in incentive for the banks to delay settlement for as long as possible. With each day that goes by, the liability on the other side of the swap is reducing.

Harry Wilson, of The Daily Telegraph, has put in freedom of information requests to the Financial Conduct Authority to find out exactly what the loss on the other side of the trade will be. Amazingly, nobody seems to have the answer. It seems inconceivable that the banks would not have the information. Any derivatives trading room team, especially on a swaps desk, will have detailed information on the extent of the liabilities; they have to know that. Even if the swaps team does not, the risk or treasury department should know it—loads of people should know it. It is extraordinary that nobody is coming forward with the information.

The issue has been dragging on for far too long. Too many businesses have failed as a result of it and it is likely that too many more have fallen into that twilight zone of bad forbearance by banks, which sometimes keep otherwise dead institutions alive simply because it is in their interests.

I spent the best part of the last year on the Banking Commission considering the matter. It is worth noting that this crisis happened before the Banking Commission, the financial crisis and the rest of it. However, today the banks have to prove that they have moved on, that they should now be allowed to come into polite society and will do the right thing by the consumer.

Oral Answers to Questions

Mark Garnier Excerpts

Tuesday 10th September 2013 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

Household debt peaked in 2008 at 170% of household income. Since then it has come down, but households are still very vulnerable to rising interest rates. Does my hon. Friend agree that any fiscal policy must give comfort to the bond markets in order to help the Governor of the Bank of England keep interest rates low and mitigate the effect of rising rates on households?

[Sajid Javid]

My hon. Friend is obviously referring to the fact that when this Government came to office, we had the biggest deficit in our post-war history. The previous Government were borrowing £5,000 a second—£300,000 each and every minute. We have reduced that deficit by a third and, as my hon. Friend suggests, that has brought confidence, investment and jobs.