Independent Financial Advisers (Regulation)

Mark Hoban Excerpts

Monday 29th November 2010 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I congratulate my hon. Friend the Member for Wyre Forest (Mark Garnier) on the way in which he opened the debate this evening. He gave a balanced perspective on the changes that we are trying to make to improve standards for consumers, how that sits with the IFA sector and some of the challenges that a change in standards will create.

It is worth reflecting for a moment on the responsibilities of Parliament and of the FSA. Parliament set out the framework by which the FSA operates. The Financial Services and Markets Act 2000 sets out its objective, powers and how it goes about exercising its responsibilities. For example, there is a requirement to consult. As we know, there has been a long process of consultation on the RDR since the previous chairman of the FSA raised the matter in 2006. There have been a number of iterations and debates about consultation documents and discussion papers. Consumer groups, product providers, IFAs and their trade bodies have participated in a very lively debate, but the FSA is rightly responsible for implementing day-to-day regulations, and I know that it takes very seriously parliamentary scrutiny of its role. I spoke to the chief executive this morning about the Treasury Committee’s scrutiny last week and the debate this evening, so the authority is well aware of parliamentarians’ concerns. It is right that the FSA gets on with its job but listens to the issues being raised.

I counsel caution, however. It is all very well to think that we should engage in the regulatory regime when we think we are going to help one group or another, but there are times when regulators make difficult decisions on behalf of Parliament and our constituents, so we need to think very carefully about where the balance is struck. It might be very attractive in the context of this debate for Parliament to take more responsibility, but hon. Members might feel it less appropriate at other times.

[Mr Graham Stuart]

Will my hon. Friend give way on that point?

[Mr Hoban]

No.

[Mr Stuart]

On that point?

[Mr Hoban]

No, I will not give way to my hon. Friend, because I have—[Interruption.]

[Mr Speaker]

Order.

[Mr Hoban]

I have about nine minutes to respond to quite a long debate in which a number of points have been made, and I want to take the opportunity to address some of those issues.

Let me put on the record the importance that I place on independent financial advisers. They play a key role in helping people make financial product purchases and financial choices. High-quality, independent financial advice is vital in ensuring that people are encouraged to save and plan for the future and make the most out of their money. I have used independent financial advisers and been happy with the service I have received, because they have provided me with good-quality advice.

I cannot overstate the detriment to consumers from poor and biased advice. Indeed, the FSA estimates the detriment to consumers from inappropriate advice to be £200 million per annum, and it thinks that the figure could be significantly higher. Consumer detriment has led organisations such as Which? and the consumer panel that advises the FSA to support the measures in the retail distribution review. We need to get that balance right and to address some of the issues that undermine consumer trust in the IFA sector, and the FSA has sought to do so through the RDR.

I have become very conscious—in particular, over the past six or seven months as a Minister—of the financial services sector’s increasing complexity, and consumers must be confident that IFAs are fully up to date and that their advice is underpinned by good technical knowledge. There can be few hon. Members who do not support that stance or recognise the benefits that increased professionalism can bring. Indeed, the FSA finds a clear link between increased qualifications for financial advisers and improved consumer outcomes. Under its reforms, consumers will be confident that their adviser has a minimum level of understanding and expertise that is maintained each year through continuing professional development.

We should also recognise that a number of IFAs already comply with those standards. Just under half of IFAs already hold the required qualification and, indeed, many go beyond QCF level 4. Some 89% of advisers already meet the required hours each year for CPD, and we need to recognise the progress that has been made since examinations were introduced in 2008.

I recognise the strength of the debate about grandfathering, and it is an important debate to have, but we need to think about how much experience is sufficient for people to be grandfathers, and about how we can ensure that that experience covers the range of products necessary to provide whole-of-market, independent advice. We ask people to advise on a range of products, such as pensions, insurance bonds and ISAs, and they need such technical knowledge to do so. Consumers are entitled to know that their adviser has a high standard of technical knowledge, and a minimum qualification standard should deliver that.

The increase in standards will not discriminate against those who have kept up to date with market developments, and they should not have to commit a significant amount of time to study. As I have said, 90% of advisers already undertake the required number of hours for continuing professional development, and I think that over the next two years the measure can be used to fill any gaps between existing and revised standards. As a consequence of lobbying by the IFA community, the FSA has relaxed the regulations, so there will be non-exam-based alternative assessments, rather than formal written exams. That is an important move forward that the FSA has already made, but high standards of technical knowledge will be crucial to help IFAs navigate their clients through the increasingly complex choices that they have to make.

I want to touch on the issue of adviser charging. I am strongly committed to increased transparency in financial services; it is important that consumers—whatever they are buying, be it advice or a product—understand the charges and the returns that they are likely to get. That underpins a whole range of work that we are doing at the moment in the Treasury.

Currently, financial advisers can earn different amounts as commission payments, depending on which product they recommend and from which provider. How much they earn is not always transparent; indeed, Which? found that 82% of advisers failed either to explain the “key facts of cost” document or have a meaningful discussion with their clients about how their advice would be paid for. It is important that remuneration arrangements for advisers work in the best interests of consumers and promote independence of advice.

A number of IFAs have already moved away from commission to a fee-based approach. I know that AIFA, the trade association for IFAs, is helping IFAs change their business model. I do not doubt the integrity of the vast majority of advisers, but no one can doubt the financial detriment caused to consumers as a consequence of mis-selling scandals of the past. Following the FSA’s pensions review in 2002, 1.7 million consumers received compensation totalling £11.8 billion due to pension mis-selling alone.

Advisers should welcome changes in remuneration as a clear way of building consumer trust in the sector. Consumers already pay for advice, as commission is deducted from their premiums or initial investments. Advice is not free; that money comes out of the contribution that consumers make to their pensions, their investment bonds or their savings for the future. However, it is important that both the cost and the value of advice is clear to consumers. These reforms will provide clarity on price and service and that will promote competition. Just as we want transparency on interest rates paid on ISAs to promote competition among ISA providers, I believe that transparency on IFAs’ remuneration will also promote competition and provide a better understanding of the value of advice. It will increase consumers’ confidence in that area.

We want to broaden the range of advice available. A number of hon. Members have raised the annual financial health check that CFEB is going to organise. Let me be clear. The cost of that will be borne by a social responsibility levy that will be paid by institutions from Goldman Sachs through to the high street insurance broker. The cost will not be borne by independent financial advisers alone. The biggest firms, such as Goldman Sachs or Barclays, will make the biggest contributions, and they will make a far bigger contribution than IFAs. Furthermore, consumer credit organisations have also been brought into the scope of this; they will also have to pay their share towards the annual financial health check. It is important that the burden should be shared.

[Mr Stuart]

Will the Minister give way on that point?

[Mr Hoban]

I wish to conclude my remarks so that my hon. Friend the Member for Wyre Forest, who opened the debate, can conclude.

We want a more responsible savings culture in Britain, in which people can plan confidently for their futures and are better able to realise their plans. Financial advice has a key part to play in that, and I want to see improved levels of expertise and knowledge and much greater clarity over transparency. It is important that the FSA should work closely with IFAs to get to that point. This evening’s debate has helped the FSA understand the concerns of Members of Parliament. I am grateful to my hon. Friends for securing this debate.

Banking Act 2009 (Reporting)

Mark Hoban Excerpts

Monday 29th November 2010 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Treasury has today published a report required under section 231 of the Banking Act 2009 covering the period from 1 October 2009 to 31 March 2010. Copies of the document are available in the Vote Office and Printed Paper Office and have been deposited in the Libraries of both Houses.

Debt Management Remit 2010-2011 (Revisions)

Mark Hoban Excerpts

Monday 29th November 2010 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government are today revising the Debt Management Office’s (DMO) 2010-11 financing remit to reflect revisions to the net financing requirement. The net financing requirement for 2010-11 has been revised upward—by £0.2 billion—from £162.5 billion at the June Budget to £162.7 billion. The revisions to the net financing requirement arise from the net effect of:

a reduction in the central Government net cash requirement (CGNCR) of £1.9 billion;

an increase in sterling financing for the official reserves of £2.0 billion; and

additional secondary gilt market purchases by the DMO of £0.1 billion.

The downward revision to the CGNCR is a reflection of revisions announced today by the Office for Budget Responsibility (OBR) to the fiscal aggregates, which have a consequential impact on the CGNCR. The revisions are set out in the OBR’s “Economic and fiscal outlook, November 2010”, published today.

The increased funding for the official reserves has been provided to meet potential calls under the UK’s IMF commitments. These commitments have recently expanded following parliamentary approval in July 2010 of the UK’s increased contribution to the IMF’s New Arrangements To Borrow. This delivered the UK’s share of the G20 agreement to treble the resources available to the IMF.

The increase in the net financing requirement of £0.2 billion will be met by an increase in the gilt issuance programme in 2010-11 of £0.2 billion. Gross gilt issuance for 2010-11 is now projected at £165.2 billion.

The planned Treasury bill stock as at 31 March 2011 is £60.8 billion—unchanged from the projection at the June 2010 Budget (and compares with levels as at: 31 March 2010—£63.3 billion; 31 March 2009—£44.0 billion).

As at the June 2010 Budget, the Government are confirming the net finance target for National Savings Investments to be a zero net contribution to financing, within a range of +/- £2 billion.

For 2010-11, gross gilt issuance of £165.2 billion is projected to be split as follows:

£52.7 billion of short maturity gilt issuance (31.9% of total);

£38.2 billion of medium maturity gilt issuance (23.1% of total);

£40.5 billion of long maturity gilt issuance (24.5% of total);

£33.8 billion of index-linked gilt issuance (20.5% of total);

This proportionate split is unchanged from that announced in June 2010.

Auctions will remain the Government’s primary method by which gilts are issued. The Government will continue to use supplementary methods—syndication, mini-tenders and the post-auction “top up” facility—to issue gilts in the remainder of 2010-11. For 2010-11, it is projected that:

£132.0 billion will be issued by pre-announced auctions (79.9% of total);

£26.2 billion will be issued by syndication (15.9% of total); and

£7.0 billion will be issued by mini-tender (4.2% of total).

Consistent with provisions in the DMO’s financing remit relating to the post-auction “top-up” facility, average auction sizes in the remainder of the year will be reduced but there will be no change to the number or timing of auctions scheduled for the remainder of 2010-11.

The Government are also publishing today a revised estimate of the fiscal impact of the spending review 2010, based on the OBR’s autumn forecast. Copies of this document have been deposited in the Libraries of both Houses and are available in the Vote Office and Printed Paper Office.

Financial Regulation (Consultation Responses)

Mark Hoban Excerpts

Wednesday 24th November 2010 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government have today published a summary of responses to their consultation document, “A new approach to financial regulation: judgment, focus and stability”.

This document, published on 26 July 2010, set out the Government’s plans for fundamental reform of the UK’s financial regulatory framework, providing the Bank of England with control of macro-prudential regulation and oversight of micro-prudential regulation. The Government will legislate to create:

a Financial Policy Committee in the Bank of England;

a new Prudential Regulation Authority, as a subsidiary of the Bank; and

an independent consumer protection and markets authority (CPMA).

In addition to a summary of consultation responses, this document confirms the Government’s decisions, that:

the UK Listing Authority will remain within the CPMA’s markets division; and

the FSA’s criminal enforcement powers in relation to market conduct will be retained within the CPMA at this time.

The document also sets out the Government’s preliminary conclusions on key themes raised by respondents to the consultation.

The Government will present more detailed policy and legislative proposals, for further consultation early in 2011. The Government intend to introduce legislation to implement their proposals in mid-2011 and the passage of legislation is expected to take around a year. The new regulatory framework is anticipated to be in place by the end of 2012.

Copies of “A new approach to financial regulation: summary of consultation responses” have been deposited in the Libraries of both Houses and published on the HM Treasury website.

Departmental Expenditure Limits (National Savings & Investments)

Mark Hoban Excerpts

Tuesday 23rd November 2010 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

Subject to parliamentary approval of any necessary supplementary estimate, National Savings and Investments (NS&I) departmental expenditure limit (DEL) will be increased by £15,994,000 to £168,402,000. Within the DEL change, the impact on resources and capital are set out in the following table:

Savings Accounts and Health in Pregnancy Grant Bill

Mark Hoban Excerpts

Monday 22nd November 2010 Commons Chamber

[Sheila Gilmore]

The hon. Lady overstresses that issue. She fails to see that the child trust fund was different from other savings funds because it was intended to provide not only financial education but a real asset to children who would not otherwise retain one. It is also important to realise that there is a real difference in kind between what the previous Government put in place and the junior ISA, which was thrown in fairly late on in the course of the thinking that occurred in response to the concerns expressed and is still fairly vague in its implications.

This is about a transfer of assets and tackling asset inequality. We are faced with not only income inequality but asset inequality. It is perfectly legitimate, and indeed desirable, that we look at asset inequality just as much as at income inequality. As my hon. Friend the Member for Stretford and Urmston (Kate Green) said, the way in which child trust funds were structured enabled additional money to be put in for looked-after children and children with disabilities. That is extremely important for them at the age of 18. Junior ISAs do not deliver that; rather, they will be of greatest benefit to those who get the tax relief that goes with an ISA.

In the past, there have been many schemes allowing parents, grandparents and other people to save on behalf of children. My children had baby bonds, which were provided under the National Savings scheme, and some of the money that went in came from their grandmother. That was wonderful, and a great idea, but it would not—I am sure that it did not—assist many children from low-income households, to whom the child trust fund was specifically designed to give additional help.

I want to return to the pamphlet produced by Phillip Blond, which has been given a lot of support from several organisations interested in this field. He strongly advocates that the infrastructure of child trust funds should be retained, even if the rest of the system is to go:

“Our first and foremost recommendation is to maintain, extend and improve the infrastructure of the…Child Trust Fund under the auspices of the new ABC account. Maintaining the old CTF platform comes at a minimal cost (£2m pa) and it preserves a unique and valuable savings infrastructure for the further augmentation and development of children’s savings.”

That would then enable the new proposal that comes from a raft of organisations working with children—the ABC account—to be developed using the same infrastructure. It would also enable this Government, or a future Government, to return to it and decide that they want to put in additional contributions at a later date. I am surprised at the lack of faith shown by Government Members, including members of the Committee, about the economy recovering. They do not seem to think that it is worth preserving the infrastructure for a future time when it would be possible to put in extra contributions.

I urge the Minister to listen to the words of Phillip Blond and those who have supported his proposals and even at this stage, if the Minister cannot support amendment 1, to consider keeping the infrastructure.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

As the right hon. Member for Delyn (Mr Hanson) set out in his opening remarks, the amendments in this group, except for the two tabled by the right hon. Member for Wythenshawe and Sale East (Paul Goggins), seek to delay the ending of child trust fund eligibility, or indeed not to end eligibility at all. Amendments 4 to 12 and 17 to 26 would delay the end of child trust fund eligibility from January 2011, either to 2016 or a date set by regulations. Amendments 1 and 36 would mean that child trust fund eligibility did not end at all.

I set out clearly on Second Reading the rationale for ending child trust fund eligibility, particularly for ending it from January 2011. This Government inherited a fiscal position that the Governor of the Bank of England described as “clearly unsustainable”, and dealing with it immediately was unavoidable. As hon. Members will recall, my right hon. Friend the Chancellor set out a package of £6 billion-worth of savings in 2010-11 just a couple of weeks after the coalition Government were established. Part of that package was £320 million of savings from the child trust fund this year. A large part of those savings have already been made through the regulations made in July, which reduced contributions at birth and stopped them at the age of seven. Delaying the end of eligibility would reduce the savings that we plan to make by £20 million this year and by around £50 million in each future year that the delay continued.

Those figures assume that the current value of the child trust fund would continue at £50 at birth for most children and £100 for those in lower-income families. Some providers have told us that those values would not be viable for them in the long term, and so some could withdraw from the market. However, if the value of the vouchers were increased, which could be done through regulation, the costs of the delay in ending eligibility would increase too. Either way, the money would have to be found from somewhere, through other spending cuts, tax rises, or even more borrowing. The Labour proposals would also be confusing for families who understand that CTF eligibility is due to end in January this year, particularly if we were to take the power to set a date through regulations.

I understand the point that the right hon. Member for Delyn made about delaying the end of eligibility until the junior ISA, which I announced on Second Reading, is in place. I am not expecting that to take too long; I hope that the new account will be up and running as early as autumn next year. It will be available for children who are born after the ending of the child trust fund—that is, those born after 3 January 2011.

The hon. Member for Edinburgh East (Sheila Gilmore) said that the trouble with the junior ISA was that it is tax free, but so was the child trust fund, so I cannot see that its essential nature is very different. I do not quite understand her point.

[Sheila Gilmore]

rose—

[Mr Hoban]

I am happy for the hon. Lady to clarify it.

[Sheila Gilmore]

The point that I was trying to make is that the only incentive given in the junior ISA is that the payer—the parent or grandparent, or whoever is putting in the money—can get tax relief. The child trust fund gave money to the children of families who do not usually benefit from putting money into a savings account that brings tax relief because they may not be paying tax, or paying very little tax, so it is not of such great advantage.

[Mr Hoban]

The fundamental difference is that under the junior ISA there will be no contributions from the state, whereas in the case of the child trust fund there were contributions from the state. Our intention is to save money in order to cut the deficit—that is why we are ending eligibility for those sums. The junior ISA will be a simple product. The hon. Member for Stretford and Urmston (Kate Green) queried that, but she should remember—to reiterate a point that I made in Committee—that 20 million people have ISAs, 12 million of whom earn incomes of less than £20,000 a year. The ISA is a mainstream financial product that people of all income streams and all ages understand; they find it very easy to contribute to a cash ISA or to an equity ISA.

[John Hemming]

Perhaps the hon. Member for Edinburgh East (Sheila Gilmore) was slightly confused about whether people get tax relief on contributions to an ISA. My understanding is that they do not. They get it only on contributions to a pension.

[Mr Hoban]

Indeed, the tax models for ISAs and pensions are different. With an ISA, the income and gains are tax-exempt, which is one of their incentives.

I believe that child trust fund eligibility should end for children born from January 2011, as the Bill provides, and not from any other date. I continue to believe that ending eligibility is the right thing to do. I know that some find that disappointing, but in the middle of the exceptional fiscal challenge that we are facing, it simply does not make sense to continue to spend half a billion pounds a year on giving people money that is locked up until the age of 18. There are more urgent priorities, and the child trust fund is a luxury that we cannot afford.

I wish now to refer to the amendments tabled by the right hon. Member for Wythenshawe and Sale East and the wider points raised in his new clause and amendment that were not selected. I understand his point about looked-after children, who are among the most disadvantaged young people in our society and face a number of particular challenges that mean they need additional support. As he said, we met last week to discuss the matter, and he outlined to me the proposal that he has referred to today. As I said then, I have a lot of sympathy with what he is trying to achieve, and I want to consider the matter more closely. Indeed, I have already written to the Under-Secretary of State for Education, my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton), to ask his views on the proposal. We will have to consider it carefully, but as I have said a number of times during debates on the Bill, we have limited resources at the moment and there is currently no unallocated funding in the Department for Education budget that could be used for the suggested payments. We would also have to be sure that they were the best use of our resources and gave us the best possible value for money.

As I have said, there is also the question of whether locking up money for up to 18 years provides better value than spending it to support people now, and we need to ensure that we focus resources on our priorities. We will also have to consider what the proposal would leave children with. As the right hon. Member for Wythenshawe and Sale East explained, the provision would not be triggered until a child had been in care for at least 13 weeks, to avoid junior ISA accounts being opened for children who were in care for only a week or so. We know that, thankfully, most children are not in care for long periods. Of the children who left care in 2009-10, about 37% were in care for less than six months. I will therefore wish to consider how many children would receive accounts containing just the £250 Government payment that he suggests, and whether those accounts would necessarily provide good value.

However, as I have said, I am more than happy to continue to consider the proposal with my hon. Friend at the Department for Education, and I certainly commit to maintaining contact with the right hon. Member for Wythenshawe and Sale East. I reassure him that if we do want to move forward with his proposal or something similar, the Bill will not be the right vehicle for doing so. It may be possible to legislate on the matter alongside the provisions on junior ISAs, or even to introduce them without legislation. Not including them in the Bill does not close down our options.

I understood the right hon. Gentleman’s points on amendments 51 and 52, which were selected, but there are practical reasons not to accept them. First, as I have said, we are still looking closely at our options, and that may end up making the reports called for in those amendments unnecessary. Secondly, if we wanted such reports to be produced, requiring their completion by the end of 2011 would be too early. By then, child trust funds would only just have stopped being opened, as the last vouchers are not expected to expire until well into 2012, and junior ISAs would have been in place for only a few months.

Thirdly, I suggest that even if we did want to carry out the reports that the right hon. Gentleman suggests, we could do so without having them specified in the Bill. In fact, leaving them out of the Bill would provide us with more flexibility on both content and timing.

[Paul Goggins]

I am very grateful to the Minister for clearly giving very serious consideration to the points that I put to him at our meeting last week. He has clearly weighed them up carefully. I am grateful that he has already written to his colleague in the Department for Education.

The Minister will understand my slight concern that, notwithstanding the fact that he is going to consider my proposals seriously, the Bill will now go to the other place and—in fairly short order, he hopes—become an Act. With the Government’s majority, I am sure that will happen. I do not want the focus on the important issues that we have discussed to be lost, so will he make a commitment that as far as possible, they will be addressed as the Bill is considered in the other place?

[Mr Hoban]

The right hon. Gentleman will be aware that we are consulting on the design of the junior ISA, and we need to ensure that his points are considered in tandem with that, rather than in the accelerated time scale that it will take for the Bill to go through the other place. I reassure him that I am considering the matter seriously with my hon. Friend at the Department for Education.

The right hon. Gentleman makes important points about looked-after children, and we need to consider them carefully. As he knows, there are other provisions in place to meet the needs of such children, such as a bursary scheme for those who go into higher education, although I regret that not as many do so as we would all like. However, he has made important points both today and in our meeting last week, and I will pursue them with him and with my hon. Friend the Under-Secretary of State for Education. I hope that the right hon. Gentleman will not press the amendments tonight, but that is a decision for him to take. I hope that he will take into account my comments this evening about the approach that I want to take.

On the other amendments in the group, as I have explained, I believe that we should go ahead as planned with ending child trust fund eligibility from January 2011. I believe that the right structure is in place to ensure that children who do not qualify for a child trust fund will be eligible for the junior ISA, even if it is not introduced until late next year. I have made the commitment that any child born after 3 January 2011 will be eligible, and I believe that the for combination of reasons that I have set out—the need to tackle the deficit, the need to save money and the need to put the public finances on to a better, firmer footing—we need to press ahead. I urge hon. Members to oppose the Opposition’s attempt to squander yet more money.

--- Later in debate ---

[Sheila Gilmore]

Indeed; I agree with my hon. Friend.

My point about the housing association movement is that the people who say that there are not enough outlets to make the saving gateway really work are not sufficiently prepared to look at some of the things that already exist. I firmly believe that we could have built the scheme up. If tenants could have agreed to small savings being taken at the same time as they paid their rent, for example, which would then be passed over to the provider—whether it be a credit union or another organisation involved in the saving gateway—that would have provided a relatively straightforward and easy-to-access method for those tenants. Housing associations, which see themselves as having a wider role than simply being a landlord, felt that this would have been helpful for their tenants.

We hear so much of “We have to do this because of the deficit.” We are told by the coalition Government, “We had to change our minds about all these things”—in fact, both Government parties did not support all these proposals, although they did support the saving gateway scheme—“because of the financial situation.” We have two different views about how to get out of a recession. The Government parties did not just want to pay down a deficit which they suddenly claim not to have known about before, although they did know about it and, as was pointed out by my hon. Friend the Member for Sefton Central (Bill Esterson), it had in fact been falling. They decided to reduce that deficit speedily, within five years, regardless of the consequences. There is another choice, although the Government may not agree with it.

The Government say to us, “You cannot support child trust funds or any of the other measures involved, because if you do, you will not reduce the deficit.” That is not the case. We take a different view on the economy. Our view is that the deficit should be reduced far more gradually. That was also the clear view of the Liberal Democrats as recently as late April: they said that fast cuts would be exceedingly dangerous. I do not see what has changed since then.

Ireland has been mentioned yet again. It cut public sector salaries and services, and it cut very hard. Indeed, only a few months ago it was being set up as a model in that regard. However, it has not got itself out of its financial difficulties.

We believe that if we reduced the deficit more slowly, two things would happen. First, we would be able to make choices about the things that are important, and I believe that the saving gateway would be one of them. Secondly, if we did not cut so drastically, unemployment would not be as high, which would mean more money for the Treasury, and we would not have a growing deficit problem. I firmly believe that if we proceed with the Government’s proposals the deficit will not be reduced as fast as they would like, despite the cuts, and it may actually increase.

We believe that those choices exist, and that the saving gateway is important because of the advantage that it brings to low-income families. It represents a long-term and real effort to change behaviour and improve the circumstances of such families, and that is why we want to retain it.

[Mr Hoban]

The speech of the hon. Member for Edinburgh East (Sheila Gilmore) was remarkable. It appears that only one group taking part in international debates is suggesting that we should be less aggressive in tackling the deficit and should put ourselves at the mercy of international markets, and that group is the Labour party. Surely the one lesson that should have been learned from our current circumstances is that a credible plan is needed to tackle the deficit, but Labour lacks that credible plan.

[Sheila Gilmore]

Many economists share our view, including Joseph Stiglitz and David Blanchflower. It is not true to suggest that it is only the view of the Labour party. There are different views, and it is entirely legitimate for people to hold different views, but it is simply not true that no one shares our view that reducing the deficit too rapidly is dangerous.

[Mr Hoban]

If the hon. Lady reads the comments of international organisations such as the OECD, the International Monetary Fund and the European Union, and those of rating agencies such as Standard & Poor’s, she will find that mainstream opinion agrees with the Government about the need to take action now to tackle the deficit in order to avoid the crises that we are seeing elsewhere in the world. All that we hear from the Labour party is “Let us delay the difficult decisions. Let us go into the election with the structural deficit, and try to deal with it in four or five years’ time rather than now.” That has been the theme of Labour Members’ contributions throughout our debates on the Bill. They have denied the need to tackle the deficit now, and have ignored the lessons that are being presented all around us.

[Bill Esterson]

Will the Minister give way?

[Mr Hoban]

Let me make some progress and explain why we are repealing the Saving Gateway Accounts Act 2009. The repeal is part of our deficit reduction policy. The right hon. Member for Delyn (Mr Hanson) quoted from my Second Reading speech. It was the third time that I had heard him use the same quotation. Let me now, for the third time, expand a little on what I said on that occasion. I said:

“The pilot scheme demonstrated some benefits, but it demonstrated some challenges too… What are the long-term benefits? What are we getting in return for the quite generous bonus that we are giving to savers?.. In the second pilot, questions were raised about whether the scheme was effective… First, there was no statistically significant evidence that, in delivering genuinely new savings, the saving gateway accounts delivered higher overall net worth.”

I referred to a

“number of anecdotes, rather than hard evidence, used to support the proposal”,

and added:

“It appears that money was moved from one set of savings to another, perhaps from a current account to a savings gateway account, simply to secure the Government match.”—[Official Report, 13 January 2009; Vol. 486, c. 145.]

While accepting the principle behind the saving gateway account, we nevertheless flagged significant concerns about its effectiveness.

The right hon. Gentleman mentioned the pilots. According to the conclusion from the second pilot,

“when we look at a broader measure of net worth (including investments as well as all cash deposit accounts), there is no statistically significant evidence that funds held in these forms have increased… we nevertheless do not find statistically significant evidence of an increase in overall net worth among this group.”

Carl Emmerson said in his evidence to the Committee:

“There was not any really strong evidence from the saving gateway that it led to more overall saving from lower-income households.”––[Official Report, Saving Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 18, Q42.]

Given the fiscal constraints that we face, we must question the value for money to be obtained from this project. It would be nice to be able to proceed with it, but the evidence suggests that it does not increase saving and does not possess the benefits ascribed to it by Labour Members. Not only is the evidence of its effectiveness in question, but it would cost more than £300 million over the next five years, which makes it unaffordable in the light of the need to reduce the deficit.

The other strand of the argument, touched on by the hon. Member for Makerfield (Yvonne Fovargue), is access. Who would be able to gain access to the saving gateway account? My hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard) echoed Adrian Coles, the director general of the Building Societies Association, who said that

“no building society had committed to offering a saving gateway account”.

Eric Leenders of the British Bankers’ Association said

“there were only a couple of providers who felt that it was suitably beneficial for them to provide the account.”

The banks that said they would provide accounts were Royal Bank of Scotland and Lloyds. The Post Office would take part in the scheme only if it received more taxpayers’ money.

I do not think we would have seen the easy access that the hon. Lady believed to be a key part of the scheme’s attraction. The only credit union outlet in my constituency is in a deprived area, and is open for only a short time each week. In my constituency, credit unions would not have been a vehicle for access to the saving gateway account.

Given that we do not intend to proceed with the scheme, we should leave no room for uncertainty among financial institutions or advice-giving bodies, and the best way in which to be clear about our intentions is to repeal the 2009 Act. I believe that if a future Government revisited the scheme, they would design it very differently. If the right hon. Gentleman wishes to press his amendment to the vote, I will ask my hon. Friends to oppose it.

[Mr Hanson]

I am disappointed by the Minister’s response, but that is the nature of the role that I currently fulfil. He did not oppose the saving gateway in opposition or in the general election; he did not vote against Third Reading of the Saving Gateway Accounts Bill; and he could have taken the opportunity today to accept the amendment enabling him to delay the repeal of the Act until a later date in order to judge how the economic situation developed. I have to assume that he says one thing in opposition and another in government, and that he is abolishing the scheme on the basis of dogma rather than the economic situation. I urge my hon. Friends to reject clause 2, and to support the amendment.

Question put, That the amendment be made.

--- Later in debate ---

[Dr Poulter]

I thank my hon. Friend for her point. On nutrition in pregnancy, we know from all the evidence that the biggest and single most effective intervention in nutritional terms is to give women folic acid pre-conception and in the early days of pregnancy. Most problems or birth defects occur in the first six to eight weeks of development, when the embryo is very small, so if we are to intervene effectively that is the time to do so. We already do, because all GPs, midwives and obstetricians encourage women in the first stage of pregnancy to take folic acid, which is the single most effective intervention to prevent neural tube defects and all others.

We have heard how we need to ensure that when we intervene, particularly with the most vulnerable and disadvantaged groups, we do so effectively. When the Act was introduced, the whole point of it was to reach those groups, yet people from Traveller communities, Gypsies and people from deprived backgrounds often still do not access maternity services until the time of delivery or when it is far too late. The hon. Member for Bristol East tried to argue that the grant improves access to maternity services among disadvantaged groups, but lots of clinical audits and data prove that it does not. The evidence shows that the grant is not at all effective in helping improve access to pregnancy services. The hon. Lady’s point fails, and I hope Members will bear that in mind later.

We are talking about targeted, results-driven and evidence-based care, but there is no evidence to support the grant as a nutritional intervention or in terms of improving childhood outcomes at birth, so for all those reasons we must target our resources where they belong, on putting those 3,000 extra midwives on to the front line, because they, not a £190 grant, will make the difference.

[Mr Hoban]

It has been a brief but thoughtful and thought-provoking debate. The amendments that the hon. Member for Bristol East (Kerry McCarthy) proposes seek to achieve one of three things: keep the health in pregnancy grant in place, delay its abolition or require the Government to conduct a review into the case for maintaining it in another form.

The grant was introduced in April 2009 by the previous Government. When announced in the 2006 pre-Budget report, the provision was to be paid as child benefit from the 29th week of pregnancy to recognise the important role of nutrition in the last months of pregnancy, when nutrition is most important, and in the first weeks after birth, with parents bearing the extra costs. Then, the payment was to be a £190 one-off grant, made from the 25th week of pregnancy with the intention of providing support for the general health and well-being of women in the later stages of pregnancy and helping them to meet costs in the run-up to birth.

Those were laudable objectives, but, as we have outlined on Second Reading, in Committee and again tonight, the grant has been essentially flawed from the outset. There is no requirement to use it for better health and well-being: women can spend the money on whatever they want; and it is paid to pregnant women regardless of their income or need. As Dr Samantha Callan of the Centre for Social Justice said in an evidence session on the Bill:

“There was absolutely no guarantee that the grant would be spent on nutritious food.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 4 November 2010; c. 116, Q279.]

In the context of the unprecedented budget deficit, therefore, we believe that this payment to all pregnant women is a poorly targeted use of limited public funds. Abolishing the payment will help to reduce the UK’s budget deficit, saving £40 million in 2010-11 and £150 million per annum from 2011-12 onwards.

Having decided that we need to abolish the grant, the Government believe it should be done quickly to maximise the Exchequer savings. By delaying the abolition until 2014, as amendments 44 and 45 seek to do, we would reduce those savings, and amendment 3 would keep the grant in place, so additional money would have to be found through other spending cuts, borrowing or tax rises this year. As my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) said, there are other priorities. The coalition Government are clearly committed to increasing spending on health in real terms over the lifetime of this Parliament. Are Labour Members saying that that commitment should be relaxed to enable us to keep the health in pregnancy grant?

Much was said by Opposition Members on Second Reading and in Committee about the importance of a healthy diet during pregnancy, the importance of vitamin supplementation, and, especially, the effect of these on women on low incomes. There is no doubt that maintaining a healthy diet throughout pregnancy is important. However, the evidence suggests that that should start at the earliest possible stage. Belinda Phipps of the National Childbirth Trust said in the evidence session on the Bill:

“If you are setting out primarily to improve the nutrition of the mother to improve the health of the baby,”

the payment of the health in pregnancy grant

“needs to be earlier. If you…really want to change the future of the baby, it needs to be as early as possible. It is not possible easily to do it pre-conception, but the earlier in pregnancy you can do it, the better.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 4 November 2010; c. 79, Q205.]

Amendments 43 and 44 would stop the abolition of the grant and require the Treasury to conduct a review to consider whether the grant should be retained in its current form, means-tested or replaced by a system of vouchers. As I said on Second Reading and again in Committee, the Government are committed to supporting the health of pregnant women in low-income households through the Healthy Start scheme, which provides support from the 10th week of pregnancy, when diet is particularly important in a baby’s development. The Healthy Start scheme provides vouchers worth £3.10 a week for fruit, vegetables and milk, as well as coupons to exchange for Healthy Start vitamin supplements containing the recommended daily amounts of vitamins C and D and folic acid for pregnant women and new mothers. The Department of Health is also co-ordinating a consultation exercise that seeks views on the extension of the scheme to allow vouchers to be used to buy plain frozen fruit and vegetables. This would increase the flexibility and choice for women supported by Healthy Start while encouraging them to include more fruit and vegetables in their daily diet at the time in their pregnancy when that is particularly important.

The amendments would delay the abolition of the grant or keep the grant in place. That would mean that additional money had to be found through other spending cuts, borrowing or tax rises this year. The Government have to face some difficult choices as to where to cut public expenditure, and we cannot afford to continue spending £150 million a year on the cash payment of a health in pregnancy grant regardless of what it is spent on and whatever the income or financial position of the recipient. As my hon. Friend the Member for Congleton (Fiona Bruce) explained, it is not well focused, well targeted or well timed. That is why I believe that it is right to scrap this grant, recognising that measures are in place to help to support maternal nutrition among families on low incomes. We also have the Sure Start maternity grant, which is a lump sum to help those on the lowest incomes.

[Mrs Mary Glindon (North Tyneside) (Lab)]

The Sure Start maternity grant is given only for the first child. If a family do not have that grant or the health in pregnancy grant, with the Government also reducing the amount that they would get in family tax credits for toddlers, they will be much worse off.

[Mr Hoban]

That is an unfortunate consequence of the difficult decisions that we have to take to tackle the deficit that the hon. Lady’s party has left behind. Tough decisions have had to be made to target help as closely as possible on those in the greatest need. The support that exists, whether through the Sure Start maternity grant—yes, we are restricting that to the first child from April 2011—or through the Healthy Start vouchers, provides targeted, focused help for those in the greatest need. That is the best way to give support to help mothers on low incomes through pregnancy. The health in pregnancy grant does not tackle nutrition, and it is not well timed because it should be delivered at an earlier stage to help families.

I have to say to the hon. Member for Bristol East that if the grant goes, there are still plenty of opportunities for expectant mothers to access health visitors, midwives and GPs to get the support that they need to help them with their diet or with smoking cessation, and to give them advice and support throughout the pregnancy. Support is not limited simply to receiving that grant; it is there throughout pregnancy, and we should not overlook that fact in discussing the Bill.

It is right to remove the health in pregnancy grant, even though we do not do it lightly and would not choose to do it unless it were a consequence of the situation that we have inherited. The previous Government lost sight of good fiscal discipline, and we are having to take measures today to tackle the problems that have resulted.

[Kerry McCarthy]

In all our debates on the health in pregnancy grant on Second Reading, in Committee and today, we have been going round and round in circles without ever quite nailing what the Government’s objections are to the grant continuing.

I shall try to pin down what the Minister has said. He says that the grant would be better if it were paid earlier, yet he has not brought forward any suggestion that it should be. He says that it is a problem that there is no guarantee about what it is spent on, yet he seems perfectly happy to go on paying child benefit to mothers or the winter fuel allowance to pensioners. There is no guarantee about how that money is spent, so I reject that argument. It has been suggested that there has been no evaluation of the scheme, but as he said, it was introduced in 2009. How on earth can we possibly have had the chance to carry out a full evaluation of the take-up of the grant, what it is spent on and people’s access to advice?

My final point, and the crux of the matter, is that the Minister praises the Healthy Start scheme because it is targeted at the people who need it most. He also mentioned the Sure Start maternity grant, which, as we know, is being reduced to cover just the first child. Does he not accept that if we abolish the health in pregnancy grant, the families he spoke of, who need the Healthy Start vouchers to cover expenses and to have a healthy diet during pregnancy, will be £190 a week worse off? That is why we argue for the retention of the grant, with a review of whether it should be means-tested and better targeted. In rejecting the idea of a review totally, he is basically saying that the poorest families, who are already suffering because the Sure Start maternity grant is being restricted to the first child, must lose £190 a week. That is something of a scandal. I therefore wish to press the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Mr Hoban]

I beg to move, That the Bill be now read the Third time.

As we have discussed today, the Bill deals with three policies: child trust funds, the saving gateway and the health in pregnancy grant. Both today and in Committee two weeks ago, we have debated the details of those policies. Opposition Members have pointed to their merits or, rather, their potential merits—as we have found, quite often the hard evidence to support their arguments is rather lacking. They have argued that we should either retain the policies or delay removing them, and sometimes both at the same time.

I shall come to some specific points about those policies in a moment, but I want to be clear on one point. The question for this Bill is not simply whether we think that child trust funds are a nice idea or whether we would like to give pregnant women some more money. The question for this Bill is a harder one to confront. It is whether we can afford such policies—at a cost of £3 billion over the spending review period—given the scale of the deficit that we inherited, and whether continuing with them would be the best use of taxpayers’ money.

As we decide to give the Bill its Third Reading, it is important to remind hon. Members of the context. When the Governor of the Bank of England says that our fiscal position is “clearly unsustainable”, when our borrowing last year was the highest in our peacetime history and when we are spending £120 million a day just to pay the interest on our debt, something has to give. If we do nothing and fail to tackle the deficit, we will see higher interest rates, business failures, rising unemployment and, potentially, even the end of the recovery. We therefore need a clear, credible plan to tackle the deficit. We have set one out, including more than £80 billion of spending reductions. However, to deliver it we have to make choices about where savings are going to come from.

We have made those choices, and this Bill implements three of them. They were not easy choices. As I said on Second Reading, the Conservative party supported the introduction of child trust funds and the saving gateway in opposition. Indeed, on at least three occasions so far, the right hon. Member for Delyn (Mr Hanson) has quoted what I said about the saving gateway, and I suspect that he may well remind the House again in his speech on Third Reading. We did not warn against the health in pregnancy grant, although we did raise some concerns about it. My Liberal Democrat colleagues were rather more sceptical. They opposed the child trust fund and prayed against the regulations that introduced the health in pregnancy grant. However, as I have said, the question is not whether it would be nice to keep those policies—in an ideal world it would be—but whether we can afford to keep them, given the fiscal challenge that I have outlined, and where else we would have to find savings if we did so.

I believe that the Bill makes the right savings. Continuing with the child trust fund, for example, would have cost us more than £500 million each year. That money would have been locked up for up to 18 years—a luxury we cannot afford.

Given our limited resources, we must spend money on our priorities: reducing the deficit, so that our children are not left to pay our debts; supporting the most vulnerable and poorest people in our society now—for example, through the pupil premium; and the extension of early years education and care to all disadvantaged two-year-olds. Those policies will provide real opportunities for disadvantaged children to move out of poverty for the long term.

While saving money from the child trust fund, we are still committed to encouraging people to save for their children in an affordable way. That is why I announced a new account—a junior ISA—on Second Reading. It will provide parents with a simple and clear way of saving for their children, albeit without Government contributions, and build on products that are already accessed by 20 million people of all ages and on all incomes. I also want to encourage people on lower incomes to save, but again that must be affordable. Unfortunately, it would not have been affordable to introduce a new scheme such as the saving gateway, which would have cost up to £150 million a year just when we are starting to tackle the deficit that we inherited in the summer this year.

I was worried that there would not have been enough providers to ensure that everyone had an accessible option for opening a saving gateway account. During the Bill’s evidence sessions, we heard from the British Bankers Association and the Building Societies Association that their members were far from enthusiastic about providing such accounts. The Post Office was going to offer the account only if taxpayers had funded it to do so. We cannot afford to introduce that account, and there were significant doubts not only about access and who would offer it, but about its effectiveness in increasing saving.

It is right to abolish the health in pregnancy grant. I remind hon. Members that it is a one-off cash payment of £190 to every pregnant woman around the 25th week of their pregnancy. In Committee, we debated at length the different ways in which women might spend that money, and how the scheme could be improved, such as by paying it earlier, in instalments or to only some women. The basic point is clear. The grant is unfocused, it can be spent on anything, and it is untargeted. We believe that there are better ways to support maternal health.

[Fiona O'Donnell (East Lothian) (Lab)]

Following that logic, does the Minister believe that because there is no guarantee about where housing benefit, child support and child benefit will be spent, they should be scrapped?

[Mr Hoban]

The hon. Lady has not participated in the debate today, but we have thought carefully about how to provide support during pregnancy to those on low incomes. There are vouchers under the Healthy Start scheme, and the Sure Start maternity grant, which we believe are more effective in providing targeted, better timed and more focused support to expectant mothers.

There is a choice. We could spend £120 million on the health in pregnancy scheme or we could scrap it and save the money so that we do not have to increase taxes or borrow so much. The latter is the right action to tackle the deficit. There are better ways to support maternal health, such as the Healthy Start scheme, which provides vouchers to enable pregnant women to buy fresh fruit and vegetables. The Department of Health is consulting on whether to extend that to plain frozen fruit and vegetables. Vouchers are also available for vitamin supplements, including folic acid, to provide a daily dose of vitamins B and C.

The Healthy Start scheme is effectively targeted at pregnant women and children living in low-income households, and is focused on supporting health and well-being, because it pays support in the form of vouchers rather than in cash. It is delivered at the earliest stage of pregnancy when dietary intervention is much more effective. That means that we can focus our resources better, but at the same time make some real savings—about £150 million a year. That is a vital contribution to tackling the deficit and ensuring that people are not burdened with the debt that we inherited from the previous Government.

That is the key point of the Bill. The changes that we are making to child trust funds, the decision not to introduce the saving gateway and the abolition of the health in pregnancy grant will save more than £3 billion over the spending review period. That is an important part of our plan to reduce the deficit and put our finances back on a stable footing.

As I said, this has involved some tough choices, but I believe that we have made the right ones. We found areas of spending, such as the child trust fund, which does not support people for up to 18 years, the saving gateway, which has not yet been introduced, so its removal will be less directly felt, and the health in pregnancy grant, which is untargeted and unfocused. We have confronted the questions, which I outlined earlier, of whether we could really afford to continue with those policies and whether they would represent the best use of taxpayers’ limited resources. The questions for anyone who wants to oppose this Bill and to continue with the policies are how they would find the money and what they would do instead. This is an important Bill. It is part of our work to tackle the unprecedented deficits that we inherited, and it will help us to put our public finances back in order. I commend it to the House.

Finance Ministers’ Meeting (Ireland)

Mark Hoban Excerpts

Wednesday 17th November 2010 Commons Chamber

[Mr Peter Bone (Wellingborough) (Con)]

(Urgent Question): To ask the Chancellor of the Exchequer whether he will make a statement on the Government’s position about the proposed financial rescue package for Ireland.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I am grateful for this opportunity to make a statement to the House about Ireland.

The House will understand that the Chancellor is currently in Brussels at the meeting of the Council of EU Finance Ministers. I understand that hon. Members are concerned about the events that have unfolded.

Ireland has been facing difficult economic and banking challenges for some time, and as a member of the euro area its ability to use policy to respond to economic shocks is less flexible than our own. As a result, there are ongoing market concerns about Ireland’s economic and financial resilience.

Let us be clear: there has been no formal request for assistance from Ireland, or for that matter from any other member state. I hope the House will understand that it would be inappropriate for me to engage in any speculation on what might happen in Ireland, given that it has made no request for assistance. It is not for me to say whether Ireland should request assistance, just as I would not tell it how to run any part of its economy. Its large financial institutions have obviously got themselves into difficultly, and we very much hope it will be able to resolve those pressures.

Ireland is one of our biggest export markets. We have very close economic ties with it and, as the Chancellor said this morning, it is in Britain’s national interest that the Irish economy is successful, so we stand ready to support Ireland in the steps that it needs to take to bring about stability. I am sure that our fellow EU member states will share that sentiment, and I assure the House that we will keep it informed of developments.

[Mr Bone]

I thank the Minister for his response. At a time when the United Kingdom is already contributing extra funds to the European Union—over the next five years our net contribution will be £41 billion, an increase of more than £21 billion compared with the past five years—and when we are making drastic cuts in the UK’s economy, does he think it is acceptable that any further funds should be committed to the EU?

The coalition Government have made it clear that we will not join the euro during this Parliament, arguing that the euro, with its single interest rate but diverse economies, cannot work. Will the Minister confirm that we will not be joining the euro?

The Government have also made it clear that the UK will not support the euro. Will the Minister therefore rule out the UK participating in any bail-out of the Irish economy? Will he also confirm that the €440 billion special-purpose vehicle facility—a voluntary intergovernmental agreement between eurozone countries —should be used for any such bail-out?

Does the Minister further agree that the use of the stabilisation mechanism, which the United Kingdom guarantees up to £8 billion, was not intended to be used to bail out eurozone countries facing financial pressure? Finally, does he agree that what is required from the EU is support for member states’ policies when, like Ireland, they are trying to do the right thing? Instead, the EU has undermined Ireland and created a crisis.

[Mr Hoban]

May I first reassure my hon. Friend that it is not the Government’s intention to join the euro during this Parliament? I am not entirely sure what the Opposition’s view is, but we have ruled that out.

My hon. Friend mentions the two mechanisms that are available for stabilisation. The stabilisation facility is purely for eurozone member states, outside the auspices of the current treaties and a bilateral, Government-to-Government arrangement. The mechanism that he refers to is available to all members of the European Union. The previous Government and the previous Chancellor decided to join it in the days prior to the formation of the current Government, and I believe that they need to be held to account for that decision.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Clearly, these are difficult times for the world economy, and Ireland is the current focal point of market concerns. Although the Minister offered little in the way of detail today, is it not clear that, stepping back, the overall long-term lesson to learn from these developments is that economic growth matters?

Ireland is a vital trading partner, to which 7% of our exports are sold, and the current situation matters because its economic strength has a significant effect on our own growth prospects. Will the Minister accept that the emerging global recovery is fragile, and that to rely as heavily as the Government do on export-led growth in the years ahead is a risky gamble?

Will the Minister confirm that this issue extends beyond trade, and that UK banks have lent about £83 billion directly to Irish households and companies? We saw at the G20 last week that the Government need to show stronger leadership on economic growth here and abroad, so can he reassure the House that any forthcoming package from the EU will address fundamental and underlying economic issues rather than act as a sticking plaster, merely tackling symptoms that may recur again and again in future?

The previous Government were clear that the problems facing countries adopting the euro would need to be solved first and foremost by member states within the euro area. Will the Minister confirm that the principal fund designed for any loan to support the Irish or other eurozone countries would be the European financial stability facility, which is envisaged at about €750 billion? Are reports in today’s Financial Times correct that the UK is spending time and effort spinning any future action as “bilateral support” rather than co-ordinating with the EU? Would it not be better if the Government were straight with the public about what they plan?

Does the Minister accept that, although we were right to stay out of the euro, it is essential that the euro is stable and successful for the long term? Will the Minister say categorically that the Treasury’s position will be driven by the best interests of British growth and jobs and not designed to pander to the Eurosceptic political instincts of those in his party who might circle the eurozone in its time of difficulty?

In 2006, the Chancellor wrote in The Times that Ireland’s economy provided a “shining example” to us all. Is it not clear now that, rather than being an example, it provides a warning of the dangers of a one-track economic strategy, built around austerity alone, that endangers growth and puts jobs at risk? Both abroad and at home, what matters is a strong strategy to rebuild jobs and growth.

[Mr Hoban]

The Chancellor made it clear this morning that we will do what we need to do in accordance with Britain’s national interest. Ireland is our closest neighbour, and it is in our interests to ensure that the Irish economy is successful and that it has a stable banking system. He said that we stand ready

“to support Ireland in the steps it needs to take”

to bring about that stability. The reality is that Ireland has got some things right. It has a flexible labour market and low taxes. None the less, it made the same mistake as the previous Government—it failed to regulate its banks properly. The problem in Ireland is driven not by high public spending but by a banking crisis. If we listened to the Opposition, the UK would be the only country that was weakening rather than strengthening its fiscal position.

It is clear that the actions we have taken have been welcomed by a range of bodies at home and abroad. What is happening at the moment demonstrates that concerns about sovereign debt issues have not disappeared. We should be grateful that, thanks to the actions of this Government, Britain has moved out of the fiscal danger zone.

[Several hon. Members]

rose—

[Mr William Cash (Stone) (Con)]

The €440 billion eurozone facility can be used without infringing either UK liability or sovereignty. The Darling guarantee mechanism with qualified majority voting involves, unnecessarily, both UK liability and sovereignty. Where it is in our national interest and we can afford it, why not provide a UK-Irish but non-EU loan?

[Mr Hoban]

I hear my hon. Friend’s words, but reiterate to him and to the rest of the House that no request has been made for assistance, and that it would be inappropriate to make any further comments.

[Kelvin Hopkins (Luton North) (Lab)]

I have a large number of Irish constituents, and I am naturally concerned about their families and livelihoods back in Ireland. The fact is that the Irish crisis is part of a wider crisis in the eurozone, affecting a number of countries that will be unable to sustain long-term membership of the euro. Is it not time to have discussions—privately, perhaps—about the possibility of reconstructing national currencies, particularly the punt, so that the Irish can join the sterling zone, where they belong, and not the eurozone?

[Mr Hoban]

I am sure that the Irish Government will have heard the hon. Gentleman’s remarks. It is not for this Government to dictate policy to other EU member states.

[Mr John Redwood (Wokingham) (Con)]

As the Irish Government need a workout and not a bail-out to deal with their risks and credit problems, should not the British Government support them and resist the foolish intervention by Germany, which is trying to use this as part of a power grab for the EU?

[Mr Hoban]

Let me repeat the remarks that my right hon. Friend the Chancellor of the Exchequer made earlier today. To an extent, they reflect the concerns raised by my right hon. Friend. He said:

“Britain stands ready to support Ireland in the steps it needs to take.”

[Mark Durkan (Foyle) (SDLP)]

Given that Chancellor Merkel’s comments have caused such turbulence in the bond market in the past week, I welcome the measured and respectful terms in which the Financial Secretary and the Government have addressed the crisis in Ireland. Does the Financial Secretary accept the judgment of EU Commissioner Olli Rehn? He said:

“In the case of Ireland in particular, we need to recall that sovereign debt has not been at the origin of the crisis. Rather, private debt has become public debt. The financial sector has misallocated resources in the economy and then stopped working. It needs reform.”

The problem does not apply only in Ireland. I remind the Financial Secretary that, if the national pension reserve fund is counted, Ireland’s debt to GDP ratio is not that far wide of the UK’s currently.

[Mr Hoban]

The hon. Gentleman makes an important point. The crisis is around the banking system in Ireland—it is not a fiscal crisis. Of course, we almost had to learn the lessons of failure to regulate the banking system. The Government therefore introduced radical reforms to strengthen the stability of the banking sector in the UK.

[Duncan Hames (Chippenham) (LD)]

Does the Financial Secretary accept that it would be a disservice to families and businesses in Ireland to exaggerate their economic woes, just as it would be in this country?

[Mr Hoban]

We are in difficult times and it is best to focus on what can be done to help the Irish economy rather than engage in a debate about statistics on Ireland’s current economic performance.

[Mr Denis MacShane (Rotherham) (Lab)]

May I welcome the statement of the Financial Secretary and the Chancellor, and their offer of £6 billion of UK taxpayers’ money to help stabilise the eurozone? We must all welcome the contribution to consolidating the eurozone as a sound economic area. However, what has happened to moral hazard? Most of the money will go to the banks. When will they pay anything—any price—for the crisis they caused?

[Mr Hoban]

I want just to reiterate—to correct the right hon. Gentleman—that no formal request has been received from the Irish for assistance.

[Michael Fallon (Sevenoaks) (Con)]

Irrespective of our obligations under the new European mechanism, which the Labour Chancellor agreed, will my hon. Friend confirm that there is a strong British national interest in securing a stable banking system on both sides of the Irish sea?

[Mr Hoban]

My hon. Friend is absolutely right. We have strong economic ties with Ireland, which is one of our biggest trading partners. Our economies are closely interlinked, and it is therefore in our national interest to ensure that the Irish economy and banking system are stable.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

What is Her Majesty’s Government’s strategic view of the crisis? Should we bail out the Government or their banks?

[Mr Hoban]

I reiterate that no request for assistance has been received from the Irish Government.

[Mr Philip Hollobone (Kettering) (Con)]

Will my hon. Friend confirm the extent of Britain’s liability under the non-eurozone mechanism? Has he considered the possibility of renegotiating the package that the previous Government left us?

[Mr Hoban]

My hon. Friend should be aware that under the mechanism there will be no liabilities if no request for assistance has been made.

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

Does not the Financial Secretary think it worrying that, when the Irish Government consistently say that they do not require a bail-out, the speculators in the bond market—the hyenas who used to attack our currency—try to bring down the Irish Government’s financial position? Is not it right to support Ireland and the euro, of which it is part?

[Mr Hoban]

As I said before, it is important that Britain stands ready to support the Irish Government to resolve those problems.

[David Rutley (Macclesfield) (Con)]

Will the Financial Secretary tell the House about the strong interest being shown across the world in the Government’s positive approach to tackling fiscal consolidation? Does not that further confirm that this country is now on the right path to tackling the economic crisis?

[Mr Hoban]

My hon. Friend is absolutely right. The crisis reminds us of the continuing focus on sovereign debt. The Government have taken clear measures to tackle our fiscal problems, and international bodies have recognised that. It is one of the reasons for Standard & Poor’s reporting our credit rating as stable compared with its negative outlook under the previous Government. We are taking the right steps to secure our fiscal position, bearing in mind that the crisis in Ireland is around banking, not the fiscal position.

[Mr Gregory Campbell (East Londonderry) (DUP)]

It is in no one’s interests for the Irish Republic’s economy to go down even further, but taxpayers in the United Kingdom are worried that the Irish Republic could be next, followed by Portugal, Spain and Italy, and that the full and true extent of what we might have to pay is not known.

--- Later in debate ---

[Mr Hoban]

I do not want to engage in speculation about the eurozone; I do not think that that is very helpful. The hon. Gentleman, like the hon. Member for Foyle (Mark Durkan) and their colleagues, will know from experience in Northern Ireland that we have very strong interests in the stability of the Irish economy, and it is important that we stand ready to help the Irish Government in stabilising it.

[Harriett Baldwin (West Worcestershire) (Con)]

Does the Minister agree that the problem in Ireland is not so much the fiscal measures that it is taking, or global growth, but the fact that it is in the euro, and that as long as Ireland is in the euro it is hard to see how it can work its way through these problems? Would the Minister like to pay tribute to all those on this side of the House who fought to keep this country out of the euro?

[Mr Hoban]

Indeed, and my hon. Friend makes an important point. We have access to a wider range of economic tools to resolve our problems as a consequence of our being outside the euro. It is also worth bearing it in mind that this crisis flows from the banking sector, not from public spending in Ireland.

[Albert Owen (Ynys Môn) (Lab)]

It is right to support our near neighbours in Ireland and their economy. The problem over the past 18 months has been twofold: severe austerity measures and the collapse of the construction industry. Will the Government ensure that we do not follow that path? Will the Minister use the flexibility the Government have outside the euro to ensure that we slow the cuts and do not have the mass unemployment and depopulation that we have seen in Ireland?

[Mr Hoban]

I thought that the hon. Gentleman almost had it. The crisis in Ireland is around the banking sector, not the fiscal position. I believe that we are taking the right measures to stabilise the UK economy—the cuts we are making in public spending—to get our deficit under control and to keep interest rates as low as possible for as long as possible. Labour Members are the only ones calling for a weaker fiscal position when the world is moving to stronger fiscal stances.

[Mr Douglas Carswell (Clacton) (Con)]

If we are to spend taxpayer money dealing with this crisis, rather than bailing out the euro should we not be helping Ireland to bale out of the euro or, at the very least, to retain her economic independence against the Van Rompuy system of pan-European economic governance?

[Mr Hoban]

I hear what my hon. Friend says about the crisis. Let me be absolutely clear: no request for support has yet come from the Irish Government. It is important that we ensure that the Irish economy is stabilised—it is in our national interests to do so.

[Naomi Long (Belfast East) (Alliance)]

I thank the Minister for the reassurance he has already provided in not ruling out intervention or assistance should it be required. Will he provide further reassurance that he will give special consideration to the situation in Northern Ireland, where many of the Irish banks to which he refers are operational and indeed on which many of our businesses rely?

--- Later in debate ---

[Mr Hoban]

Indeed, and the hon. Lady makes an important argument about why we need to stand by the Irish Government and provide assistance if they request it.

[George Freeman (Mid Norfolk) (Con)]

Can the Minister provide my constituents and the markets with the reassurance that any British involvement will be conditional on the full involvement of the International Monetary Fund?

[Mr Hoban]

As no request has been made, I cannot comment on that. Where support is given to economies, it is commonplace for the IMF to be involved.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

The Government spent six months telling us that Britain was very much like Ireland and had a similar sovereign debt crisis. Now we hear that we are in a very different position because we are not in the euro and we have other economic tools. Which is right?

[Mr Hoban]

We have taken action in the UK to tackle our fiscal position to avoid a sovereign debt crisis. [Interruption.] Opposition Members need to recognise that the problems facing Ireland stem from a banking crisis—the banking sector was poorly regulated. We are learning lessons from that in the UK, but it is very clear that because we are outside the euro we have the flexibility to engage in economic policy by setting interest rates that meet our economic needs, and we have the flexibility that our exchange rate brings in stimulating exports. We are in a much better position as a consequence of being outside the euro.

[Matthew Hancock (West Suffolk) (Con)]

Would it not be a grave error if we took from this episode the lesson that we should weaken our resolve to deal with our debts and keep our house in order?

[Mr Hoban]

My hon. Friend is absolutely right. It is noteworthy that Opposition Members have made yet another call for us to put off making difficult decisions. We see in Ireland what will happen if we do not make difficult decisions now and sovereign debt ratings come under pressure.

[Mr Ian Davidson (Glasgow South West) (Lab/Co-op)]

Does the Minister agree that we should thank goodness that Scotland is part of the United Kingdom? Scottish banks were bailed out by the UK as a whole rather than being left to float loose as those in Ireland have been? Does he agree that if, when they are making cuts, the Government can find billions of pounds to bail out Ireland, they could better use that money to ameliorate the effect of the cuts in the UK?

[Mr Hoban]

As I said, no formal request has been made for assistance. We have a clear national interest in the stability of the Irish economy, and that must be recognised.

[Charlie Elphicke (Dover) (Con)]

Does not the crisis in Ireland and across Europe underline how right the Government have been to take the tough but necessary action to save us from bankruptcy? Will the Minister condemn the siren voices in Europe that are talking down Ireland, and will he be a friend in need, as we, as a country, should be?

--- Later in debate ---

[Mr Hoban]

My hon. Friend makes a number of very valuable points. If we had not taken tough action when we came into government, when rating agencies had our credit rating as negative, we would not have managed to narrow the spreads on UK debt compared with German bunds and reduce the yields on British debt. All that is testament to the strength of the action we have taken to tackle Britain’s fiscal problems and the legacy we inherited from the Labour party.

[Hugh Bayley (York Central) (Lab)]

Has the Treasury considered the implications for sterling if the Republic of Ireland were to leave the euro and seek to re-peg to the pound?

[Mr Hoban]

That is speculation, and I do not think it appropriate to engage in that at this stage.

[Mr Laurence Robertson (Tewkesbury) (Con)]

In the event of a request for assistance from European funds, does the Minister believe that Ireland should be allowed to set its own rate of corporation tax, with its low rate being a strength rather than a weakness?

[Mr Hoban]

As I said earlier, a number of aspects of Irish economic policy created growth, but I remind my hon. Friend, and Opposition Members, that the problems facing Ireland stem from a banking system that was not well regulated, which led to an asset price bubble. We have taken the right action in this country to tackle our deficit and to avoid having our credit rating put at risk.

[Ian Paisley (North Antrim) (DUP)]

The mechanism established to address bad banking debt in the Republic of Ireland, the National Asset Management Agency, known as NAMA, holds several billion pounds of properties in Northern Ireland and across the rest of the United Kingdom, particularly here in London. What representations are the Government making to protect our economy from NAMA deciding to float that property at the cheapest possible price to meet the needs of the banking sector in the Republic of Ireland, thereby damaging our economy?

[Mr Hoban]

I hear what the hon. Gentleman says about NAMA. It is not for us to speculate on the policy that should be followed by NAMA or the Irish Government.

[Andrea Leadsom (South Northamptonshire) (Con)]

Does my hon. Friend agree that the banking crisis was caused, in large part, by poor regulation? Will he take into account comments made by the City of London corporation to the Treasury Committee yesterday that UK banks believe that the regulatory regime we are putting in place in the UK has elements that are not compatible with the European regulatory regime? Will he take those comments very seriously and try to make sure that Britain’s banking sector is properly regulated and not incompatible with the European regime?

[Mr Hoban]

I have not seen in detail the comments made by the City of London corporation yesterday in evidence to the Treasury Committee, but I am determined that the regulatory reforms that we introduce will lead to a more stable and sustainable financial services sector—and a more stable and sustainable economy.

[Andrew Bridgen (North West Leicestershire) (Con)]

Does the Minister agree that the test of any currency is in the tough times, not just the good ones? That was explained to all the countries that joined the euro, many of which, in my view, did so with their eyes wide shut. Is it not abhorrent that this liability, and the failure of the euro, should become a liability to the UK taxpayer at this time?

[Mr Hoban]

I do think that we have an interest in having a strong, stable eurozone and eurozone economy. Member states will reflect on the measures that need to be taken to strengthen the eurozone; that is part of the thinking behind some of the measures in the economic governance paper proposed by Herman Von Rompuy just a few months ago.

Oral Answers to Questions

Mark Hoban Excerpts

Tuesday 16th November 2010 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

8. What steps he is taking to review the regulation of credit rating agencies.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The coalition Government support greater regulation of credit rating agencies. The credit rating agency regulation came into force in the EU, including in the UK, on 7 December 2009. The UK authorities continue to be active in both the EU and G20 processes, including in negotiations on amending the credit rating agency regulation and in examining ways to reduce our reliance on credit ratings for regulatory and official purposes.

[Mr Umunna]

These obviously follow on from the proposals of Jacques de Larosière. One problem that has been identified with the rating agencies is the conflict of interest issue. I think that we should move to a “buyer pays” model. The other issue is a lack of competition in the credit ratings market. Michel Barnier, the EU Commissioner, has floated the idea of having an EU credit rating agency, which I think is a thoroughly good idea. Does the Minister agree?

[Mr Hoban]

Of course there are areas where more work needs to be done, and the hon. Gentleman is right that Michel Barnier has made further proposals, in a consultation paper that he published earlier this year. They included looking at the business models for credit rating agencies. However, I question whether taxpayers in Europe would feel it right that their money should be going to fund credit rating agencies.

[Andrew Bridgen (North West Leicestershire) (Con)]

Is it not a cause for cautious optimism that agencies such as Fitch, Moody’s and Standard & Poor’s have now given the UK such an excellent credit rating?

[Mr Hoban]

My hon. Friend is absolutely right, and it just goes to show that credit rating agencies do not get it wrong all the time. In May, Standard & Poor’s put the UK’s credit rating on a “negative outlook”, as a consequence of the previous Government’s policies. However, in October it said that

“the coalition parties have shown a high degree of cohesion in putting the U.K.’s public finances onto what we view to be a more sustainable footing.”

We welcome those comments.

[Philip Davies (Shipley) (Con)]

9. What recent assessment he has made of the effectiveness of the outcome of the comprehensive spending review in reducing the budget deficit.

--- Later in debate ---

[Stephen Mosley (City of Chester) (Con)]

11. What steps he has taken to encourage saving since the June 2010 Budget; and if he will make a statement.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government want to build a savings culture based on the principles of freedom, fairness and responsibility, and we are committed to creating conditions for higher saving. We have already announced a number of measures, including the annual financial health check and an end to the effective requirement to purchase an annuity with tax relief pension savings at the age of 75. We will also increase the amount that can be paid into ISAs each year in line with inflation from April 2011.

[Stephen Mosley]

Recent research from Which? has highlighted the fact that savers are missing out on £12 billion a year by keeping their money in accounts that pay extremely low rates of interest. Would my hon. Friend consider encouraging banks to print the interest rate on bank statements in the same way that credit card companies have to print the rate that they charge on their statements, in order to help savers to identify whether they are getting a good deal from their bank account?

[Mr Hoban]

My hon. Friend makes an important point. We need to ensure that savers have the information that they need to enable them to shop around and find the best possible deal. ISA providers have already agreed to disclose interest rates on their statements, and the Financial Services Authority is consulting on extending that duty to other savings accounts.

[Stewart Hosie (Dundee East) (SNP)]

The Minister will be aware that the savings ratio is forecast to fall in every single year until 2015. Does this not make the decision to abolish the child trust fund—a savings plan with a 74% voluntary take-up rate—all the more short-sighted?

[Mr Hoban]

The problem with the child trust fund is that there was no evidence to demonstrate that it increased savings across the economy. We are faced with a difficult decision: we need to find savings to tackle the budget deficit that we inherited, and we believe that the best thing to do is to give help to families now rather than locking that money away until the children are 18.

[Julian Smith (Skipton and Ripon) (Con)]

12. What assessment he has made of the effect on the economy of recent trends in growth in the private sector.

--- Later in debate ---

[Mr Marcus Jones (Nuneaton) (Con)]

What steps can the Chancellor take to ensure that the Financial Services Authority’s mortgage market review proposals do not have a disproportionate effect on home buyers and the housing market, particularly at a time when we are trying to encourage growth through the private sector?

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

My hon. Friend makes an important point and the FSA’s mortgage market review is seeking to learn some of the lessons from how the mortgage market was regulated before the financial crisis and some of the problems that that regulation created. What I think is important is that the FSA should consider very carefully the impact on home ownership and particularly on those people who are looking to move shortly.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

T8. May I give those on the Treasury Front Bench the opportunity to answer the question on child benefit that they failed to answer earlier? How do they justify taking child benefit off a single-earning family on £45,000 and allowing a family that earns £80,000 to retain child benefit? An answer this time would be appreciated.

Terrorist Asset-Freezing etc. Bill [Lords]

Mark Hoban Excerpts

Monday 15th November 2010 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I beg to move, That the Bill be now read a Second time.

The Bill makes provision for imposing financial restrictions on, and in relation to, certain persons believed or suspected to be, or to have been, involved in terrorist activities. It amends schedule 7 to the Counter-Terrorism Act 2008, and is for connected purposes.

Hon. Members will be aware that the threat to the UK from terrorist attack continues to be judged as severe, meaning that an attack is highly likely. Just a few weeks ago, intelligence agencies uncovered another plot designed to cause death and destruction to innocent people. As my right hon. Friend the Home Secretary revealed, those involved in that air cargo bomb plot were well connected and part of an international network of extremists.

It would seem that the terrorist threat that we face is developing. We see the continued emergence of a more diverse and devolved terrorist threat that is joined more by ideology than by hierarchy, and that is technologically very capable. Small networks, or even individuals acting alone, are able to use technology to their advantage, giving them the ability to wreak havoc worse than their size might suggest. It is clear that those who wish to do us harm operate on an increasingly global scale and are devising ever more sophisticated methods of avoiding detection. This is why we must continue to ensure that the tools we employ to combat terrorism remain effective. We must have the ability to take preventive action to disrupt suspected terrorists.

[Keith Vaz (Leicester East) (Lab)]

I understand that 205 accounts have been frozen under the previous legislation. Does the Minister know whether there is any evidence of a link between any of those accounts and actual terrorist activity? I am not disputing in any way what the Government are doing, and I fully support the Bill, but I would like to know whether any connection has been made between those accounts and any kind of terrorist activity.

[Mr Hoban]

In regard to the Bill, and to the legislation that it will replace, assets are frozen where there is reasonable suspicion. The Bill will change that test in order to strengthen it.

Asset freezing is a tool that we can use to take preventive action to disrupt suspected terrorists, and it is used internationally to prevent and disrupt the financing of terrorism. The impact of our ability to freeze the funds of potential perpetrators should not be underestimated. By cutting off access to finance and preventing money from reaching terrorist networks, we can stop individual acts in their early stages.

Currently, around £140,000 is frozen in the UK under our domestic terrorist asset-freezing regime. That might not seem a large amount, but hon. Members will be aware that it takes only a relatively modest amount of money to carry out a deadly attack. By way of illustration, the dreadful attacks of 7 July 2005 cost less than £10,000 to carry out, and the air cargo bomb plot is also likely to have cost a comparatively small amount.

[Keith Vaz]

No one is disputing the importance of this legislation or the legislation that it replaces, or the decision of the Supreme Court that has meant that this measure has had to be rushed through in this way. The Minister has not really answered my question, however; he has just given me some information about reasonable suspicion. Was there any connection between any of the accounts that have been frozen, for whatever reason, and any terrorist activity?

[Mr Hoban]

May I just dispute the right hon. Gentleman’s point about the Bill being rushed through? It has not been rushed through. The process, of which he might be aware, is that, following the Supreme Court judgment earlier this year, emergency legislation was taken through this House and the other place to ensure that the terrorist asset-freezing regime remained in place until the end of this year. At that point, the previous Government initiated a consultation on the way in which that legislation should be replaced. That consultation started earlier this year, and has continued. My noble Friend Lord Sassoon introduced this Bill in the other place, and further safeguards have been included in it as a consequence of the consultation process. I do not believe that anyone could say that the process has been rushed. It has taken place in the methodical and thorough manner required to balance civil liberties concerns with the importance of national security. Although I am not in a position to disclose the links between the accounts frozen and any activity, those accounts and the evidence are kept under review, and orders are lifted where it is felt appropriate.

Asset freezing is not just a domestic tool used by the UK to combat terrorist financing. We have an international obligation to freeze the assets of terrorists, and it is important to consider it in some detail. In 2001, after the 9/11 attacks, the UN Security Council unanimously passed resolution 1373, requiring states to take a range of measures to combat international terrorism and the financial flows that underpin it. The overarching objective of the resolution was to

“combat by all means…threats to international peace and security caused by terrorist acts”.

It was clearly intended to be preventive, and it calls on states to

“work together urgently to prevent and suppress terrorist acts, including through increased cooperation and full implementation of the relevant international conventions relating to terrorism”.

Those are broad provisions, and intentionally so. They reflect the Security Council’s real and unanimous commitment to take all necessary measures to prevent terrorism.

Although resolution 1373 is quite detailed in its obligations, the Financial Action Task Force, the international standard-setting body for anti-money laundering and counter-terrorist finance, has helpfully provided further detailed guidance on the implementation of UN terrorist asset-freezing obligations. That guidance reflects the intention for the resolution to be preventive in its effect, which is an important consideration when we come to consider in more detail the appropriate legal test for freezing assets.

Particularly for the benefit of hon. Members who did not participate in our debates earlier this year, I should like to explain a little of the history behind the Bill and why we need to act now. Following the adoption of resolution 1373, the previous Government took the decision to implement UN terrorist asset-freezing obligations through secondary legislation, by Orders in Council made under the United Nations Act 1946. Following litigation brought by several applicants affected by one of those orders, which went all the way to the Supreme Court, that court ruled earlier this year that the previous Government had gone beyond the general powers conferred by section 1 of that Act in making Orders in Council to give effect to our UN terrorist asset-freezing obligations. The orders were not subject to parliamentary scrutiny, so Parliament did not have the opportunity to consider how the UK should best give effect to its obligations. The Supreme Court quashed the relevant order with immediate effect.

Many Members will remember that in response to the judgment, the previous Administration rushed through emergency legislation, with cross-party support, to maintain the asset-freezing regime and ensure that terrorist assets would not have to be unfrozen. No one in the House wanted to see the unfreezing of terrorist assets, and that was why my party and others were prepared to support the emergency legislation. At the same time, there was a strong feeling in the House that the terrorist asset-freezing regime needed to be scrutinised by Parliament in more detail at the earliest opportunity, and that there was scope to improve it by strengthening civil liberties safeguards. For that reason, Parliament inserted a sunset clause providing for the temporary legislation to expire on 31 December this year. That is why we are now legislating to ensure that the UK’s terrorist asset-freezing regime can be improved and put on a secure legislative footing in time for that deadline.

As the House will know, this Government are committed to striking the right balance between protecting public safety and protecting civil liberties. We believe that in a number of areas, it is possible to strike a better balance and strengthen civil liberties safeguards without undermining public safety. Terrorist asset freezing is one such area, and that is why the Bill is not intended simply to reintroduce the previous regime that the Supreme Court quashed. I shall explain that.

The Bill, as introduced in the other place, included several changes to strengthen the proportionality, fairness and transparency of the regime. Briefly, they included a narrowing of the prohibitions relating to third parties, so that a third party does not commit an offence if they did not know, or reasonably suspect, that they were breaching a prohibition; excluding payments of state benefits to spouses or partners of designated persons from the scope of prohibitions, even when those benefits are paid in respect of a designated person; and a new requirement that the operation of the regime be independently reviewed nine months after the Bill is passed and every 12 months thereafter.

To strengthen further the protection afforded to designated persons, the Government tabled significant safeguards before the Committee stage in the other place. Those additional safeguards reflect the civil liberties concerns that were raised in Parliament during the passage of the emergency legislation and in the public consultation conducted over the spring and summer.

First, we addressed the legal threshold that must be met before the Treasury can freeze a person’s assets. Under the current Order in Council, the Treasury may freeze a person’s assets on the basis that it reasonably suspects that they are involved in terrorism, provided that the Treasury considers that necessary to protect members of the public. Under the Bill, the Treasury can no longer rely on a threshold of reasonable suspicion if it wishes to make a designation lasting more than 30 days.

The Government consider that there is a good case for retaining a reasonable suspicion threshold for a temporary period of 30 days only. That will enable assets to be frozen when there is sufficient evidence to meet a suspicion threshold, but when, for example, investigations are ongoing, and there is therefore a reasonable prospect of subsequently meeting a higher evidential threshold. A good example of that is when assets are frozen alongside arrest while the police build the evidential case for bringing criminal charges, as happened with the freezing of assets in connection with the transatlantic plane bomb plot in 2006.

[Dr Julian Huppert (Cambridge) (LD)]

The Minister mentioned tying freezing to arrest, which I agree with, but can he give examples of when we might ever want the power to freeze assets without arresting somebody?

[Mr Hoban]

We might freeze assets in the UK that belong to terrorists who operate overseas in a more benign environment, when it would be difficult for us to secure the arrest of individuals given where they operate. There is therefore a strong argument for those powers. The hon. Gentleman will be as acutely aware as I am that his predecessor as the hon. Member for Cambridge led for the Liberals on the emergency legislation and raised a number of the civil liberties concerns that we are addressing in the Bill.

The Government do not believe that assets should remain frozen on the basis of a reasonable suspicion threshold for longer than 30 days. That is why the Bill makes it clear that to make a final designation—meaning one that lasts for up to 12 months—the Government can act only if we have a reasonable belief that a person is or has been involved in terrorism.

[Dr Huppert]

As I am sure the Minister understands, I am now trying to represent David Howarth—he is my constituent. What is the test of reasonable belief compared with, for example, the civil standard of the balance of probabilities? Is reasonable belief essentially the same, or is the Minister arguing for a lower standard?

[Mr Hoban]

The reasonable belief test is less than the balance of probabilities test, as I am sure the hon. Gentleman’s constituent is aware, but the Government believe that the measure strikes the right balance. The Bill is preventive, which explains why we have chosen a reasonable belief test rather than a balance of probabilities test.

The second major civil liberties safeguard that we have introduced involves strengthening judicial oversight of decisions to impose asset freezes. Under the current legislation, a court can review a decision to impose an asset freeze only under the judicial review procedure. The House of Lords Constitution Committee recognised that judicial review gives the courts a significant power of scrutiny, particularly when decisions have been made in a national security context. However, there were concerns that although the courts can use, and have used, judicial review as an effective power of scrutiny in control order cases, there is a lack of clarity about how the courts would operate judicial review in the context of asset freezing.

To address that and to provide clarity—we expect the courts to apply rigorous scrutiny to asset-freezing designation decisions—the Government have provided in the Bill that decisions to freeze assets will be subject to a full merits-based appeal procedure. By providing a full merits-based appeal, we can ensure that the same degree of scrutiny that is given, for example, in control order proceedings—effectively such proceedings are equivalent to a full merits-based review—is afforded to individuals subject to a designation. I wish to inform the House that I have put a schedule of the changes I have highlighted in this Bill in the Commons Vote Office, and I hope that will help hon. Members during today’s debate and in Committee.

I wish now to deal with the content of the Bill, beginning with the provisions under part 1. The effect of a designation under this legislation is threefold: to forbid dealing with a designated person’s funds and economic resources; to forbid making funds or economic resources available to such persons; and to forbid funds or economic resources being made available to a person when the designated person will consequently obtain a significant financial benefit.

Part 1 sets out the provisions allowing the Treasury to make a final designation, necessary to protect the public, where it reasonably believes that a person is or has been involved in

“the commission, preparation or instigation of acts of terrorism”

or

“conduct that facilitates the commission, preparation or instigation of acts of terrorism”.

It also sets out the provisions where the Treasury may make an interim designation, necessary to protect the public, where it reasonably suspects that a person is or has been involved in the commission, preparation, or instigation of acts of terrorism, or conduct that facilitates such acts. An interim designation expires at the end of 30 days, unless a final designation is made. Part 1 provides that the prohibitions are contravened only when someone knows, or has reason to suspect, that the person whose funds or economic resources they are dealing with, or to whom they are providing funds, economic resources or financial services, is a designated person.

The Bill also provides for licences, which permit exemptions to the freeze. I should like to point out that the Treasury’s policy is to issue an individual licence to designated persons straight away to enable them to carry on paying for their ordinary, everyday expenses. That minimises the immediate impact of an asset freeze on a designated person and their family. Any further licences, or amendments, can be applied for by the designated person, or by any person affected by the prohibitions, at any time. The Treasury has also issued a number of general licences, which allow certain transactions to occur without the need for a separate licence application to be made—for example, to ensure that a designated person can have access to legal aid without delay.

Part 1 also sets out the reporting obligations on the financial sector in relation to these provisions, and the Treasury’s general information-gathering powers to monitor compliance with, and detect evasion of, the regime.

[Dr Huppert]

Perhaps the Minister could help me. Nothing in the Bill makes it clear that the Treasury is required to make reasonable licences available. Is there an expectation of what the Treasury would allow?

[Mr Hoban]

Yes. As I have said, we have issued a number of licences, which I understand run alongside the regime that is in place. That is why I do not think the hon. Gentleman will find reference to a general licence on legal aid in the Bill. This runs in parallel to the legislative framework in place.

[Tom Brake (Carshalton and Wallington) (LD)]

The Minister will be aware that Lord Wallace of Tankerness said that

“the general presumption is that where a licence is requested to pay for legal costs, it will be granted.”—[Official Report, House of Lords, 6 October 2010; Vol. 721, c. 174.]

Does the Minister think there any circumstances in which a licence would not be granted to cover legal costs?

[Mr Hoban]

I do not want to get into giving hypothetical answers to hypothetical questions. If the hon. Gentleman has a particular concern and wishes to write to me about it, I shall be happy to respond appropriately.

Finally, part 1 sets out the obligations on the Treasury to appoint an independent reviewer and the penalties attached to breaches of the asset-freezing provisions. Part 2 makes minor amendments to the Treasury’s financial restrictions powers under schedule 7 to the Counter-Terrorism Act 2008. Those powers are an important part of the Government’s toolkit to deal with risks posed to the UK by money laundering, terrorist financing and the development or production of chemical, biological, radiological or nuclear weapons. They also enable the Government to take action where the Financial Action Task Force advises that counter-measures should be taken because a country poses a money-laundering or terrorist-financing risk. The risks that those powers address are of a serious nature and it is imperative that we have effective financial tools to tackle them. We have identified a small number of technical amendments to these powers.

First, we are introducing a prohibition on the intentional circumvention of any restriction issued under the powers in order to ensure that a restriction cannot simply be bypassed. That will prohibit anyone in the UK financial services sector who has to comply with the requirements of a restriction from intentionally rearranging their business to circumvent those requirements.

Secondly, we are introducing a provision to allow restrictions to be targeted against subsidiaries of companies based in the country of concern. Thirdly, we will clarify the point that, when the Government direct a UK financial or credit institution to implement a restriction, that restriction can apply across its branches, wherever located. Fourthly, we are making provision for the transfer from the Department of Enterprise, Trade and Investment in Northern Ireland to the Financial Services Authority the responsibility for ensuring the compliance of Northern Ireland credit unions with the requirements of a restriction.

This Bill, when passed, will create a secure legislative footing for an important and necessary counter-terrorism power. The Government recognise that such powers are not to be created lightly, and I am confident that the safeguards in the Bill strike the right balance between national security and the rights of the individual. This is the right course of action to protect our national security, to protect the freedom of our citizens and to prevent future attacks, and I commend this Bill to the House.

Counter-Terrorist Asset-Freezing Regime

Mark Hoban Excerpts

Monday 15th November 2010 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government are committed to reporting quarterly on the operation of the UK’s terrorist asset-freezing regime. We believe this is essential to ensure transparency and accountability of the regime. The Terrorist Asset-Freezing etc. Bill will enshrine in law the commitment to report quarterly to Parliament.

This report covers the period July to September 2010.¹

Asset-freezing designations

In the quarter July to September 2010, the Treasury gave no new directions under the UK’s domestic terrorist asset-freezing regime.

During this quarter, the EU added seven people to EC Regulation 881/2002, implementing the UN al-Qaeda and Taliban asset-freezing regime established under UNSCR 1267.

As of 30 September 2010, a total of 205 accounts containing just under £290,000² of suspected terrorist funds were frozen in the UK.

Reviews under the Terrorism Orders

The Treasury keeps domestic asset-freezing cases under review and completed 34 reviews in this quarter. From these 34 reviews 13 persons had their designations revoked.

The Terrorism Order 2009 contains a provision that designations made under the previous Terrorism Orders 2001 and 2006 expired on 31 August 2010 and that beyond 31 August freezes can only be made or renewed under the 2009 Order. All persons subject to domestic terrorist asset-freezes in the UK are now subject to the 2009 Order and benefit from the additional safeguards set out in that order compared with the previous orders.

Licensing

Maintaining an effective licensing system is important to ensure the overall proportionality and fairness of the asset-freezing regime, whether the individuals concerned are subject to an asset-freeze in accordance with a UN or EC listing, or domestic terrorism legislation. A licensing framework is put in place for each individual on a case-by-case basis. The key objective of the licensing system is to strike an appropriate balance between minimising the risk of diversion of funds to terrorism and meeting the human rights of affected individuals and their families. Licences contain appropriate controls to protect against the risk of the diversion of funds for terrorist finance.

Eighteen licences were issued this quarter in relation to 15 persons subject to an asset-freeze under the al-Qaeda and Taliban and domestic terrorism regimes.

Of these 18 licences, 11 revoked and replaced earlier licences. There were no variations to licences this quarter.

Proceedings

In the quarter July to September 2010, no proceedings were taken for breaches of the prohibitions of the Terrorism Orders or the al-Qaeda and Taliban (Asset-Freezing) Regulations.

Developments

The Terrorist Asset-Freezing etc. Bill: The Bill has completed its passage through the House of Lords and Second Reading in the House of Commons takes place on 15 November 2010.

Kadi v. Commission: Yassin Abdullah Kadi was listed under EC Regulation 881/2002. This regulation gives effect to the UN al-Qaeda and Taliban asset-freezing regime (UNSCR1267) in the EU. Mr Kadi challenged his listing under this regulation, arguing that it breached his fundamental rights under European law.

On 30 September the European General Court upheld Mr Kadi’s challenge, annulling the EC regulation, in so far as it applied to Mr Kadi. The judgment will take effect on 10 December unless an appeal is lodged, in which case it will be stayed until the appeal has been decided.

The Kadi case concerns how EU member states implement their obligations to freeze the assets of sanctioned individuals under the UN al-Qaeda and Taliban regime. It does not concern the UK’s domestic terrorist asset-freezing regime.

¹ The detail that can be provided to the House on a quarterly basis is subject to the need to avoid the identification, directly or indirectly, of personal or operationally sensitive information.

² This figure reflects account balances at time of freezing and includes approximately $58,000 of suspected terrorist funds frozen in the UK. This has been converted using exchange rates as of 15/10/10. Future fluctuations in the exchange rate may impact on the contribution this sum makes to future totals of suspected terrorist funds frozen.