Equitable Life (Payments) Bill
Mark Hoban Excerpts(14 years ago)
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Mr Hamilton
That is a good point, and it was made during the previous Parliament, in February, at a packed meeting with the former Chief Secretary to the Treasury, my right hon. Friend the Member for Birmingham, Hodge Hill, and Sir John Chadwick. My right hon. Friend made a commitment, which I am not sure the Financial Secretary has made, so perhaps he will clarify the situation in his contribution, that the estates of those who had passed away would receive some compensation. The point that I have just made may be contradicted, but it depends on what the Financial Secretary and the Treasury want to do.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Before the hon. Gentleman continues, let me just make it clear that long ago we established the fact that, under any compensation scheme designed, we would make payments to relatives of those who were deceased, and that there would be no means-testing.
Mr Hamilton
I thank the Financial Secretary for clarifying that point, which somewhat contradicts what I said earlier about the diminishing amount of money.
The best estimate that EMAG can give us is £200 million for the 10,000 existing pre-1992 annuitants. I confirm that I wish to press my amendment to a vote, and simply conclude that we owe some of our most frail and vulnerable pensioners no less. I urge all Members to support my amendment.
Bob Blackman
I thank my hon. Friend for her intervention. The issues are complex, and the more one reads about and understands the scandal, the more difficult it becomes to resolve it. The Government in their wisdom have set out a compensation scheme that will continue for many years. The £1.5 billion is not a one-off payment that will go into a fund this year and end the matter. It will be spread over many years, and it will extend into the next Parliament.
Bob Blackman
I thank the Minister for his intervention. I was going to refer to that while I was responding to the intervention from my hon. Friend the Member for Devizes (Claire Perry). The clear issue now is justice for the people in the worst possible position—the trapped annuitants. I applaud the Government for honouring the pledge that 37,000 people who have been trapped as a result of the scandal will receive 100% compensation. I strongly support and endorse that.
We have a problem, however, and amendment 1 attempts to address it. The amendment has cross-party support; we must be seen to be acting not just as a party but as parliamentarians overseeing the Executive. The problem is that if someone took out a policy on a particular day, they would receive no compensation at all, even though the maladministration was taking place at the time; whereas someone who took out a policy on the following day would get 100% compensation. There are always difficulties when arbitrary dates are set, but that is neither fair nor reasonable.
I believe that we should set aside the date and review all the trapped annuitants to ensure that they get fair and proper compensation. The Chadwick report has been rubbished by EMAG, and by Members on both sides of the House, but even Chadwick proposed a scheme that would have compensated those trapped annuitants whose policies were taken out before the cut-off date.
Mr Marcus Jones (Nuneaton) (Con)
I would like to speak mainly about the position of with-profits annuitants and the pledge that I and other Members of all parties made before the general election—that the Government should make fair and transparent payments to those who had suffered as a consequence of the debacle of Equitable Life. I am talking about 350 local people in my constituency who are part of the Equitable Members Action Group. Those 350 include people associated with many companies that were in the Equitable Life scheme. Many hundreds of other people are affected. For some, Equitable Life provided their only private pension to supplement their state pension provision.
I welcome the fact that for a number of my constituents, that pledge has been made good, and I understand that the trapped annuitants in the post-1992 cohort will receive 100% of their compensation. I am delighted about that. Needless to say, I am also very concerned for the pre-1992 Equitable Life investors for whom, it seems, there will be no compensation at all. That seems contrary to the recommendations of the parliamentary ombudsman, contrary to EMAG’s suggestions and contrary to the views of Sir John Chadwick, for whom not many Members have a great deal of time.
I understand that it is difficult to quantify the losses, but, if the Government have the will, the losses of the pre-1992 annuitants should be explored. The people to whom we made a pledge before the general election in May were not necessarily concerned whether they were pre-1992 annuitants or post-1992 annuitants. Their concern was as Equitable Life policyholders looking for justice.
If the Government and the Treasury have the will to deal with this situation, they should do so; if not, they should explain how I justify the position to constituents who have been wronged.
If the Government and the Treasury are prepared to look at compensating the pre-1992 annuitants, there has to be a health warning, because there is a law of unintended consequences, should we be stuck at the compensation figure of £1.5 billion. Many of my constituents who are post-1992 annuitants might be unaffected by any decision to include the pre-1992 annuitants.
Amendment 7 deals with that position and the relative losses. The Treasury should consider it, although I am concerned about whether it could be taken into account within the current comprehensive spending review or would need to be considered after the current CSR period expires.
I would like to ask the Minister several questions. First, will he look again at how to compensate the pre-1992 annuitants, and at how that might be quantified? Will he commit to working with his Treasury colleagues to take into account payments beyond the CSR period to enable the pre-1992 annuitants to be compensated without prejudicing the position of the post-1992 annuitants and that of Equitable Life policyholders generally?
I implore the Minister again—I did so in the last debate on this subject—to recognise that the Government’s decision over Equitable Life raises questions not only about the integrity of the current Government, but about the integrity of savings and investments for one’s retirement. I am well aware that many of my constituents do not have their own retirement provision. The Government should encourage people to provide for their retirement, but if we do not ensure that there is a safety net for people who have invested and done the right thing for their retirement, they will think that it is not worth putting themselves out by investing money for their retirements during their early years of work.
I ask the Minister to consider those points extremely carefully before any decisions are taken this afternoon.
Mr Hoban
I start by referring to the closing question from my hon. Friend the Member for Nuneaton (Mr Jones). He will be aware that in July we published proposals to strengthen the regulation of retail financial services, including pensions, which I hope will go some way towards reassuring people that we have learned the lessons from the past and put in place a much more stable and robust framework for the regulation of long-term savings.
I am grateful for the opportunity to discuss, first, the role of the parliamentary ombudsman in developing our policy on the payment scheme. Her work has been central to our approach. I also want to focus on with-profits annuitants and those who took out their policies prior to September 1992. These issues have been raised particularly since our announcements in the spending review. I hope that I can bring some clarity to the treatment of different groups of with-profits annuitants.
Nadhim Zahawi
Is it not precisely the point that, rather than being an open-ended compensation scheme, the scheme relates to malpractice?
Mr Hoban
My hon. Friend is absolutely right. Our obligation is to compensate people for regulatory failure by the Government when they were the regulator of Equitable Life. The scheme is not an open-ended compensation scheme. It is very focused, and that was the ombudsman’s recommendation. Her locus in this matter is a consequence of the Government having acted as the regulator for Equitable Life during the period in question.
Let me explain to the Committee and to the hon. Member for Leeds North East (Mr Hamilton), who raised the question, why 1 September 1992 is a logical, not arbitrary, date. The ombudsman indicated in her report that there were problems with the regulatory returns for 1991, and that those could influence policyholder behaviour. However, they could not have come to the attention of policyholders, and prospective policyholders, before they were submitted at the end of June 1992. No policyholder would have been aware of that regulatory failure until the returns had been published. It is unlikely that those returns would have come to anyone’s attention prior to 1 September 1992. I stress that the date is not arbitrary, but a consequence of the ombudsman’s findings and how they impact on what policyholders would have been aware of. Policyholders would not have been aware of the regulatory failure until the autumn of 1992.
Mr Fabian Hamilton
I accept the Minister’s point about the date not being arbitrary, but does he not accept that the regulatory failure affected those annuitants who could not change their annuities, even if they were purchased before September 1992? Along with those annuitants who purchased policies after September 1992, they continue to see a decline. Therefore, they were affected by regulatory failure.
Mr Hoban
The hon. Gentleman makes an assumption that the scheme is open-ended, but it is designed to compensate policyholders who invested in Equitable Life from 1 September 1992. With regard to the implications of that, I shall respond to the intervention by my hon. Friend the Member for Cardiff North (Jonathan Evans).
Mr Weir
Will the Minister explain further, as I do not quite understand? He seems to be saying that only those who became aware of a regulatory failure in 1992 are affected. However, am I not right in thinking that that suggests that the regulatory failure goes back prior to 1992, and would have affected people then, although they would not have been aware of it? Are those people not entitled to compensation?
Mr Hoban
The ombudsman is concerned about people who invested in Equitable Life who might not have done so had they been aware of that regulatory failure. That regulatory failure would not have been known to them until September 1992, so there is a clear, rational argument for 1 September 1992 being the right date to start the calculation of losses.
Bob Blackman
But will the Minister answer the moral issue? At the time when people were making investment decisions, and taking out these policies, the regulatory failure was going on. As they became victims of that regulatory failure, surely we have a moral duty to compensate them.
Mr Hoban
When people made the decision on the information available to them, the relevant information was not in the public domain, and would not have affected their investment decision until September 1992. That is a clear, logical, sensible starting point, based on principles and on the ombudsman’s findings, for the maladministration, and that is the point from which we should calculate relative loss for policyholders.
Mark Durkan
The Minister is in danger of asking the Committee to accept the notion that customer ignorance can be a legislator’s excuse. That cannot be so. If the Minister is trying to say that what they did not know did them no harm, that is preposterous. They did not know, and they have suffered harm.
Mr Hoban
I do not agree with that point. There is a clear principle: the basis on which people were investing in Equitable Life. At that point, no one knew about the maladministration.
We should also bear in mind the issue of practicality and the lack of information available to Equitable Life’s policyholders. Hon. Members should reflect on the fact that no one would have made investment decisions based on anything that happened prior to 1992 until that information was in the public domain. That is why the group has been excluded from the calculation of relative loss.
Mr John Baron (Basildon and Billericay) (Con)
My hon. Friend is being generous in giving way. No one suggests that the situation is not difficult, but whether or not one was aware of maladministration, and whether or not it existed pre ’92, surely the central point is that annuitants who took out a policy pre ’92 suffered relative loss post ’92, courtesy of maladministration. To return to an earlier point, perhaps there is a moral duty to include such people in the compensation, as I believe that the parliamentary ombudsman suggested.
Mr Hoban
The parliamentary ombudsman’s findings were clear: she said that the maladministration started in 1991, but that it would not have been obvious to policyholders until September 1992.
Let me deal with two issues that hon. Members should have take into account in assessing the point. First, as has been mentioned, there are challenges around getting information for the pre ’92 period. Secondly, there is the point made by my hon. Friend the Member for Cardiff North about the timing of losses. We recognise that pre ’92 with-profits annuitants were affected by how Equitable Life was run. Sir John Chadwick and Towers Watson looked into what those WPAs would have received from Equitable Life had there been no maladministration. They concluded that they received more from Equitable Life as a result of maladministration than they would have done had it been properly regulated. That was because Equitable Life paid out more to them in the early years than it would have done had there been no maladministration. Let me give an example to prove that.
If a with-profits annuitant had purchased their policy in 1989 and gained through that purchase an income of £7,200, by 1993 the policyholder would have been receiving an annuity of approximately £10,000 per annum. Part of that sum was a result of the bonuses that had been declared on the policy since commencement. It is recognised that Equitable Life was paying higher bonuses than it could afford during the late 1980s and early 1990s. If Equitable Life had not been over-bonusing during that period, Towers Watson has calculated that the policyholder would have received only £9,500 per year. It is a consequence of the maladministration that the policyholder is receiving £500 more than he or she should have during that period.
Equitable Life continued to overpay bonuses throughout most of the 1990s. As a result, by 2002 that policyholder was receiving £17,000 per annum. If the over-bonusing had not taken place, the policyholder would have received only £15,800, so he or she was still receiving more as a consequence of maladministration.
In 2003, Equitable Life cut the rate of annuity payments to its with-profits policyholders by about 20%. In the absence of maladministration, the value of payments to with-profits policyholders would also have been cut, although, owing to market performance, by only 18%. After the cuts in 2003, our example policyholder was receiving £12,900 per year from Equitable Life. Had there been no maladministration, he or she would have been receiving only £12,300. I hope that that example has helped to clarify the consequences of maladministration, namely that even after the cuts in 2003 policyholders are still receiving more than they would have if Equitable Life had been properly regulated. For a range of reasons, their plight is not as it has been represented.
The first question to be asked, then, is “When did maladministration affect policyholders and the decisions that were made?” The second relates to the practicality of extracting data pre-1992, which is well established and has been well aired in the Chadwick report and elsewhere; and the third concerns the consequence of maladministration in Equitable Life, which is that with-profits annuitants are receiving more over the lifetime of their policy than they would have received if that maladministration had not taken place.
Jonathan Evans
I was interested in the way in which my hon. Friend dealt with my point about over-bonusing, but I feel that he has undermined another point that I made: I suggested that it was not possible to make such calculations, but my hon. Friend has suggested that Towers Watson has done so. In a sense that also undermines the thrust of why the pre-1992 policyholders should be excluded. I had assumed that they might not have been disadvantaged and that it was too difficult to work out the numbers, but if Towers Watson has worked out those numbers and there is no relative loss, it seems a bit odd not to include them, at least for the purpose of calculating the position and telling them that there is no loss.
Mr Hoban
I was trying to make two points. First, those policyholders were excluded from the calculation of relative loss as a consequence of the ombudsman’s findings and her view on when maladministration had taken place. According to the example that I have given, they would not have suffered loss in any event. I am merely saying that, in my opinion, there is a strong case in principle for the exclusion of those policyholders, and in practical terms they have not suffered loss.
Mr Hoban
I want to make some more progress.
The fact that with-profits annuitants who bought their annuities before 1 September 1992 have seen a reduction in the level of payments that they currently receive from their annuities is a result of poor investment market performance and the fact that their earlier annuity payments were artificially high. That was because of the structure of the policies that they bought, or because they received too much in the earlier years, as Equitable Life paid out more on a discretionary basis than it should have. Unlike the value of conventional annuities, the value of a with-profits annuity varies according to investment return. Although the reductions are regrettable, they are not instances of Government maladministration, and therefore Government should not be providing compensation for that group of policyholders.
Mark Durkan
If the right hon. Gentleman had been here for the debates on earlier amendments, he would know that I made no such excuses then. Indeed, in all previous debates, I have been very critical of the performance of previous Governments. We have both been the Finance Minister in Northern Ireland, as he says. When I held that position, I used the line, “I’m the Minister of Finance; I don’t suffer from depression but I am a carrier.” That is the effect: Treasury Ministers are put in that sort of position. They become aware of constraints and difficulties that they then have to put before everyone else and impose on them as well.
My point is not that Ministers were right or wrong to listen to the advice but that we, as a Committee, must choose whether to go along with the Bill and say that the scheme will proceed only according to Treasury lights or whether to say instead that it should go according to wider lights and be informed by the sort of considerations reflected in the various amendments that hon. Members have tabled and by the many good observations made by Members on both sides of the Committee. Either we want to trust the Treasury and leave the scheme entirely in its hands, with its considerations and constraints alone, or we want to honour the spirit of what we have all pledged to those who have lost out with Equitable Life and to act in the light of the sad experiences that we have heard about.
I commend the amendments to the Committee. I shall wait to hear what the Government say about their amendment, but it seems to reinforce the Treasury’s whip hand over the whole scheme.
Mr Hoban
I take the same view as the right hon. Member for Belfast North (Mr Dodds) on the responsibility of Ministers. Civil servants provide advice but Ministers decide and act and we cannot ignore that responsibility. We have taken this matter very seriously and have sought, over the past six months, to drive through a speedy resolution to the problem. I echo the remarks of my hon. Friend the Member for St Albans (Mrs Main) on tackling this matter.
On the amendments before us, the purpose of amendment 3 is to make the design and operational mechanism of the scheme “independent of government”. I understand the need for independence in the design of the payment scheme, which is why I established the Independent Commission on Equitable Life Payments. The commission’s advice will necessarily form the basis of the scheme’s design. It will advise on how best fairly to allocate payments among policyholders, with the exception of with-profits annuitants, and it will consider which groups, if any, should be prioritised. It is right that that process should be independent, so the scheme will be independently designed.
The Government have considered whether the scheme should also be operated independently of the Government, as amendment 3 proposes, and have concluded that that would not be appropriate for three key reasons. First, it would delay the commencement of payments. Our ambition is to start making payments in the middle of next year using our preferred delivery partner National Savings and Investment. I shall say more about that on amendment 6. If amendment 3 were accepted, NS&I, which is an Executive agency of the Treasury, could not be used as the delivery partner as it would not be operating independently of the Treasury, which would therefore have to establish a new, independent body or identify an existing such body that could operate the scheme. It is also likely that legislation would be required to task the independent body with the design and operation of the scheme, which would delay significantly the making of payments to policyholders.
Secondly, the Government have established an independent commission to advise on the allocation of payments. This function is independent of the Government and is key in determining a fair allocation of payments. Making the operational delivery provider, whose job is largely about sending out the payments and making sure that cheques get to the people who are entitled to receive them, independent of the Treasury would not add significant value to that task.
Finally, it is important to ensure that value for money is considered when deciding on a delivery partner. The Treasury has satisfied itself that NS&I has the capacity and the capability to deliver the scheme, while at the same time providing value for money. The Government consider that by establishing the Independent Commission on Equitable Life Payments on 22 July, we achieved the aim that is at the heart of the amendment.
I turn to amendment 4 and what policyholders should do if they consider that they are not being treated fairly under the scheme. The Government are committed to treating policyholders fairly. In line with that, there will certainly be a means by which policyholders can raise concerns about the incorrect application of scheme rules to individual cases. We have given much thought to how best to deal with complaints and have made a great deal of progress in putting together a process that is fair and thorough. Full details of this process will be included in the document that sets out the scheme design in full.
Angie Bray (Ealing Central and Acton) (Con)
I spoke about this last time we discussed the matter. Given that the message to savers from the previous Government was non-existent or at least negative, does my hon. Friend think the message that the present Government are sending to savers is adequate? Are we saying clearly, “We understand that you have been badly let down by Government and we want to put things right as much as we can, given the circumstances in which we find ourselves”?
Mr Hoban
My hon. Friend makes an important point. There are two aspects to it. First, in respect of Equitable Life, the speed with which we have acted demonstrates our commitment to a resolution of the problem. The second is a forward-looking and prospective issue, which is why we have brought forward proposals to improve the regulation of retail financial services through the establishment of the new Consumer Protection and Markets Authority. That will be a boost to regulation and give confidence to savers that the market will be better regulated. It is important, and we have introduced measures recently, to ensure that if anything goes wrong, there is a proper process in place to tackle that.
I was commenting on the scheme appeals mechanism, which will be published before the scheme begins making payments and will be made available for parliamentary scrutiny. If a policyholder believes that the rules of the scheme have been incorrectly applied to their data, they will be able to raise a query with the delivery body, stating the nature of their concern. The query will be pursued by the delivery body.
If there is merit in the challenge and it is upheld, a recalculation will take place. If the challenge is not agreed by the delivery body, the policyholder will have the option of taking their case to the review panel. The review panel will consider the case in full and be able to make a fresh decision based on the facts of the case. It will be independent of the original decision-making process. If a complainant’s case is upheld, the review panel will ensure that a recalculation is carried out. If the complainant remains unhappy with the review panel’s decision, they will be able to challenge that decision in court by way of judicial review.
Sir Alan Beith (Berwick-upon-Tweed) (LD)
My hon. Friend referred to cases in which the rules of the scheme might not have been correctly applied, but such are the complexities of Equitable Life policyholders—for example, a constituent of mine whose policies were additional voluntary contributions in a pension scheme which has been wound up—that someone might wish to argue that their particular type of case had not been envisaged in the way the rules were formulated, and that a specific decision needed to be made in that case. Will the scheme be wide enough to make that possible?
Mr Hoban
My right hon. Friend makes an important point. I would expect the payments commission to design a payments scheme that would be sufficiently comprehensive to ensure that all groups of policyholders were covered by it, so any appeal would be on the basis only of any data used to calculate the losses, rather than an appeal in principle against the design of the scheme. I will bear in mind the point that my right hon. Friend makes and encourage the commission, when it takes representations from people, to think as widely as possible about the different groups of policyholders that need to be taken into account.
Chris Leslie
The Minister is being extremely helpful and at least setting out a sense of what the architecture of that appeals system will be. He said that it would be subject to parliamentary scrutiny. Can he say for the record that the relevant statutory instrument will be subject to the affirmative procedure?
Mr Hoban
There is no requirement in the Bill to lay the scheme as a statutory instrument, but I shall ensure that when the scheme design is produced, it is laid before the House and there is an opportunity to scrutinise it.
The hon. Gentleman asked a question about the cost of administration and the cost of the appeals mechanism, and he was right to recollect that I said previously that the cost of administration would be separate from the compensation pot. That is still the case, and it goes without saying that the cost of the appeals mechanism will also be separate from the compensation pot. We want the money that is set aside for compensation to be used for compensation.
Bob Blackman
I am grateful to the Minister for outlining the appeals process, which, in this complex and complicated arrangement, will be important. Will he elucidate further on the effect of the time frame of the appeals process? What would happen if, for example, an individual policyholder or set of policyholders, who felt that they had been wronged and not received the compensation that they were due, went through the process and that led to a breach of the cap? If they were suddenly compensated with a lot more money than had already been allocated, how would that be dealt with?
Mr Hoban
In that situation, there would be two aspects: first, the design that the payment scheme had applied; and secondly, the data that were available to the policyholder. The scheme will be designed in such a way that it does not breach the cap, so it would be possible to appeal only if the data were incorrect. The data that will be used to calculate the compensation will come from a database supplied by Equitable Life, and I hope that its data are of a high standard, so that those situations do not occur.
From the details given today, the Government have been considering very carefully the design of the appeals procedure, and we will publish details of the procedure, along with other aspects of the scheme, ahead of the time that amendment 4 proposes. So in light of that we believe that the amendment is not necessary.
Let me turn to amendment 6, which is in my name. The delivery of the Equitable Life payments scheme is an important matter, and since we took office we have made huge strides towards finding a resolution to the Equitable Life issue. However, we are aware that, for many policyholders, the issue will continue until they finally receive the money. As such, it is important that we find the right delivery partner to help us do that. Having given the matter careful consideration and looked at a range of options, our preferred option is to use NS&I, to deliver the scheme.
Officials have held many meetings with NS&I to find out not only whether it is capable of carrying out that important task, but the processes by which delivery could be carried out. There are many factors that make NS&I an appropriate delivery partner for the scheme. One of the most obvious and important is capability. As part of its everyday functions, NS&I makes millions of payments to customers every month. It has processes and infrastructure in place and experience of carrying out the functions that the scheme will require.
The need for value for money in the delivery of the scheme is also important. We are all aware that, in a climate where we have had to make difficult decisions about where to make cuts, the Government must look for ways of making the cost of delivering the scheme reasonable. Using NS&I will allow us to draw upon existing Government relationships and contracts, and I am satisfied that NS&I can provide a good delivery mechanism by which we can start making payments in line with our stated ambition of the middle of next year.
Chris Leslie
I am grateful to the Minister for the information about National Savings & Investment being the preferred vehicle. In theory, there is a separation between policy, in terms of the scheme design, and operations, in terms of the administration but blurred edges can sometimes appear between the two. Will the independent commission hold the ring in any disputes about the mechanism, timing and administration of the scheme? Who will be the final arbiter of any disputes that arise from the process? Presumably, it will be the independent commission.
Mr Hoban
The hon. Gentleman makes an important point, and it is vital that we are able to operationalise, as it were, the scheme design. That is why I have encouraged the payments commission to engage with NS&I to ensure that the scheme that the commission designs can be delivered. That is an important part of the process, and I expect the commission to do that during the course of its work. I think that addresses the hon. Gentleman’s point.
Let me turn finally to new clause 1 and the status of the independent commission. I have already spoken about the importance of the work of the commission, and I am not sure that the new clause, which would give it statutory footing, would add value to its work.
Mark Durkan
Returning to amendment 6, can the Minister assure us that it is there only to provide proper statutory cover to the director of savings and NS&I in relation to the scheme, and not to extend Treasury control or constraints in relation to it?
Mr Hoban
I can give the hon. Gentleman that assurance. We could not use NS&I if we did not include this power in the Bill. Its purpose is to enable NS&I to act as a delivery partner, not to give the Treasury some way of reaching back into the payments scheme. I reassure him, and others, that the power is there merely to deliver the outcome of the scheme.
The role of the payments commission will be key. It will advise on the distribution of payments to those other than WPAs, and I will take its advice extremely seriously. The new clause would introduce a requirement for the commission to consult key bodies in the development of its advice, but let me tell my hon. Friend the Member for Harrow East (Bob Blackman) that it would need no statutory encouragement to do so. The commission has already met Equitable Life and EMAG, and it has published a discussion paper asking for more views on the guiding principles for determining fairness in allocating and prioritising the funding. I do not believe that an amendment to the Bill would make it any more consultative and thorough in its task. My hon. Friend is aware that I have made the commitment to go along to the all-party group with the chairman of the commission to engage with parliamentarians on this matter. That is a very clear sign of the way in which we want to engage, or the commission wants to engage, with stakeholders to come up with the best design for the scheme. I encourage people to read and engage with the commission’s discussion paper, too.
The new clause would also introduce a statutory duty for the Government to lay the design of the scheme before Parliament in the form of a statutory instrument in order to allow full scrutiny. I entirely understand the thinking behind this, and transparency has been at the heart of our approach to developing the payments scheme. However, as I have said, I will publish and lay before Parliament a document setting out the scheme design in detail, which may then be debated as Parliament chooses. Again, I do not think that a statutory requirement will make my commitment to full transparency any stronger. The Government therefore resist the new clause.
Furthermore, including provision in the Bill as to the status and operation of the independent commission would pose a very serious risk to the timetable of the commission. The commission is already in operation and has been since July, and it is due to report at the end of January. Notwithstanding the speed with which the House is dealing with the Bill, it will still take several weeks for it to finish its passage through this House and the other place. If the commission had to be reformed after the Bill received Royal Assent, to restart its deliberations so as to comply with the provisions of the new clause, there would be a real risk of delay to its advice. This would, in turn, delay the making of payments to policyholders—something that I am sure none of us would want to happen. In the light of this, and given the comfort that I hope I have provided on the operation of the commission, I invite the hon. Member to withdraw his amendment.
Chris Leslie
I am grateful to the Minister for setting out the information about the preferred vehicle for the payment scheme. Although we would have preferred to see some of the issues regarding the design of the scheme independently set out and enshrined in the Bill for the avoidance of doubt, I accept his commitment in making these points on the record. Similarly, in respect of the appeals mechanism, this debate has given us the opportunity to shed a little light on to how he envisages that arrangement playing out.
I hope that the Minister’s commitment to allowing further parliamentary scrutiny will not involve merely tabling a negative resolution on the Order Paper so that Members have to beg the indulgence of those on the Treasury Bench to find time to debate it. Given the amount of interest in these matters across the House, the affirmative procedure would be preferable, as that would allow us to consider them in detail. With that, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr Hoban
Let me deal with amendments 5 and 8. We have stated that our ambition is to commence payments in the middle of next year. As the Committee is aware, we have made great progress on this issue. Within six months of coming to office, we have published Sir John’s report and the supporting material; we have provided the first bottom-up estimate of losses suffered by policyholders; we have set aside £1.5 billion for the payment schemes; we have announced that we will cover the full losses of eligible with-profits annuitants; and we have established the Independent Commission on Equitable Life Payments to advise us on the fair allocation of payments among policyholders. Such progress shows how seriously we take this matter and how quickly we want to find a resolution. Our ambition is to commence payments in the middle of next year, and our track record of getting things done quickly on Equitable Life shows that we are capable of doing so.
Let me set out the process that we are following to ensure that payments are made as quickly as possible. In line with our commitment to independence, we have set up the independent commission to advise us on how we can fairly allocate the funds among policyholders, with the exception of the with-profits annuitants and their estates, and on any priority groups or classes of person who should be paid earlier.
Such an approach will help to inform the sequencing of payments. To ensure that the payments can begin as soon as practicable, we have set a challenging timetable for the commission and it will report at the end of January 2011. Between the end of January and the dates that payments commence, we will be laying the advice of the independent commission over the operational technicalities of the scheme to ensure that the end-to-end process operates well. We will then publish a scheme design document that sets out the end-to-end process of the scheme in the spring. We will also finalise the arrangements with the delivery agent. That will help to ensure that when the scheme goes live, we can get payments to policyholders efficiently.
I hope that I have reassured hon. Members that this Government are committed to making payments to policyholders as soon as it is practicable and that we are taking all possible steps to achieve that. As a result, amendment 5 is unnecessary. I have addressed the points raised by the hon. Member for Nottingham East (Chris Leslie) about the sequencing of payments. We are seeking advice from the new payments commission on how that sequencing will take place and how it will fit within the envelope of public spending that is set out in the comprehensive spending review.
Let me turn to amendment 8, standing in the name of the right hon. Member for Holborn and St Pancras (Frank Dobson), to which my hon. Friend the Member for Harrow East (Bob Blackman) spoke. The amendment deals with the issue of how payments should be made. I recognise the fact that policyholders have waited far too long for a resolution to the matter. That is why at the spending review we set out how we envisage the scheme working. I want to set out that vision again. Those policyholders who do not have a with-profits annuitants policy will receive their payments in one lump sum to give them the closure that they need quickly. As it happens, amendment 8, tabled by the right hon. Gentleman and my hon. Friend, would mean that with-profits annuitants would not receive their payments in the way that we envisage. One of the reasons why we have been able to increase the amount available to policyholders is so that we can spread the amounts going to with-profits annuitants over the remainder of their lives. If my hon. Friend’s amendment were accepted, it would stop that process and mean that their payments would come out of the £1 billion set aside at the time of the CSR. I therefore suggest that the amendment would not help policyholders to receive quite as much money as we believe they should.
Owing to logistical constraints associated with such a large and complex scheme and to affordability constraints, we cannot make all lump sum payments immediately. They will be paid out over the first three years of the spending review period. That is why I have asked the commission on payments to advise me on whether there are any classes of policyholders whose payments should be prioritised, to ensure that those in most urgent need of redress are paid first.
Chris Leslie
This may be a naive question, but box 2.7 in the spending review says:
“The Government expects the total amount of funding for the scheme to be in the region of £1.5 billion.”
That is the envelope that we have been debating, and that figure matters quite a lot, especially for those other policyholders. However, the same box says that
“£1 billion will be allocated to the Payments Scheme in this Spending Review period, which will cover…the initial costs of the first three years of WPA”—
with-profits annuitants—
“regular payments, and all payments to other policyholders.”
Can the Minister explain the difference between the £1 billion and the £1.5 billion, and say how the timings will be affected? Presumably the other £500 million will arrive after the spending review period, but I am a bit confused on that point.
Mr Hoban
The hon. Gentleman makes an important point, which gives me the opportunity to clarify the make-up of the £1.5 billion. The figure includes the full cost of the losses to with-profits annuitants—approximately £620 million—which will be made through regular payments. However, taking into account the pressures on the public purse, the Treasury could allocate only £1 billion over the first three years of the spending review. That will cover two things: the first three years of payments to with-profits annuitants, and lump-sum payments to all other policyholders and to the estates of deceased with-profits annuitants.
It is important to start to pay off with-profits annuitants’ losses quickly, alongside the lump-sum payments to other policyholders. About £225 million of the £1 billion is for with-profits annuitants and their estates, leaving approximately £775 million for lump-sum payments to non-with-profits annuitants. The Towers Watson estimate of £620 million for with-profits annuity losses leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards. Those who are quicker at mental arithmetic than me will have worked out that the total comes to about £1.4 billion. The balance is a contingency, because the payments to with-profits annuitants are based on their longevity. We hope that they live long and healthy lives, and that buffer is set aside to cover this need. That is how the maths works out.
Mr John Redwood (Wokingham) (Con)
Could my hon. Friend provide further clarification on the tax status of those receiving such payments?
The Second Deputy Chairman
Order. There has been a very expansive debate so far, so there will not be a clause stand part debate. If the Minister wants to say anything, I would encourage him to say it now.
Mr Hoban
You are right, Ms Primarolo, we have had an extensive debate, so I will ensure that I now have my notes to hand for the clause stand part debate. I should clarify the treatment of the payments under the tax and benefits system. They will not be treated as income for tax purposes, and will not be taken into account in the calculation of tax credits, which is a benefit for policyholders. In terms of benefits, they will be treated as capital rather than income, and given the beneficial nature of the treatment of capital in the benefits system, that helps policyholders. We have sought in the design of the scheme, through measures such as the tax and benefits treatment, to maximise the value so that policyholders will receive the full amount.
Nadhim Zahawi
I will test the Financial Secretary’s arithmetic a little further. Has he worked out what that advantage is over and above the £1.5 billion?
Mr Hoban
My hon. Friend makes an interesting point. It is difficult to calculate that because, as he will recognise, the tax status of Equitable Life policyholders varies. Some pay no tax, some pay tax at the 20p rate, some pay tax at the 40p rate, and some may even pay tax at the 50p rate. The value will depend on their tax status, and we do not have sufficient access to taxpayers’ records to be able to match Equitable Life policyholders with their tax records, so we cannot calculate the benefit. However, he will appreciate that it could provide a significant benefit to some policyholders, and I hope that they will recognise that when they receive their payments. We have sought to be as generous as possible in the tax and benefits treatment for that purpose.
Mr Redwood
I thank the Minister for an important improvement to the scheme, which I am sure is welcomed.
Mr Hoban
I thank my right hon. Friend. When designing the scheme, we considered seriously how to ensure that policyholders would benefit as much as possible from the payments. If we had been less generous, we would have been accused of clawing back money through the back door, and that is an impression that we want to dispel.
Sir Alan Beith
I welcome that announcement, but there is a group of people who are affected in multiple ways: those who have funds in Equitable Life that are not yet in payment and who have been given transfer values substantially below what they believe the fund to be worth, even now. If they are waiting up to three years, and take the money out, accepting the transfer penalty, will they invalidate their entitlement under the scheme?
Mr Hoban
That is an important point. I am sure that a range of issues will emerge as we move through the scheme’s design to payment. People who have had Equitable Life policies throughout the period and bought them post-September 1992 will receive compensation even if they have exited from Equitable Life’s current arrangements. I hope that that provides clarification.
Jonathan Evans
Will my hon. Friend take the opportunity, perhaps later, to issue a fuller statement on his very important announcement in response to my right hon. Friend the Member for Wokingham (Mr Redwood)? I intended to raise the matter on Third Reading. There is no doubt that many policyholders will be delighted to hear the news, and it should be made more widely available to all policyholders so that they are aware of it.
Mr Hoban
My hon. Friend is right. The old saying is that the best way of keeping a secret is to make a speech in the House of Commons. I am sure that those of my hon. Friends who are in contact with Equitable Life policyholders will take the opportunity to write to them, and I hope that the Equitable Members Action Group, which is the main lobbying organisation on behalf of policyholders, will also take the opportunity to pass the information on to its members. It is important information for them, and we will continue to make policyholders aware of it as we communicate further details of the scheme.
Before that series of interventions, I was reflecting on amendment 8, and I want to say a little about why we are treating the with-profits annuitants differently from others in regard to payments. We need to recognise that the nature of the policies of that particular group of people is very different from that of other Equitable Life policyholders. Their losses relate not just to what has happened in the past, but to what will happen in the future. They will continue to receive a stream of income over a number of years from their with-profits annuity policy. We are now able to match that stream of income with their historic losses and their future losses. It makes sense for them to receive their payments in a way that reflects the income stream that they have lost, which is why they will receive their losses in regular payments over their lifetime.
In the light of that, I hope that the right hon. Member for Holborn and St Pancras will decide not to press amendment 8 to a vote, because the approach that he suggests is not appropriate for with-profits annuitants. We are determined to make swift progress on making payments to other policyholders, however, and they will get lump sum payments that will be free of tax.
Mr Hoban
I beg to move, That the Bill be now read the Third time.
The Government want to see justice for Equitable Life’s policyholders, and this is clearly reflected in the actions that we have taken since coming to office. In six short months, the coalition Government have made real progress towards implementing their pledge to make
“fair and transparent payments to Equitable Life policyholders…for their relative loss as a result of regulatory failure.”—[Official Report, 26 May 2010; Vol. 554, c. 1WS.]
Since coming to power, we have published the first ever estimates of losses suffered by policyholders, considered representations on them, and endorsed a relative loss figure of £4.3 billion—in line with the parliamentary ombudsman’s findings. We have set aside £1.5 billion to make payments, which is more than four times the amount that Sir John Chadwick’s methodology produced. This strikes the right balance between fairness to policyholders and fairness to the taxpayer.
We have announced that we will cover the full losses of those policyholders who have or have had with-profits annuities. We have established an independent commission to assess how best to allocate payments to policyholders. While giving the commission wide discretion, we have made it clear that we do not expect payments to policyholders to be means-tested and that we expect payments to be made to the estates of deceased policyholders. Our goal is to make the first payments to policyholders towards the middle of next year. This is a huge achievement, of which we can be rightly proud.
The Bill is a vital part of this work. It gives the Treasury the authority to incur expenditure to make payments to policyholders. Without this Bill, redress for those who have suffered so long would be impossible. That is why we have moved so quickly. To delay further action would be unfair to those who have already waited over a decade for a resolution. The sooner the legislation is in place, the sooner we can bring their suffering to an end. I know that right hon. and hon. Members of all parties fully support us on that.
We announced as part of the spending review that it was our intention to make these payments tax free. Today’s Bill gives the Treasury the power to make an order allowing these payments to be disregarded for tax. The payments will also be disregarded for the purposes of tax credits.
Finally, the Bill enables the Government to consider what effect, if any, these payments will have on people’s eligibility for certain means-tested, state-funded support. I outlined in the debate on the final group of amendments how this treatment will apply to welfare benefits. We are still considering how the payments will affect support such as social care.
We have concluded that lump-sum payments made as part of this scheme will be disregarded as income for the purposes of assessing eligibility for means-tested benefits. Instead, they will be classed as capital. Capital limits do not immediately cut off eligibility for benefits; they work on a sliding scale, gradually reducing support for individuals with larger assets. It is unlikely that many recipients who would otherwise have been eligible for means-tested benefits will receive payments that dramatically affect this eligibility. For with-profits annuitants, regular payments will be treated as income in a similar way to the lost income stream that these payments represent.
Earlier today, hon. Members debated in detail a Government amendment that gives National Savings & Investments the power to deliver payments. That being a large and potentially complex task, it is essential that the delivery partner has the experience and expertise to do the job properly and cost-effectively. When judged against these criteria and the imperative for payments to begin as soon as possible, National Savings & Investments was the strongest candidate, which was the motivation for including this amendment in the Bill.
I am aware of the concerns that hon. Members have voiced about the Bill’s brevity. It is, indeed, a two-clause Bill and it does not include detail about the payments scheme that would allow Parliament to scrutinise and debate the issue. I would like to point out that there is no requirement for the Bill to do so; it is simply an enabling Bill to give the Treasury the power to make these payments to policyholders—and nothing more. The scheme design does not require statutory footing and, of course, before the scheme design is finalised, we first need to make progress on this Bill. If we had waited for the scheme design to be finalised before proceeding with the Bill, it would have taken far longer before we could start to make payments. What the Treasury has sought to do is to work on as many streams as possible in parallel, within the constraints of our legal powers.
Let me reassure all hon. Members that I am fully committed to transparency at every stage of this process. I understand and sympathise with Members’ concerns, and for this reason I will publish a document setting out the scheme design in detail and lay it before Parliament for full scrutiny. Following the independent commission’s publication of its final advice, I will make a statement setting out the Government’s response.
I also know that Members are keen to discover whether a robust appeals process will be in place, one that will allow policyholders who believe their payment has been wrongly calculated to challenge this judgment. I am therefore pleased to confirm that we will be appointing a review panel, independent of NS&I, with full powers to consider any such challenges and to overturn any decision that it finds incorrect. As I said to the hon. Member for Nottingham East (Chris Leslie) in an earlier debate, the costs of that appeal mechanism will not be borne by the compensation pot. We want to ensure that policyholders get the full value of the money that we set aside for compensation payments.
In the interests of transparency, I should like to set out the next steps in the process of resolving this long and complex issue. As a starting point, I hope that today’s Bill will receive Royal Assent by the end of the year. That will allow the delivery partner to start preparations early in the new year, and to be well placed to make the first payments by the middle of the year, as is our ambition. It is important for the delivery partner to start work early, in order to accelerate the timetable to make those payments. The independent commission is due to report to me in late January and, following that, we will incorporate its recommendations in the design of the scheme, which will then be scrutinised by Parliament.
As I said earlier, I would encourage hon. Members on both sides of the House, whether they are new to the issue or have run with it for many years, as so many of us have, to engage with the commission in its work. It is independent of the Treasury, and the three commissioners are very experienced. I believe that they have the expertise and skills to design a proper payments scheme for policyholders. However, they would welcome contributions from everybody who has participated in the debate, not just in the House but across the country over the past decade, to enable them to produce the best possible scheme design, which meets as far as possible the aspirations of people who have had policies with Equitable Life.
Since the Government took office in May, we have come a long way. We have achieved far more in recent months than was achieved in recent years. We have quantified relative loss suffered because of maladministration. We have identified the losses that policyholders have suffered on a bottom-up basis, by groups of policies and by age. For the first time, a proper understanding has been established of the losses suffered. That is a tribute to the hard work conducted by Towers Watson and others to develop that estimate. As a consequence of the spending review, we have been able to assess the quantum of losses, to decide the loss figure that we accept. We have accepted the ombudsman’s view that relative loss is the best guide. We set aside £1.5 billion of funding to cover the cost of the payments scheme. We have announced that the losses of post 1992 with-profits annuitants will be covered entirely by the Government. We have also established an independent commission to advise on the allocation of funding to not-with-profits annuitants policyholders.
As a Government, we want to see a swift resolution to this matter. We want the many policyholders who have waited in financial purgatory for so many years, and who have campaigned so hard for justice, to receive the payments that are rightfully theirs. No one could disagree that policyholders have waited too long for justice. Although the debate has been relatively brief, it is not just the tip of the iceberg—to which the hon. Member for Nottingham East referred—as anyone who has participated in the debate will recognise. Passing this important Bill is essential to achieving justice, and I commend it to the House.
Chris Leslie
The short debate that we have had has covered a set of specific issues, largely arising from the Government’s conclusions in the spending review about how to compensate those suffering injustice following maladministration by insurance and financial regulators in the case of Equitable Life. I am glad that we have had the opportunity to talk about the independence of the payment scheme. We have been able to hold the Government’s feet to the fire on whether it will match the ombudsman’s model. I am glad that the Minister said that he would welcome further comments from her on the design of the compensation scheme. It will be interesting to see whether she endorses it as being the fair and transparent scheme that many Members have pledged to deliver.
We have also discussed the appeals procedure and the timing of payments. In response to the second ombudsman’s report, the former Chief Secretary to the Treasury, my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), offered an apology for the past failings of the regulators. That is an important point, which is separate from the question of whether the regulators can be held fully or only partly responsible for the losses incurred by the maverick actions of Equitable Life’s management during the 1980s and early 1990s. I am sorry that, at least during this debate, Ministers have not also expressed regret, clearly and on the record, for the part that their party played during the 1980s in failing adequately to establish a regulatory system to prevent the vast bulk of the Equitable Life problems from arising in the first place. I know that it was a long time ago and that none of the current Ministers were in any way responsible, but I think it would have been a helpful gesture to draw a line under the failings that had occurred in the past. After all, Lord Penrose concluded in his inquiry report that Ministers in the late 1980s
“did not regard the subject”
of updating life insurance regulation
“as a high priority for legislation.”
He noted that
“the Government's objective was to deregulate, to reduce regulatory burdens on business, to avoid interference in private companies, and to let market forces prevail.”
Chris Leslie
I am glad that the Minister has been able to reiterate points that he did not make in his Third Reading speech. I do not necessarily want to reopen the box entirely, but it is important for both parties to recognise that mistakes have been made, and that things should and could have been done better by those on both sides. In particular, however, I think it is important not to gain the impression that failings did not occur on the watch of the Minister’s party. Lord Penrose found that Conservative Ministers
“argued against reform in the… 1990s”,
and that the United Kingdom “led the resistance” to Europe-wide attempts to update the third life directive. Those who argue that Labour alone fell short in respect of reacting to the Equitable Life debacle should realise that the ideological approach pursued by the Conservatives was absolutely central to causing the mess in the first place.
As Members know, the last Government would have chosen a different route to compensation. We were anxious that a poorly designed compensation scheme might entail a person-by-person review aimed at disentangling individual losses one by one, examining more than 30 million investment decisions by 1.5 million people over 20 years. That would have been a mammoth administrative task. Moreover, the ombudsman had implied that individuals would need to prove that they had relied on the regulatory returns and had been misled as a result. The last Government did not believe that such an approach could be feasible.
It was for those reasons that Sir John Chadwick was asked to explore a more realistic and reliable payment scheme methodology. He concluded that the Treasury should deal with the issue by grouping cases into about 20 broad categories of policyholders who were in similar circumstances. The payment scheme would then deduce the relative loss in each category in comparison with the outcomes of a basket of other policies that had not suffered from the same regulatory failings. The Government have clearly embarked on a different course, although they have taken up some of Chadwick’s pragmatic suggestions about the automaticity of compensation. We genuinely hope that that will work.
We are pleased that this short paving Bill is before the House, because we feel strongly that the matter should be resolved. The Committee stage gave us an opportunity to question the Government on several aspects of their approach, and I am glad that we have had an opportunity to draw them out further today.
Let me end by simply raising a question mark over the words of Ministers before May, when the general election took place, in comparison with their actions today. Many hundreds of thousands of Equitable Life policyholders—possibly as many as 1 million—were led to believe that in signing the EMAG pledge, Ministers were supporting a particular outcome that may not now arrive. Most Conservative Members signed that pledge. They pledged to their constituents that
“if I am elected to Parliament at the next general election, I will support and vote for proper compensation for victims of the Equitable Life scandal and I will support and vote to set up a swift, simple, transparent and fair payment scheme—independent of government—as recommended by the Parliamentary Ombudsman.”
As the payment decisions are made in the next few years and the cheques finally start to arrive, EMAG members and policyholders who are not in line to receive 100% compensation for their full relative losses will have to draw their own conclusions as to whether the Government have fulfilled their promises. So far the signs are that many policyholders do not feel that those Members who signed the pledge are keeping their word. They feel that the scheme will fall short of proper compensation and a fair payment scheme.
Chris Leslie
We will not know that, because Chadwick’s report was published after the general election. We had a series of steps that would have then been taken, but history went in a different direction because the spending review and the Budget were undertaken by a different party, not by our party in government. I am not saying that there are magic solutions to this issue. These are complex matters and there are technical reasons for both the methodologies that are being used in the compensation and the timings and the discussions around them. It is important to bear in mind the wider needs of the public purse. We have consistently said that and now the Government have come round to that point of view. I understand why they did.
Mr Hoban
The previous Government took six months to dither over what they would do about the ombudsman’s report, whereas we accepted her recommendations straight away—there had been maladministration, there should be compensation for relative loss, and affordability was a key part of her recommendations. We accepted that quickly, whereas his right hon. and hon. Friends sat on their hands.
Chris Leslie
I disagree with that. The hon. Gentleman certainly did not say before the general election that this would be £1.5 billion—[Interruption.] Oh, did he? Where did he say before the general election that this would be £1.5 billion? I shall give way to him if he can give a reference for that. Answer came there none—proof in point that after the general election a different set of expectations was set out by the Government than those that might have been an interpretation of the Minister’s words before the election.
European Union Economic Governance
Mark Hoban Excerpts(14 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
I beg to move,
That this House takes note of European Union Documents (a) 9433/10, Commission Communication on reinforcing economic policy co-ordination, (b) 11807/10, Commission Communication on enhancing economic policy co-ordination for stability, growth and jobs – tools for stronger EU economic governance, (c) 14496/10, Proposal for a Council Regulation (EU) amending Regulation (EC) No. 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure, (d) 14497/10, Proposal for a Council Directive on requirements for budgetary frameworks of the Member States, (e) 14498/10, Proposal for a Regulation of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area, (f) 14512/10, Proposal for a Regulation of the European Parliament and of the Council on enforcement measures to correct excessive macroeconomic imbalances in the euro area, (g) 14515/10, Proposal for a Regulation of the European Parliament and of the Council on the prevention and correction of macroeconomic imbalances, and (h) 14520/10, Proposal for a Regulation of the15 European Parliament and of the Council amending Regulation (EC) No. 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and co-ordination of economic policies; notes the Report from the Task Force on Economic Governance in the European Union; notes with approval that budgetary and fiscal information will continue to be presented to Parliament before being given to EU20 institutions; and approves the Government’s position, as endorsed by the Task Force that any sanctions proposed should not apply to the United Kingdom in consideration of Protocol 15 of the Treaty on the Functioning of the EU.
I welcome the opportunity to set out the Government’s position on the Commission documents to be debated this evening and our broader position on the co-ordination of economic policy in the EU. As right hon. and hon. Friends will be aware, the European Council last month agreed the report of the EU Economic Governance Task Force chaired by Herman Van Rompuy, and we support its work and conclusions, none of which encroaches on Parliament’s economic sovereignty. I want to be clear about that so that there can be no confusion about our position.
Let me deal first with surveillance. Macro-economic surveillance examines the budget plans of member states, and has been around for more than a decade. There is nothing new in that, and a number of international bodies do the same, such as the OECD and the International Monetary Fund. Does the fact that the EU is doing so mean that we will be subject to sanctions? No, it does not, because under protocol 15 of the existing treaty, sanctions do not apply to us.
Mr William Cash (Stone) (Con)
Is my hon. Friend aware that the same Mr Van Rompuy has today issued a vicious attack on Eurosceptics throughout Europe, saying that what they argued amounts to a national lie?
Mr Hoban
I have not seen Mr Van Rompuy’s comments. As hon. Members will recognise, I have been rather tied up in the Chamber for most of this afternoon.
Let me continue to make the Government’s position clear. Will we have to present our Budget to Europe before we present it to the House? No. Will we have to give Europe access to information for budgetary surveillance that is not similarly shared with organisations such as the IMF, or that is not publicly available on the internet? Again, the answer is no. Will powers over our Budget be transferred from Westminster to Brussels? Again, the answer is no.
Philip Davies (Shipley) (Con)
Does my hon. Friend understand that many people have lost confidence in assurances given whenever a new European treaty is discussed that there will be no loss of sovereignty? Ever since we went into the Common Market, the British public have been told at every stage along the way, “Actually, we’re not giving up any sovereignty. This new treaty doesn’t give anything away,” but people have found time and again that these treaties have done just that. Does my hon. Friend understand people’s concerns that although the powers in question do not apply to the UK at the moment, they may well do so in future, as the European Union is clearly looking at extending sanctions to non-eurozone countries as well?
Jacob Rees-Mogg (North East Somerset) (Con)
But does Mr Van Rompuy’s report not suggest that there should be a binding minimum set of requirements for national fiscal frameworks that would apply to all member states?
Mr Hoban
I think my hon. Friend is reading an earlier draft of the report, because we amended that language at the latest ECOFIN. I will come to this point in a minute, but we believe that fiscal frameworks should be political agreements and should not be driven by directives or regulations.
Mr John Redwood (Wokingham) (Con)
Will the Minister please confirm that the directive on budgetary frameworks for all member states will apply to the United Kingdom, that the second regulation on budgetary surveillance for all member states applies to the United Kingdom, and that the regulation for enforcement for all member states also applies to the United Kingdom? There are twin proposals in each case, some of which apply only to euro members and some of which affect all member states. Surely the Minister must confirm that that is a massive extension of European economic government, and the UK has to comply with a lot of it.
Mr Hoban
There is nothing new in the macro-economic surveillance processes outlined in the document and, as I have said, we are exempt from the sanctions regime that the Commission and others have proposed, which applies only to eurozone countries. Let me now make some progress.
We need to recognise that there are lessons to be learned from the economic crisis, but one lesson that stands out that is relevant to the debate this evening and to the documents is that in an open, global economy, no economy exists in isolation. The failures of economic policy in one country can be exported to other nations, and the imbalances in one economy can have an impact on others. Imbalances such as excessive domestic demand and growth can lead to asset bubbles, an over-reliance on exports or divergence in competition across countries. It is in all our interests to improve co-ordination and co-operation in policy making, to tackle those imbalances and increase the resilience and strength of the global economy.
However, in our view, increasing co-ordination and co-operation has to be consistent with national sovereignty and the accountability of Parliament. It is those principles that frame our response to the documents and our response to the global economic crisis. There is an intense global debate about those topics in the G20, the IMF and the OECD, and in Europe. We take part in those debates because, as an open economy, we have a strong interest in economic stability. We are acutely aware that imbalances and problems in one economy can have a spill-over effect in another.
Mr Peter Bone (Wellingborough) (Con)
Is the Financial Secretary saying that the taskforce document that I have, dated 21 October, has been rewritten? It concludes:
“Endorsement by the European Council of the recommendations in the present report will contribute to strengthening economic governance in the EU”.
It clearly says “in the EU” as a whole.
Mr James Clappison (Hertsmere) (Con)
My hon. Friend is making his case persuasively, but will he assist me? The same document from Mr Van Rompuy, dated 21 October—I take it that that is the latest report—clearly states in paragraph 34:
“The Task Force recommends deeper macro-economic surveillance with the introduction of a new mechanism underpinned by a new legal framework based on Article 121”
of the treaty on the functioning of the European Union alongside the stability and growth pact
“applying to all EU Member States”.
Perhaps my hon. Friend will help the House by telling us a little about that.
Mr Hoban
I know that that paragraph has caused some interest, but many people stop reading after
“by a new legal framework”.
I am grateful that my hon. Friend did not fall into that trap. The provision is based on existing treaties, and it is about macro-economic surveillance. A number of organisations conduct macro-economic surveillance of the UK economy, and there is nothing new in that.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
I hope that the Financial Secretary realises that we are here to support him in a sensible approach to economic surveillance. Does it not seem rather silly for people to say that a country that is in partnership with many other countries should not be interested if any of those countries are profligate? Clearly, good surveillance and good economic policies throughout the partnership are good for the UK.
Mr Hoban
The hon. Gentleman makes an important point, and I am about to come to that, so his intervention is timely. Given the degree of integration of the European economy, it is in our national interest to support work that looks at the causes of instability and to have in place action to help to tackle them. Over the summer, there have been two parallel processes in Europe. The Commission has its own work stream, which is summarised in the documents before us. However, member states have participated in a separate strand of work on the co-ordination of economic policies under the chairmanship of Herman Van Rompuy. Many of the issues covered are the same, but there are essential differences between the two streams. The Commission’s documents detail solutions, and the Van Rompuy work reflects the political agreements reached between member states. The next step is to bring the Commission’s proposals into line with the taskforce’s recommendations.
I shall deal in more detail with three aspects of the taskforce’s work.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
Is my hon. Friend giving an assurance that not only are there no sanctions—we understand that—but there is absolutely no increase in EU jurisdiction over the British Budget-making process?
Mr Hoban
I do not believe that there is.
Let me deal with the three aspects. In every international economic debate, the issue of increased co-operation and co-ordination arises. At last month’s G20 Finance Ministers conference, the focus was on exchange rates and current account surpluses. At the IMF annual meeting in early October, there was considerable debate about tackling deficits. Those discussions of macro-economic policy are not a new feature of the crisis. For example, since its inception, the IMF has undertaken regular reviews under article 4 of macro-economic policies and made recommendations on policy response, but they are not binding. The EU has had similar procedures in place for a decade. It is in all our interests for there to be economic stability in Europe, and the process needs to be strengthened. What we are doing is simply renewing the existing framework in the light of the economic crisis and updating the tools that we have, to ensure that we can do what we need to do. The measure will broaden the scope of surveillance, but, as far as the UK is concerned, it will not weaken the sovereignty of this Parliament.
Risks to stability often flow from imbalances in the economy, and it is important to look at factors such as current account balances, labour market flexibility and competitiveness across the European Union and to be able to identify problems that could undermine stability. Macro-economic surveillance has an important role to play as an early-warning system.
Mr Hoban
I should like to make a bit more progress on this point.
It is right that we should co-operate with this process, but our co-operation should be consistent with the fiscal sovereignty of the UK. The information that we provide to assist with the surveillance will always be information that has been made available to this House before it is passed to the Commission. Everything that the Commission gets will have been in the public domain, to the extent that a member of the public will have been able to unearth the same data using Google, albeit with less efficiency.
Mark Hendrick
The information might be available elsewhere, but the Minister will know that, as a result of the proposed new regulation Com. (2010)526, there will be an obligation for the UK to provide far more information than it has done in the past. There may not be penalties involved, and we may well run up budget deficits or levels of debt that were unacceptable to the Commission—I am sure we can do that—but the point is that this country will be obliged to provide far more information formally to the Commission than it has in the past. In my view, that constitutes a degree of transfer of power to the Commission.
Mr Hoban
Let me repeat that this involves information that is already out there in the public domain. It is information that will already have been made available through, for example, the House of Commons Library, the Budget documents, the Red Book or the Green Book. It is information that is already out there, so I do not believe that supplying it will be a problem.
Mark Hendrick
The point is not that the information will have been made available elsewhere; it is that there will be an obligation on the Government themselves to make it available. If the Commission wanted to go out and find it elsewhere, I am sure that it would do so, but there will now be a new obligation on the Government, as a result of a new treaty, to give it information that they were not previously required to give.
Mr Hoban
I simply do not take the view that giving the Commission more information is going to be a problem. This goes back to the intervention by my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), who asked whether there is to be an increase in EU jurisdiction as a result of this measure. No, there is not. All that the EU will do is make recommendations, but they will not bind us or be imposed on us. We can simply ignore them. There will be no increase in EU jurisdiction as a consequence of this measure.
Mr Cash
The explanatory memorandum dealing with the jurisdictional question, which was supplied to the European Scrutiny Committee on 23 October, states, under the heading “Impact on United Kingdom Law”:
“The Regulations once adopted would be ‘binding in their entirety and directly applicable in all Member States’. However, in accordance with Article 1 of the proposed Regulation, the Regulation on enforcement measures will apply (only) to the Member States whose currency is the euro.”
That is made absolutely clear by the Minister’s own document that he supplied to the Committee.
Mr Redwood
Will the Minister confirm that there are two big new regulations that relate directly to the United Kingdom? One relates to budgetary surveillance on all member states, and the other relates to enforcement against “macro-economic imbalances”, as the Commission so elegantly describes them. These are new powers in new regulations. Why are the Government consenting to them?
Mr Hoban
The enforcement point does not apply to the United Kingdom as a consequence of protocol 15 of the existing treaty framework, because we have opted out of that part. My right hon. Friend is knowledgeable about these things, and he will recognise that the Commission makes proposals, and that ECOFIN and the European Council have set out a clear policy framework on this, as reflected in the conclusions of the Van Rompuy taskforce, which make it very clear that sanctions do not apply in the UK.
Mr Hoban
Let me make some more progress; otherwise, hon. Members will not have the opportunity to participate in the debate. Let me continue for a few more moments.
Many organisations and individuals, including the IMF and the OECD, scrutinise our economy and our budgets. Many make recommendations or, as happened recently, praise our fiscal consolidation plans. We have nothing to hide from any of these bodies that want to look at what we announce to Parliament or at the economic figures published through the Office for National Statistics or through Departments. It is our decision whether or not we listen to their advice. The UK will continue to prepare its Budget independently; others can make recommendations about it, but, crucially, we are under no obligation to take action and, by virtue of our opt-out, we are not subject to sanctions. Any recommendations, as with those made by any other body, will remain just that. It will be down to the Treasury and Parliament, not to the EU, to construct our Budget.
Lady Hermon (North Down) (Ind)
I am enormously grateful to the Minister for taking my intervention. As the hon. Member for Stone (Mr Cash) said, these regulations are entirely binding on the United Kingdom. Can the Minister assure us that, if the Government decline to give the information requested under these regulations, the European Commission will not take enforcement proceedings against the UK Government for not complying with them?
Andrew Percy (Brigg and Goole) (Con)
I am getting a little confused. If the information is already in the public domain and any organisation can find it, and if we do not have to listen to any recommendations made, what is the point of our agreeing to this?
Mr Hoban
Given that the process is very straightforward, I begin to wonder why it is causing so much excitement. The reality is that the information is already available and the recommendations do not apply to us. The enforcement mechanism applies to eurozone states; they are subject to sanctions, but we have a carve-out from that because of protocol 15.
Michael Connarty
May I suggest to the Minister that one of the attractions of the new procedure is that every country in Europe will have to carry this out? They would find out well before any crisis—as we saw in Greece, for example—that they were in trouble. It is a little bit of information to give and a lot to get back. I think that the “Euro-loony party” contingent should leave the Conservative party, so that people with some common sense can deal with Europe sensibly.
Mr Hoban
I am not going to go down that route, but it is important that information be available. Over the course of the financial crisis—not just in the EU, but globally—we have seen the importance of understanding structural imbalances and their impact on other economies. This is an important strand of debate and it will be continued when the G20 meets later this week. It was certainly an important strand in the G20 Finance Ministers’ meeting last month, and, indeed, in the IMF’s annual meeting in October. There is nothing new in discussing these issues.
There is an existing mechanism for surveillance in place through the broad economic policy guidelines, but the warning mechanism has been used only twice: it was used for Ireland in 2001, and Greece received a warning in February this year. An improved mechanism would help towards achieving greater economic stability and it is particularly important for the eurozone, where the effects of imbalances and instability have a greater impact on its members, as has been apparent in recent months. That is why eurozone member states support a sanctions regime, penalising eurozone members whose economic policies undermine the stability of the currency and the eurozone economy. The sanctions do not apply to us, as I have said. I give way—
Mr Speaker
Order. Before the hon. Gentleman intervenes, I note that the Minister has been on his feet for 21 minutes and has attended most assiduously to a number of interventions, and that is perfectly in order. However, I emphasise that there is an hour and a half for this debate, and a substantial number of Back-Bench Members have indicated to me that they wish to speak. It would be a very sad and unsatisfactory state of affairs if contributions from those on the Front Bench were to exceed in total those from Back Benchers. On that basis, I feel sure that the Minister, who is an adroit fellow, will be bringing his remarks to a close ere long.
Mr Hoban
I thank you, Mr Speaker, for that encouragement and guidance, and I apologise for being generous in taking interventions. Let me make rapid progress.
On the issue of sanctions, the same principle applies for those eurozone countries that are in breach of the stability and growth pact excess deficit procedures. In the run-up to the crisis, there was a lack of fiscal discipline, for those inside and outside the euro. Despite the existence of the stability and growth pact and the excess deficit procedure, the eurozone was still undermined by a failure to exert fiscal discipline, and a number of member states in the eurozone have to take tough action to tackle the deficit.
To avoid a recurrence, the Commission and member states in the eurozone have sought to reduce the discretion on the application of the sanction process. The position reached by eurozone countries is set out in the taskforce report. Again, it is worth reminding the House that the sanctions regime does not apply to the UK by virtue of protocol 15 of the current treaty.
Mr Hoban
I will not give way. I listen carefully to the guidance of Mr Speaker.
To secure fiscal discipline, strong fiscal frameworks are required, as our experience in recent years demonstrates. The fiscal rules developed by the previous Government failed, because their flawed design and remarkable flexibility meant that, despite the rules being met, this country still ended up with a financial crisis. A strong fiscal framework is necessary if we are to have strong public finances. We have shown leadership on that, for example in creating the Office for Budget Responsibility, a move that has been welcomed by the IMF and the European Commission. Our reforms meet the highest possible standards, and we support responsible fiscal rules at home and abroad. We have achieved that through the mandate the Chancellor set in his emergency Budget.
Mr Hoban
Although strong fiscal frameworks are vital, we also believe that fiscal sovereignty is crucial, and that is why the frameworks—the mandates, mechanisms and institutions—should be decided by national Governments and not by European legislation. That position is reflected in the taskforce report, and it is the position that we will adopt in discussions with the Commission.
Mr Hoban
We have protected the sovereignty of the House on fiscal matters, and our position on EU economic governance is clear. We need better macro-economic surveillance and fiscal frameworks, because stable and sustainable economic growth across Europe is in the long-term interest of this country. However, that should not be at the cost of our fiscal and economic sovereignty. The Van Rompuy taskforce updates and strengthens the existing framework. On surveillance, therefore, the taskforce recognises, with explicit references to protocol 15, that the UK’s opt-outs mean that we are not subject to the sanctions regime.
Fiscal frameworks should be stronger, but should not be dictated by Europe. It is the history of this House to defend fiercely our fiscal sovereignty. Through the agreement reached, the Government have achieved that. No sanctions will be imposed on Britain, and we will be free to set the right fiscal policies for our country’s needs.
Mr Hoban
I have listened carefully to hon. Members’ concerns tonight, and I want to state yet again that the proposals from the Van Rompuy taskforce strengthen an existing framework, crucially without encroaching on fiscal and economic sovereignty. There is much more work to be done on this, but let me assure my right hon. and hon. Friends that the Government are committed to securing the best outcome from the proposals, to defending Britain’s interests and to protecting this Parliament’s right to set and scrutinise our fiscal policy. Anything less would not be acceptable.
I shall deal with some of the issues that have been raised in the debate. Does the fact that the EU, along with other organisations, undertakes surveillance mean that we will be subject to sanctions? No, it does not. Does the measure mean that we will need to follow any of the recommendations made? No. Will we have to present our Budget to Europe before we present it to this House? No. Will we have to give the EU information that has not been presented to this House first? No. Will the provision of information erode our sovereignty? No. Perhaps more importantly, will any powers over our Budget be transferred from Westminster to Brussels? Again, no. I hope that I have been clear and explicit on those points, and it is for those reasons that I ask Members to support the motion tonight.
Question put.
Rebalancing the UK Economy
Mark Hoban Excerpts(14 years ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
I congratulate my hon. Friend the Member for Cities of London and Westminster (Mr Field) on securing this debate. He made some important points that I will address. I think that we all recognise that our financial and professional services industry is world-class and that the UK can rightly be proud of it. It affects every constituency in the country. For example, my constituency has more than 2,000 people who work in financial services and related professions—1,600 of them are in financial services—and Fareham is not the centre of the global financial sector. As my hon. Friend mentioned, the sector contributes to employment in regional centres. Belfast, Birmingham and Bournemouth all host processing centres that support the work of international financial businesses based in London and headquartered overseas.
For centuries, the UK has been at the heart of international finance. Our openness is an asset to our economy that we are keen to maintain. The recent global financial centres index once again ranked London as the most competitive financial capital in the world. We should seek to preserve and enhance that competitiveness, but it is also important that we do not lose sight of the other areas of our economy that make the UK an excellent place to do business.
It is right that we should support investment in areas of our country where it has been absent during the past decade. That is why, as part of the spending review, my right hon. Friend the Chancellor introduced the £1.4 billion regional growth fund to tackle the gap that opened during the last Government between the south-east and the rest of the country. The money is designed to lever in long-term investment in the capacity of our transport system, science and green energy across all parts of the UK.
I share the sentiment expressed in an intervention by my hon. Friend the Member for Stroud (Neil Carmichael). Many people, including me, have called for a rebalancing of the economy, but we will not achieve that by cutting down the tallest flowers; we need to make others grow taller and faster. I believe that we can have a more diverse economy and be home to the world’s leading financial centre. Indeed, the fact that the UK is home to a global financial centre can help us develop that more diverse economy.
Going back to the roots of the City and its success, the City flourished because it supported trade through insurance of trade finance. It found capital to invest in new enterprise and developed new and innovative ideas to provide security and certainty for businesses and households. It is an important part of the process of restoring confidence in financial services for the City to reconnect with commerce. We need banks to lend to businesses if they are to take advantage of new investment and trading opportunities, but it is not only banks that need to do so. That is an important priority for this Government.
We welcome the work done by the British Bankers Association on that issue, involving commitments to improved data, greater transparency and an army of business mentors to get businesses ready for finance. However, we also need to broaden the sources of finance available beyond banks. We need sources of new equity. Banks will be contributing to a £1.5 billion equity fund to support growth, but we know that there are other sources of capital from equity, such as business angels. Insurers have raised funds to invest in debt for businesses. We need to lever the skills, enterprise and success of London’s global financial centre to help businesses grow.
My hon. Friend the Member for Cities of London and Westminster referred to the opportunities emerging in the far east and South America. Again, the City has an important role to play, not only by exporting its own services to emerging and growing economies but by supporting other businesses in their attempt to exploit those markets.
However, support for the financial sector cannot be uncritical. As my hon. Friend recognised, there were flaws in City practices in the run-up to the financial crisis, as well as a failure of the regulatory architecture. We need to resolve those issues if we are to provide a stable foundation for the financial services sector to grow. That is why the reforms that we have set out since the formation of the coalition Government in May are rooted in economic and financial stability, not the size of the financial services sector. That is an important distinction to draw. We want a stronger, more stable structure. That will require a reform of regulation, but it is not about the size of the sector.
We have been clear in the reforms that we have introduced that we want more effective supervision and a new structure to tackle emerging threats to financial stability. That is why we are setting up a Financial Policy Committee as part of the Bank of England to consider emerging threats to our financial stability and determine what response is needed to enhance the stability and resilience of the UK financial sector.
David Mowat
Does the Minister agree with the comments made last week by the Governor of the Bank of England vis-à-vis the current structure of the banking sector in the UK?
Mr Hoban
It is an important debate, and there is no clear consensus on what structure the banking sector in the UK should have. That is why we decided to set up the Independent Commission on Banking, under the chairmanship of Sir John Vickers, to consider structure as well as competition in financial services. Over the course of the financial crisis, we have seen a significant concentration of financial services and the banking sector—there are fewer banks from overseas operating in the small and medium-sized enterprises sector, and Lloyds has taken control of HBOS—and we want the independent commission to consider that and decide whether structural changes are needed to improve the resilience and strength of the banking sector, and whether we can introduce measures to improve the competitive landscape and provide greater choice for businesses and consumers looking for financial services products, whether they are loans, current accounts, business accounts or other products. We need to consider the structure carefully, which is why we set up the Independent Commission on Banking.
To return to the point about regulation, we recognise that there were flaws in the structure of regulation; that is one reason why we set up the Financial Policy Committee. We also want to examine how the Financial Services Authority operated under its dual mandate to consider prudential supervision and consumer protection. We decided to create two new regulatory bodies to replace the FSA. One is the Prudential Regulation Authority, which will be a subsidiary of the Bank of England and will focus on the strength and resilience of banks and insurance companies particularly; the other is the Consumer Protection and Markets Authority, which will ensure that consumer markets in the UK work effectively to support the long-term aspirations of consumers as well as considering how wholesale markets in the UK work. That is an important aspect of the financial services sector; a great deal of work on that issue is going on at an international or regional level through the EU, and it is important that the UK takes a strong lead in ensuring that those markets are regulated effectively. If we get the regulation of the financial services sector right—if we take steps to improve markets’ transparency, resilience and strength—I believe that it will provide a firm foundation for the continued growth of the sector in the years to come.
On the diversity of the economy, we must recognise that there is more to our economy than financial services. We have strengths in other areas, partly as a consequence of language, time zone and other aspects of the UK. My hon. Friend the Member for Newton Abbot (Anne Marie Morris) referred to the legal system, which is a huge asset for businesses seeking to work here due to the legal certainty that comes from our world-class legal framework. We have a deep and highly skilled talent pool and strengths in pharmaceuticals, construction and business services.
We need all those sectors to grow, but their growth does not mean that we should diminish the size of the financial services sector. A strong financial services sector can help develop the diversity the UK economy needs to demonstrate that we have learned the lessons from the financial crisis. We cannot have an unreformed financial sector, given the scale of the crisis that we have been through. Reform has been introduced to help the sector’s stability and resilience and produce a better outcome for businesses and households.
Economic Governance (EU)
Mark Hoban Excerpts(14 years ago)
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Mr Speaker
Order. The hon. Gentleman must not get too excited: he will have his opportunity. I have granted him his chance, and he should not worry: we will come to him in due course.
The Financial Secretary to the Treasury (Mr Mark Hoban)
I am very grateful for the opportunity to update the House on the conclusion of the taskforce on strengthening the economic governance of the European Union, and to report on the UK’s position on the taskforce. In particular, I wish to restate that the UK is exempt from the current and future sanctions regime.
Heads of State and Heads of Government commissioned the President of the European Council, Herman Van Rompuy, to produce a report on EU economic governance and report back to the October Economic Council. Mr Van Rompuy chaired a taskforce meeting consisting of EU Finance Ministers, and the Chancellor represented the UK on the taskforce. The report has been agreed by the taskforce, and the European Council is expected to endorse it tomorrow. Copies of the report, along with the Chancellor’s submission to the taskforce, have been placed in the Library of the House this morning.
The report concludes that the EU should take steps to reinforce fiscal discipline and that the euro area in particular must face tougher surveillance of its fiscal policies, with sanctions for non-compliance with the pact where appropriate. It also recommends measures to improve EU-level co-ordination of macro-economic policies. That will ensure that any harmful macro-economic imbalances between member states can be identified and corrective action taken. Finally, the report notes that there should be a permanent crisis resolution mechanism for the euro area. The UK supports its conclusions.
A strong and stable euro area is firmly in the UK’s own economic interests, given the high level of UK exports to those countries and our close economic ties. In the years before the crisis, fiscal discipline was absent, and not just in states in the eurozone. High levels of debt have exacerbated the problems that some member states face during the economic downturn. The taskforce recommends that there should be greater focus on member states’ public debt levels in future, and the Government agree with that approach.
I am pleased to note that the report explicitly states that sanctions cannot be applied to the UK under the stability and growth pact. Domestic fiscal frameworks play a crucial role in ensuring that member states act responsibly. EU surveillance is useful, but as the House knows, national Parliaments and national institutions must hold Governments to account for their economic and budgetary policies.
Let us be absolutely clear: yes, we want to see a strong and stable eurozone. That is in our interests just as much as those of our neighbours. The UK has led the way on economic governance. Multi-year budgets and independent statistics and forecasting have already been introduced, and we have a clear fiscal mandate to eliminate our structural deficit. We are leading the eurozone, and our high standards have already received international endorsement. We will examine any proposals to help the eurozone overcome its problems.
However, as the Prime Minister has just said, we will not agree to any changes to EU treaties that move more powers from this country to the EU. The UK’s exemption from the sanctions proposal will be explicit, and there will be no shift of sovereignty from Westminster to Brussels. The report makes that clear, agreeing that
“strengthened enforcement measures need to be implemented for all EU Member States, except the UK as a consequence of Protocol 15 of the Treaty”.
While we are looking at problems in the EU, I should like to say that we have serious concerns about the proposed size of the 2011 EU budget. I was shocked to see that on the day of the spending review, the vast majority of Labour MEPs voted against a freeze in the EU budget. When countries across Europe are taking tough decisions to put their public finances in order, it would be wrong—unjust, even—to have a 6% rise in next year’s EU budget, as has been suggested. We cannot accept that and will fight it hard. We are protecting British interests in the EU and doing what is right for our country and our people, and the Prime Minister will update the House next week.
Mr Cash
I am most grateful. Unfortunately, the explanation that we have just heard from the Minister does not answer all the questions that arise in this matter. In particular, the Chancellor of the Exchequer was on the taskforce, and the Council’s recommendation is that these moves should strengthen economic governance
“in the EU and the euro area”,
in other words not excluding the UK,
“and can be implemented within the existing Treaties.”
I am grateful to the Minister for agreeing, as I suggested, that he should place in the Library a copy of the taskforce report and the Chancellor’s submission to the taskforce on 9 July, so that everybody can read them.
The point remains that the six regulations and directives that the European Scrutiny Committee will consider this afternoon are still on the table. Mr Van Rompuy indicated yesterday at a meeting of COSAC—the chairmen of European scrutiny committees—which I attended, that there are uncertainties about the legal position. I think I am getting his words correct and that he said that the situation did not totally respect all the traditional rules of the European Union. Mr Van Rompuy also called for agreement because, he said, people are our citizens and not just voters.
Given that there are now six legislative proposals—it is claimed that they are based on the existing treaty, but we cannot assume that they are—and that the ESC will consider them today, and that they appear to carry forward in part the Van Rompuy recommendations, what requires a new treaty?
The treaty will affect the UK and our sovereign Parliament in respect of its control over UK fiscal policy, tax and economic governance, including the question of the rebate. We are glad to hear that the Government reject the increase proposed by the European Parliament, but will the Minister reply to this simple question: will the Government veto the treaty, and if not, will they guarantee that, in accordance with the wishes of the voters in the United Kingdom, we have a referendum on that issue?
Mr Hoban
I am grateful to my hon. Friend for raising those points. May I just advise him that the final meeting of the taskforce took place on 18 October? I attended that taskforce, as did my right hon. Friend the Chancellor. We ensured that the language in the taskforce report guaranteed that sanctions would not apply to the UK. Paragraph 18 of the taskforce report refers
“to the specific situation of the UK in relation to Protocol 15 of the Treaties.”
In addition, paragraph 4 states that the measures set out in the taskforce report can be implemented through
“EU secondary legislation…within the existing legal framework of the European Union”,
so nothing in the report requires a treaty change. I am aware that France and Germany have suggested that there may be treaty changes, but we have yet to see the details of such proposals, which would be made to the European Council at the weekend.
Chris Leslie (Nottingham East) (Lab/Co-op)
Will the Minister explain why the Prime Minister needs a further week before he updates the House on those matters? Could that be because he has yet to figure out exactly what the Government’s position is? Surely after looking at those negotiations, he recognises that this is an embarrassing position for the Government to be in, because the coalition’s policy on new European initiatives as they are introduced is far from clear.
We are still none the wiser, even though this issue was supposed to be debated today. It remains under “Future Business” on the Order Paper under a motion tabled by the Minister, which proposes that the House
“supports the Government’s approach to improving the functioning of the eurozone and reinforcing economic stability across the EU.”
If the Government are asking us to support their approach, could the Minister tell us what his policy is? It is clear to the House that one lesson we need to learn from the financial crisis is the need for better co-operation between Governments at European and global—G20—level, obviously to ensure that we address the imbalances in the worldwide economy that were the root cause of the crisis.
Of course, the euro area needs to sort out its own difficulties. We have supported eurozone countries in that respect in the past while making it clear that the UK taxpayer cannot be expected to bear the burden, but does the Minister agree that our focus in this country needs to be on jobs, housing and growth, not further rounds of navel-gazing on European governance?
If the Government were regarded as a serious player in Europe, they would have led and not followed these developments over the weekend. There are several reports from various quarters about a set of different policy outcomes—the President of the EU says one thing, and the French President and German Chancellor look set to propose changes to the treaty—but where was the Prime Minister during those conversations?
The Government are quite clearly too scared to talk even to some of their own Back Benchers on that question, but has the Prime Minister spoken to the Deputy Prime Minister about these matters? Whatever the Minister says, there are three wings to the coalition: half of the Conservative party want to leave the EU, the Lib Dems want to go head first into the euro, and the rump of the Government, represented by the Minister, are left straddling those two positions—they are the only ones with nothing to say. Is it not clear that the Prime Minister is isolated within his own coalition? It is no wonder that he is isolated in Europe.
Mr Hoban
I appreciate that the hon. Gentleman has been absent from the House for some time, and he is a little rusty on some of these things, but I am sure that he will recollect that the practice followed by previous Prime Ministers was to report back to the House on the Monday after a European Council, not before. My right hon. Friend the Prime Minister will make the statement that would be customarily expected of him.
It is important to ensure that we learn the lessons from the financial crisis. It was clear in the run-up to that crisis that fiscal discipline was lax not just in the euro area, but in the UK and other states. We have led the way in this debate by introducing the Office for Budget Responsibility, with a clear fiscal mandate for eliminating the structural deficit by 2014-15. The fact that we have led the debate is recognised by international bodies such as the OECD, the International Monetary Fund and others. We have set our mark on the debate in Europe, which is the right thing to do. It is right that other member states should achieve the same high standards of fiscal discipline as we do. We are leading the debate in Europe, not following it. The previous Government were silent on that, so what is the Opposition’s position now?
Mr Peter Lilley (Hitchin and Harpenden) (Con)
Can the Minister confirm that even if the proposed treaty concerns only and exclusively the member states of the eurozone, it would still require the support of the British Government to go ahead? Can he assure me that that support will not be given without obtaining concessions in return, such as the return of powers to this country that were unnecessarily given? Can he assure me that we will not give that support without demanding a price? This is the ideal opportunity to obtain that price.
Mr Hoban
My right hon. Friend makes an important point, but I would point out to him that, at the moment, there are no proposed treaty changes on the table. That may happen at the European Council next weekend, and we should respond to those treaty changes as they arise. However, I go back to the comments that my right hon. Friend the Prime Minister made: we will not agree to any changes to EU treaties that move more powers from this country to the EU.
Mr Jack Straw (Blackburn) (Lab)
The Minister says that there are no treaty changes on the table. Theoretically that is true, but he must be aware that in the statement issued after the meeting between Chancellor Merkel and President Sarkozy last week in Deauville, they made it explicit that they intended to put forward treaty changes and that the ambition of those changes would extend beyond simply the eurozone, which will have clear implications for the United Kingdom. In that case, will the Minister re-emphasise his clear statement—which I welcome—that the United Kingdom will not contemplate treaty changes that interfere with the right of the British Government and of this House to determine our own economic policy, including our own exchange rate policy?
Mr Hoban
Indeed, that is why we have secured a clear and explicit exclusion in the report from the Van Rompuy taskforce—an exclusion based on the Lisbon treaty, but also based on the opt-out that we secured from the Maastricht treaty—so that the sanctions do not apply to the UK. As I have said, at the moment there are no detailed treaty changes on the table. We will have to wait and see what the French and Germans put forward at the weekend.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
May I remind my hon. Friend that those of us who opposed the formation of the euro in principle warned that it would be a disaster, and that we have been vindicated by events? May I warn him now that the Government’s aspiration somehow to assist in creating a stable and strong euro area will be a vain attempt? The Government had better plan for the continuing disaster of a currency without a state, which is bound to be unstable in the long term.
Mr Hoban
My hon. Friend makes an important point. There are many sound arguments against the euro, and that is why we have ruled out joining it. However, it does us no favours to see a weak and unstable eurozone. It is important for eurozone countries to have strong fiscal discipline to ensure stability. The taskforce introduces a mechanism for eurozone countries to try to deliver that.
Mr Denis MacShane (Rotherham) (Lab)
Have you noticed, Mr Speaker, that all the Liberal Democrats have mysteriously disappeared from the Treasury Bench as this subject has been debated? I would welcome the views of the right hon. Gentlemen on the Treasury Bench on housing benefit, but may I say to the Minister that I welcome, I think, his clear statement to the House that he is not prepared to go and dwell on planet Cash? He has made it absolutely clear that the Government are not going to veto the treaty, and I welcome that sensible Euro-pragmatism from the new Government.
Mr Hoban
I am not entirely sure which planet the right hon. Gentleman is on at the moment. We need to ensure that the eurozone functions effectively, but we have secured an opt-out from the sanctions proposals, originally through the opt-out in the Maastricht treaty and reinforced by the Lisbon treaty. That is the right place for this country to be in, and that is why the coalition Government are right behind that position.
Mr James Clappison (Hertsmere) (Con)
May I congratulate my right hon. and hon. Friends on their refreshing approach of standing up for Britain’s interests in Europe, in contrast to that of Labour Members and their MEPs? Will they bear in mind, however, that there is little appetite for any extension of the competence of the EU into economic governance through any legal framework, whether by treaty or otherwise? There is still less trust in the institutions of the European Union, including the Commission, given the way in which the competence of the EU is for ever being expanded and the fact that previous safeguards in other areas have turned to dust.
Mr Hoban
My hon. Friend makes an important point. I know that he thinks about these issues very deeply, and I would encourage him to read the final report of the taskforce. It sets out our exemptions explicitly, and he will recognise that they will protect the UK’s position and help to develop a strong and stable eurozone, which is also in our long-term economic interests. The document makes it clear that we are outside the sanctions regime that applies to members of the eurozone and others.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
I spent yesterday in Berlin talking to German politicians, and I think that the British Government will discover treaty changes pretty quickly. Those politicians feel that the stability and growth plan is dead, and that it is not the mechanism to take us forward. May I urge the Minister to answer a specific question? Given that 25 of the 27 member states either are members of the eurozone or will have to become members under treaty obligation, and that only two have an opt-out, does he agree that anything that would strengthen the financial and economic co-ordination of the 25, plus the two with opt-outs, would represent a diminution of our sovereign ability to exert our influence and would therefore be subject to a referendum here?
Mr Hoban
As I reiterated earlier—and as my right hon. Friend the Prime Minister has made clear—we will not endorse a treaty that transfers sovereignty from Westminster to the EU. The hon. Lady takes a close interest in these matters, and I know that she will recognise that views among member states about the desirability of treaty changes vary, and that the UK is not the only one that is concerned about this.
Mr Douglas Carswell (Clacton) (Con)
In June, Ministers made a big deal of the fact that the UK Budget would not need to be submitted to EU institutions before it was brought to the House of Commons. Will the Minister confirm that, in fact, the UK pre-Budget report data are part of the European semester process, and that, while we might be exempt from sanctions, we are part of that surveillance? Will he be honest and admit that we are part of the EU fiscal scrutiny process?
Mr Nigel Dodds (Belfast North) (DUP)
The Minister also mentioned the increase in the EU’s budget by 6%. Does he agree that many people in this country—in fact, the vast majority—will be deeply disappointed by the Prime Minister’s reply to the hon. Member for Vauxhall (Kate Hoey) during Prime Minister’s questions, in which he seemed to be limiting his ambition to reduce the size of the increase in the EU budget? Should not the Government just go there and argue for, and deliver, a cut in the EU budget?
Jacob Rees-Mogg (North East Somerset) (Con)
The Minister has drawn our attention to paragraph 18 of the report. I am curious about paragraph 16, which refers to “New reputational and political measures”, including the threat of “enhanced surveillance”. Would the British fiscal position be subject to enhanced surveillance in certain circumstances, and what would that mean?
Kate Hoey (Vauxhall) (Lab)
It is all very well for this taskforce to report on the fiscal discipline of eurozone countries, but what about the fiscal discipline of the European Union generally? It has not even got its accounts properly audited. What are we going to do not only to stop the budget going up but to achieve a cut in the amount of money that we have to pay to the European Union? If we want to ask people what they feel about this, let us have a referendum on whether we should be paying more to the European Union.
Mr Hoban
The hon. Lady makes some sensible points about this matter, but she needs to speak to some of her own colleagues in the European Parliament, because they voted against the freeze on the budget. And of course it was her right hon. and hon. Friends who gave away some of our rebate as well. That is part of the problem that this Government are trying to sort out.
Philip Davies (Shipley) (Con)
Whenever the Minister defends this country from a power grab and a cash grab by the European Union, he will have the enthusiastic support of Members on these Benches. Some of us are rather nervous, however, because when the Conservatives were in opposition, they opposed the European External Action Service, yet they sang its praises when introducing it in the House not long ago. They also opposed giving more money to the European Union, yet they recently rubber-stamped an increase through this House that had been agreed by the previous Government. Does the Minister agree that his Government should be judged on what they do, and not on what they say?
Mr Peter Bone (Wellingborough) (Con)
Does the Minister welcome the united approach of the coalition Government working together, under which the Prime Minister sent the hon. Member for Stone (Mr Cash) to Brussels yesterday to duff over the EU President and soften up the EU so that the Prime Minister can finish the job this weekend?
Mr Speaker
I reserve judgment at this stage as to whether the expression “duff over” constitutes parliamentary language, but the hon. Member for Wellingborough (Mr Bone) has got away with it on this occasion.
Savings Accounts and Health in Pregnancy Grant Bill
Mark Hoban Excerpts(14 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
I beg to move, That the Bill be now read a Second time.
The Bill does three things: it ends eligibility for child trust funds for children born from January 2011 onwards; it repeals the Saving Gateway Accounts Act 2009, following our decision not to introduce the saving gateway scheme; and it abolishes the health in pregnancy grant, again from January 2011. I will explain the detail of the measures shortly, but first I want to explain the rationale behind them, because they all have the same aim of helping to reduce Britain’s budget deficit.
As my right hon. Friend the Chancellor of the Exchequer set out clearly last week, the Government have inherited an exceptional fiscal challenge. Last year, we had the largest peacetime deficit in our history, and we were borrowing £1 in every £4 that we spent. We are now spending £120 million a day just to pay interest on our debt. As the Governor of the Bank of England said last month, that position is “clearly unsustainable”. Taking urgent action to tackle the budget deficit is clearly unavoidable.
Sandra Osborne (Ayr, Carrick and Cumnock) (Lab)
Can the Minister tell me why this coalition Government are so determined to pick on children?
Mr Hoban
In September 2009 Carl Emmerson, acting director of the Institute for Fiscal Studies, said:
“Abolishing the Child Trust Fund would make newborns worse off in eighteen years time. But spending cuts in other areas might leave them worse off.”
That is the challenge that the coalition Government face. This is the question that the hon. Lady should be asking: why did her right hon. and hon. Friends leave the country in such a mess that the present Government are required to take these measures?
Without healthy public finances, we cannot have sustainable growth in our economy. The consequence of failing to act now would be higher interest rates, business failures, rising unemployment and even, potentially, the end of the recovery. So we set out a clear plan, in the Budget statement in June and in the comprehensive spending review statement last week, to tackle the deficit. Last Wednesday the Chancellor set out more than £80 billion of spending reductions to help to deliver the Government’s fiscal consolidation plan, which will reduce borrowing by £11 billion per year by 2014-15. The International Monetary Fund has said that our plan
“greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy.”
The Bill is part of that plan.
I realise that the changes made by the Bill will disappoint some Members and others outside the House. Indeed, when we were in opposition, the Conservative party supported the introduction of the policies that have been removed, although at the time we raised some questions about their effectiveness.
Alison McGovern (Wirral South) (Lab)
The Minister has talked about what happened in the past and about the actions of the last Labour Government. Will he tell us whether his party supported the recapitalisation of the banks that protected our financial services system, which led to the deficit?
Mr Hoban
Yes, we did support the recapitalisation of the banks, but I am not sure where the hon. Lady’s point is leading. The deficit is a consequence of the huge growth in spending under the last Government, and their failure to ensure that the fiscal position was sustainable.
This year, the child trust fund would have cost more than half a billion pounds, and that money would have been locked in for up to 18 years instead of supporting people now. That is a luxury that we simply cannot afford, given the fiscal challenge that we face. We also could not afford to introduce a new scheme like the saving gateway, which would have cost £300 million over the next five years, just as we started to tackle that challenge. Nor can we afford to continue to spend £150 million every year on giving cash payments to all pregnant women, whatever they spend the money on and whatever their incomes.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Would not the Minister’s position have more credibility if he proposed ways in which he could encourage families to save? Such proposals were included in the Bills that he is about to abolish.
Mr Hoban
If the hon. Gentleman cares to stick around for a few minutes, he will learn something about what we are going to do for families in that regard. I believe that this Government will do more than the last Government in terms of long-term benefit to encourage families to save.
Taken together, 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 us £370 million in the current financial year, about £700 million next year, and about £800 million in each year from then on.
Mr Love
According to an excellent research brief provided by the House of Commons, the Government will save £450 million in future years in relation to the saving gateway. However, the Minister has just admitted that it has not been introduced. How is it possible to save £450 million on a scheme that has not been introduced?
Mr Hoban
Spending on that scheme was included in the spending score card by the last Government. We are not spending the money; therefore we are saving it.
If we had not found the savings where we have found them, we would have had to find them through other spending cuts, through tax rises or through higher borrowing, and that would have kept the deficit higher for longer. Those who oppose the Bill must tell us what they would cut instead.
Having explained the context of the Bill, I shall now describe its measures in more detail starting with the most straightforward element, which is clause 2. It repeals the Saving Gateway Accounts Act 2009. As Members may be aware, the saving gateway would have been a cash saving scheme for people on lower incomes based on matching—there would have been a Government contribution for each pound saved. The scheme was due to be introduced in July 2010; that is when the previous Government booked the spending from. I believe that people in Britain, including those on lower incomes, need to save more, and there was evidence from the saving gateway pilots that matching was a popular and easily understood incentive to save, but when we looked at the proposal ahead of the Budget, it was clear that this would have been exactly the wrong time to introduce a new scheme that would have cost us up to £115 million a year.
Mr Jamie Reed (Copeland) (Lab)
I was grateful for the support the hon. Gentleman’s party gave when in opposition to the then Labour Government’s efforts to reduce child poverty. What assessment has his Department made of the effect of the withdrawal of these grants and schemes on child poverty in this country, not just in general but by region and constituency?
Mr Hoban
There was clearly a choice. We could have continued with these schemes and cut spending elsewhere, but we decided that it was better to take action now to tackle the deficit than to put that decision off, as the hon. Gentleman’s party would do, and therefore have to make deeper cuts in the future. I think the steps we are taking are the right course of action to tackle the deficit.
Although the previous Government had agreed with RBS and Lloyds Banking Group that they would introduce saving gateway schemes, none of the other big high street banks were planning to do so, and although the Post Office was going to offer the accounts, that was only because the previous Government had agreed to pay it to enable it to do so. Also, while a number of credit unions were signed up, not a single building society signed up to provide the saving gateway account. Therefore, although I appreciate the engagement of those who had planned to offer saving gateway accounts, I was concerned that not everyone in the eligible population would have had an accessible provider. For these reasons, we announced at the Budget that the saving gateway would not be introduced. We therefore stopped the Saving Gateway Accounts Act from coming into force, and this Bill repeals it altogether. Although we may want to come back to this idea at some point in the future, we have no plans to do so at present so it would be wrong to leave this legislation on the statute book.
Kate Green (Stretford and Urmston) (Lab)
The Minister alluded to the fact that credit unions were particularly interested in supporting this initiative, and he will be aware that credit unions are particularly likely to be located in communities with high concentrations of disadvantage and poverty. Therefore, although he says the scheme’s reach was not complete, does he accept that in fact it was potentially rather well targeted?
Mr Hoban
That assumes that there is a credit union in every deprived community, but in some such communities a credit union may not be accessible, and the Post Office would have stepped in only if a Government subsidy were provided, so I do not believe there was going to be a complete network of saving gateway account providers to ensure that every eligible person in this country would have been able to access an account.
Clause 3 addresses the health in pregnancy grant. It is a one-off cash payment of £190 to pregnant women. The previous Government said it was being introduced in recognition of the importance of a healthy diet during pregnancy. However, the National Childbirth Trust said that
“the evidence indicates that, if dietary intervention is to have an impact on birth weight and outcomes for the baby in later life, it should be started as early as possible.”
Given that the grant is not paid until the third trimester, it is not clear how effective it is, and although—
Mr Hoban
Let me make some progress. Although the previous Government said the grant was intended to support the general health and well-being of women in the later stages of pregnancy, there is no requirement to use the grant for better health and well-being. Women can spend the money on whatever they want, and the grant also goes to pregnant women regardless of their income and their need for it.
Diana R. Johnson (Kingston upon Hull North) (Lab)
It seems to me that that money was also for meeting the additional costs of having a baby. It was very much linked with women receiving advice from health practitioners too; there was a link between our making sure that women were getting the very best advice and their being able to access the money.
Mr Hoban
Well, other schemes are available to help women ensure that their diet is healthy. May I tell the hon. Lady what others have said about this one? Zoe Williams, writing in The Guardian in April 2009, said that this is
“a universal grant to mothers who may or may not need it, and may or may not spend it on vegetables that may or may not positively influence the health of their unborn children.”
[Interruption.] I am simply quoting from The Guardian—I did not realise just how much outrage that would cause in the House. Paul Waugh, writing in the London Evening Standard in June 2010, said:
“The Health in Pregnancy Grant is frequently not even spent on healthy food.”
[Interruption.]
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Look, I understand that this is an important matter and it concerns everyone in the Chamber, but it is no good everyone trying to chunter at once. The Minister has been very generous in giving way so far and I am sure he will be generous in the future. One at a time please, rather than chuntering from across the Benches.
Yasmin Qureshi (Bolton South East) (Lab)
Does the Minister know how much folic acid costs?
Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)
The Minister says that this grant has not always been spent on what it was intended for and instead has been spent on things such as buggies—they are equally important. Would it not have been advisable then to have targeted it, by using, for example, income-related benefits, so that it went to people who really needed it and was spent on what it was intended for?
Mr Hoban
Of course the hon. Lady should really address that to her colleagues who were Treasury Ministers when the grant was introduced, as they could have chosen to target it more closely. Other grants that are available are targeted at women in the early stages of pregnancy and the Sure Start maternity grant is in place.
Mr Mark Field (Cities of London and Westminster) (Con)
I accept the honourable way in which a number of Labour Members have stood up and are concerned, but does this not show that once we give any benefits they are taken for granted by whoever ends up receiving them? Does the Minister recognise, and will he confirm, that the Bill deals with only a small number of the grants that could be looked at by the Treasury? We have to get this deficit down and his opening comments have made a perfectly valid point. Will he confirm that he might well have examined a considerable number of other grants in this Bill, but it deals with only a small number?
Mr Hoban
My hon. Friend makes an important point. The Government have had to go through this challenging spending process with care, examining both spending and welfare decisions. We have had to take decisions that are not straightforward, not easy and not ones that we would have wanted to take, but we have had to do so because of the financial problem that we inherited from our predecessors.
Let me give another example of targeted support that is available, because the hon. Member for Washington and Sunderland West (Mrs Hodgson) talked about means-tested grants. I am sure that she will be aware of the Healthy Start scheme, which is a statutory scheme providing a nutritional safety net and encouragement for breastfeeding and healthy eating to more than 500,000 pregnant women and to children under the age of four in low-income and disadvantaged families across the UK. The scheme is tied carefully because, unlike the health in pregnancy grant, it provides vouchers for people to put towards the cost of milk, fresh fruit and vegetables, and infant formula milk at 30,000 retail outlets. So measures are in place to support the groups that she is most concerned about, and it is right that that is so. The health in pregnancy grant is unfocused and untargeted.
Liz Kendall (Leicester West) (Lab)
The Healthy Start scheme is a good, targeted one, but will the Minister admit that the Government are also restricting the Sure Start maternity grant, abolishing the baby element of the tax credit and not going ahead with the toddler tax credit? Pregnancy and the first year of life is vital for a child’s development; if we can give children the best start in life, it saves us all in the long run. So will he reconsider his abolition of these schemes?
Mr Hoban
Perhaps the hon. Lady would tell us what she would cut instead. It is very easy for the Opposition, who did not come forward with a plan to tackle the deficit before the last election. Now, every time a cut is proposed they oppose it. As was very clear from the leaked document in The Times today, they recognise themselves that their economic plan has no substance.
Pete Wishart (Perth and North Perthshire) (SNP)
There is no doubt whatsoever that the Labour party left the country’s finances in an appalling state, but why is the Conservative-led coalition taking it out on children and pregnant women?
Mr Hoban
If the hon. Gentleman looks at some of the analysis that was set out at the time of the Budget and last week’s spending review, he will see that we are taking action in both to ensure that child poverty does not deteriorate under this Government. For example, there are increases in child tax credits to families on particularly low incomes to deal with the issue of child poverty.
Paul Maynard (Blackpool North and Cleveleys) (Con)
Does the Minister not agree that the clue as to the purpose of the health in pregnancy grant lies in its title? It was supposed to promote health in pregnancy. Does he agree that there is no evidential base to suggest that in the seventh week of pregnancy onwards it was providing that improvement in health?
Mr Hoban
My hon. Friend makes an important point. I would say that the challenge is as follows. Other schemes are in place to help families on low incomes to deal with some of the issues around childbirth. I have talked about the vouchers that are available to help with nutrition and we have the Sure Start maternity grant, too, which is designed to help low to middle-income working families and out-of-work families to cover the one-off costs associated with having a new baby. There are measures out there, but, yes, they are restricted. The Sure Start maternity grant will apply to the first child—it is a grant of up to £500—but, of course, the problem is that the previous Government left us with a huge debt that we need to tackle and to pay back. If we put off these decisions, as the hon. Friends of the hon. Member for Leicester West (Liz Kendall) would want us to, it would be the poor who would pay the most. It would be those children who would be saddled with the debt that the previous Government left hanging around their necks.
Mr Mark Field
I have a two-and-a-half-year-old son, so I have had the benefit of some of these universal benefits. I must say that in these straitened economic times it makes sense for things to be targeted in a much more effective way. That is all that we are trying to do, and it is regrettable to see the way in which the Minister is being harangued by Opposition Members. We should be targeting these benefits; they should not be universal. This is entirely the right way forward.
Mr Hoban
My hon. Friend makes an important point. We need to look very carefully at where money is spent and ensure that it is spent wisely in pursuit of improving the life chances of children and young people. That is why, for example, our right hon. Friend the Deputy Prime Minister announced recently that we will extend to all disadvantaged two-year-olds 15 hours of free nursery care. That is a very targeted way of helping children from the most disadvantaged backgrounds to achieve their life chances. We have seen the pupil premium introduced, with £2.5 billion a year to help children from disadvantaged families. The coalition Government have set out plenty of measures that are focused on helping the most vulnerable in society. That is what we need to do in the light of this financial crisis: to target measures on those who need them the most, rather than simply opposing every cut for the sake of it, as the Opposition are trying to do.
Sheila Gilmore (Edinburgh East) (Lab)
Does the Minister not agree that the logic of his position is that universal benefits should not exist? In that event, why are women and children being targeted for the loss of these universal benefits? Why not pensioners, who might not use their winter fuel allowance to pay their fuel bill? They might use it for something wholly inappropriate, such as buying a new pair of shoes or a piece of clothing. Why are women and children being targeted in this way?
Mr Hoban
The Labour party is clearly looking for more substance for its economic plan, and perhaps the hon. Lady’s idea of tackling the winter fuel payment is something that the shadow Chancellor will embrace. I look forward to hearing whether those on the Opposition Front Bench will decide to adopt her idea or dissociate themselves from it.
Paul Goggins (Wythenshawe and Sale East) (Lab)
The Minister is turning to support for the most disadvantaged. If there is one area that should unite all parts of this House, it is the welfare of looked-after children, most of whom arrive in care with nothing and leave care with nothing. If there is any group that needs to build up an asset base, it is children in care, yet the Minister is taking away at a stroke the possibility of building up an asset base by getting rid of the child trust fund. How can he, as a Minister, possibly justify his Government’s claim that they are protecting the most vulnerable, when he is robbing children in care?
Mr Hoban
I am turning to child trust funds, and I take on board the right hon. Gentleman’s point. As one of the consequences of our decision to scrap the child trust fund, we are using some of the money that we have saved to provide respite care for disabled children. We have thought carefully about the issues, and, frankly, the decisions are not easy to take. Our decision to scrap the child trust fund is important. It will enable us to deliver the pupil premium and the £2.5 billion package, which was recently announced, to support children from disadvantaged backgrounds. The right hon. Gentleman should look at the issue in the round rather than cherry-picking particular policy areas.
Mr Hoban
No; I will continue. I have given way quite a lot, and I want to make some progress. This is an important Bill, which is why I want to ensure that I have given Opposition Members the opportunity to intervene, but I want to continue setting out the case for why we need to take these measures to tackle the problem that the previous Government left behind.
We announced in May that Government payments to child trust funds would be cut in two stages—they will be reduced first and then stopped altogether. In July, we made regulations to take the first step. For those born from August this year, payments at birth were reduced from £250 to £50, or from £500 to £100 for children in lower-income families or children in care. Government payments at the age of seven also stopped completely from August. The regulations will end the additional payments made to disabled children from 2011-12 onwards, although, as I have said, we will recycle the money that we have saved on those payments to provide additional respite breaks.
Those regulations could not end eligibility for child trust funds altogether, because that process requires primary legislation. This Bill completes the process by ending eligibility for child trust funds for all children born from January 2011 onwards, which means that the remaining Government payments will stop altogether.
Mr Hoban
No; I want to make some more progress.
I realise that many people, including some hon. Members, will find these changes disappointing. As I have explained, however, the child trust fund is simply unaffordable given the deficit that we face and the need to focus our resources on supporting people now.
Although we need to reduce spending on the child trust fund, we remain committed to encouraging people to save. I want to see a saving system that is based on our principles of freedom, fairness and responsibility, as well as being affordable and effective.
Mr Christopher Chope (Christchurch) (Con)
I am with my hon. Friend 100% on the principle that he has just enunciated. Will he clarify the issue of encouraging people to save for their further and higher education? If they do so, they will apparently be penalised under the coalition Government’s proposals if they pay their fees upfront having done the right thing and saved for their education. Is that correct? If so, how is it consistent with what he has just said about our commitment to encouraging a savings culture?
Mr Hoban
My hon. Friend has made an interesting point. We want to encourage more young people to save and to give them some assets at the age of 18. I will look into his point and write to him.
As I have said, the saving gateway and the child trust fund are not affordable given the budget deficit that we inherited, so we are taking a different approach to encouraging saving that builds on the latest research on how to influence people’s behaviour.
The coalition agreement announced the roll-out of a free, impartial national financial advice service paid for by the financial services industry. The service will be fully rolled out by spring next year, providing information and advice on money matters and helping people to understand their options.
Mr Hoban
I will continue.
In the Budget, we announced that an annual financial health check will also be available from next spring as a component of the national financial advice service, offering everyone the chance regularly to review their financial situation and encouraging them to take action including through saving. Both the national financial advice service and the annual financial health check will help people to make the right decisions. We can also do that by making sure that the right products are available, including for families to save for their children.
To make sure that parents have a clear, simple and accessible option to save for their children, we will introduce a new, tax-free children’s savings account after the end of child trust fund eligibility. That account will not have any Government contributions, but it will allow families to build up some savings for their children.
Mr Hoban
If the hon. Gentleman allows me to finish, I may well answer his question.
We are working on the details of the accounts with the industry and other stakeholders, and we will set out more detail in the months ahead. We are clear that, as with child trust funds, those accounts will belong to the child; that they will be locked in until the child reaches adulthood; that they will allow investment in both cash or stocks and shares; that they will be able to receive contributions from family, friends and others up to an annual limit; and that all returns will be free of income tax and capital gains tax.
Mr Love
The Minister has forgotten to mention that both the child trust fund and the saving gateway were specifically targeted at lower-income groups, many of whom—perhaps most of whom—do not pay tax. All the evidence suggests that in order to incentivise people, you have to either provide them with an asset or match their savings pound for pound.
Mr Hoban
As I have set out, the previous Government left us with no choice but to axe those schemes, because we had to save £80 billion in public spending to get spending back on track and keep the deficit under control and interest rates as low as possible for as long as possible. That was the Government’s priority.
Mr Hoban
I will not, because I want to continue making progress.
We want to provide people with a clear and simple way of saving for their children, while saving the £500 million a year that we currently spend on child trust funds.
The savings from the child trust fund, the saving gateway and the health in pregnancy grant will allow us to prioritise the limited resources that we have. As the Chancellor set out last week, we have chosen our priorities as we tackle the deficit that we inherited. We are delivering on our commitment that health spending will increase in real terms in each year of this Parliament. We are prioritising long-term growth, creating the conditions for a private sector-led recovery. We are also radically reforming public services to build the big society where everyone plays their part.
Mr Hoban
I am sorry, but I need to make progress.
We are prioritising fairness and social mobility, providing sustained routes out of poverty for the poorest. While encouraging some of the poorest to build up savings can be seen as meeting those goals, in the tight fiscal position that we have inherited, it is better to invest more in education and health, which will have a greater immediate impact than building up assets.
Mrs Hodgson
The Minister has mentioned education. The Government are introducing larger fees, so young people will leave university with up to £40,000 of debt. A small nest egg from the Government in the form of the child trust fund would have incentivised families to save to pay for that debt. Will he explain how those two concepts go hand in hand and where the fairness is?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Goggins, you are going to have to sit down. The Minister is not giving way. I know that you are trying to catch his attention, but you cannot stand up for five minutes waving your hands. You have got to get used to being back on the Back Benches.
Paul Goggins
On a point of order, Mr Deputy Speaker. Is it in order for the Minister consistently to refuse to take an intervention from someone who has already pursued a specific issue and wishes, in the light of something that the Minister has said since, to take up that issue with him in a constructive manner?
Mr Hoban
As I was saying—[Hon. Members: “Shame!”] Members on both sides of the House want to speak in the debate, Mr Deputy Speaker. I have been generous in giving way and I want to continue with my remarks.
Through the schools pupil premium, which will be worth £2.5 billion by 2014-15, as well as by extending the provision of 15 hours a week of early-years education and care to all disadvantaged two-year-olds from 2012-13, and by maintaining funding for Sure Start in cash terms, we will provide real opportunities for disadvantaged children to move out of poverty for the long-term. We will also use some of the savings from withdrawing child benefit from families with a higher-rate taxpayer to fund significant above-indexation increases in the child tax credit, thereby ensuring that the spending review will have no measurable impact on child poverty in the next two years.
Some people say that stopping Government payments to child trust funds is not fair to children, but there would be nothing fair about leaving the next generation with unsustainable debts that would mean higher taxes and poorer public services. We can fund our priorities at the same time as reducing the deficit only if we find savings elsewhere and this Bill will contribute to that. As I have said, it will end eligibility for child trust funds, repeal legislation on the saving gateway and abolish the health in pregnancy grant.
These were not easy choices to make, but they were the right choices. We simply cannot afford the luxury of spending half a billion pounds a year on the child trust fund when that money is not available to people for 18 years. We simply cannot afford to introduce a new scheme like the saving gateway as we start to tackle the most challenging fiscal position for decades and we simply cannot afford to keep spending £150 million a year on the untargeted, unfocused health in pregnancy grant. The tough choices that we have made on those policies will save £370 million this year, about £700 million next year and about £800 million each year from then on. That means £800 million less in spending cuts, tax rises or borrowing, as we would have had to find that money from somewhere else.
This is a timely debate as it comes on the day that a leaked Labour document acknowledges the lack of substance in Labour’s economic plans. If the Opposition oppose the Bill tonight, they will have to explain how they would plug the gap. If they do not, that will be further proof that their plans lack substance. We have made our choices and they have to make theirs. The Bill puts those choices into action and I commend it to the House.
Mr Hanson
The hon. Member for Bristol West (Stephen Williams) is a member of the Finance Bill Committee, as am I. I am in the Chamber defending our position on behalf of the Labour Opposition. The hon. Gentleman is in the Finance Bill Committee saying nothing about what is happening upstairs and supporting the Conservative party in Divisions upstairs. The hon. Member for Cheltenham (Martin Horwood) should reflect on those matters.
The changes proposed in the Bill, coupled with changes to direct tax, tax credits and benefits, will hit women harder than men. The spending review changes hit women twice as hard as men. The emergency Budget changes hit women three times as hard as men. Cuts in child care, tax credits, child benefit and other support will make it harder for women to work. More than £6 billion is now being cut in direct financial support for children—three times more than is being taken from banks.
I come back to the fact that the banking levy proposed by the Conservative Government, which was a Labour Government initiative, will raise £2.4 billion. My right hon. Friend the Member for Kingston upon Hull West and Hessle proposes a banking levy of £3.5 billion.
Mr Hoban
Last week the banking levy that the shadow Chancellor proposed was to pay for infrastructure. This week it is to pay for the cost of child trust funds and the health in pregnancy grant. With the banking levy stretched so far, the right hon. Gentleman needs to control his spending commitments.
Mr Hanson
There is a range of measures that the Labour Government introduced and would have introduced in relation to deficit reduction. There is a range of measures that my right hon. and hon. Friends and I were elected to implement to reduce the deficit over a four-year period, including an additional banking levy and help and support for deficit reduction. [Interruption.] The Financial Secretary says that is not so. Whatever happened at the general election, we were elected on a policy to reduce the deficit over four and a half years. We would have done that. We would have implemented measures including a range of tax changes and help and support for public sector efficiencies of £15 billion. He is making a choice that puts women, children and the poorest in our society at the greatest disadvantage as a result of the changes. That is a disgrace. We should have looked at the situation differently.
ECOFIN
Mark Hoban Excerpts(14 years ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The Economic and Financial Affairs Council was held in Luxembourg on 19 October 2010. The following items were discussed:
Administrative Co-operation in the Field of Taxation
This directive aims to improve arrangements for exchange of information on request and bring the EU into line with OECD standards. It also extends automatic exchange of information, which the UK supports to the extent that this does not impose disproportionate burdens on business or on tax authorities at a time of fiscal consolidation. The Council agreed that they would aim to reach political agreement on this issue at their November meeting.
VAT Reverse Charge Derogation
The Council agreed that a new derogation should be provided, until the end of 2013, to Germany, Italy and Austria, allowing the application of a reverse charge to mobile telephones and computer chips. The Council also agreed to extend, until the same date, the UK’s VAT reverse charge to domestic trade in mobile phones and computer chips. The reverse charge has been a key component in reducing VAT fraud and has helped protect billions of pounds since 2007.
Stability and Growth Pact
The Council discussed Lithuania and Romania’s excessive deficit programmes. They agreed that the actions taken by both countries represented adequate progress towards the correction of excessive deficits within the deadlines set by the Council, and that no further steps under the excessive deficit procedure were required at the moment.
Debrief on the Informal ECOFIN Meeting
The Council briefly took stock of discussions held during the informal ECOFIN in Brussels on 30 September and 1 October.
Preparation of the G20 Ministerial Meeting
The Council endorsed the terms of reference for the G20 ministerial meeting in South Korea on 22 and 23 October. These will form the basis of the EU’s contribution to the meeting. The Government believe that these reflect UK priorities. However, since the UK’s views are represented through the separate UK seat in the G20, the UK is not bound by these terms of reference.
Tertiary Education
The Council adopted conclusions on a Commission report on tertiary education. The UK is content with the report, which was commissioned by the May ECOFIN Council to assess the efficiency and effectiveness of public spending on tertiary education.
Report on Fiscal Frameworks
Ministers adopted Council conclusions which welcome a report on fiscal frameworks. The Government support the report, which highlights common features of successful national experiences in the Netherlands, Sweden and Austria.
Preparation for European Council: Levies and Taxes on Financial Institutions
ECOFIN agreed a report to the European Council on levies and taxes on financial institutions. The Government are content with the report, which recognises that there is no consensus on how national Governments should deploy the proceeds from bank levies. It states that an EU-only financial transaction tax could result in significant distortion of competition and relocation of financial activity within the global financial system, so careful analysis needs to be carried out.
Alternative Investment Fund Managers Directive
The Council reached unanimous political agreement on the presidency’s compromise text on the alternative investment fund managers directive. This will now form the basis of further discussions with the European Parliament, which is due to vote in plenary session in November. This agreement represents a number of significant gains for the UK from the ECOFIN general approach of 5 May, including provision to extend the marketing passport to managers and funds outside of the EU. The Government also successfully ensured that the agreement limits the powers of the European Securities and Markets Authority to those already provided for in the package on financial supervision.
Bank Levy (Draft Legislation)
Mark Hoban Excerpts(14 years, 1 month ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The Government have published draft legislation on the bank levy announced as part of the Budget in June.
The Government believe that banks should make a full and fair contribution in respect of the potential risks they pose to the UK financial system and wider economy. The Chancellor therefore announced as part of the June Budget that the Government will introduce a levy based on banks’ balance sheets to take effect from 1 January 2011. Following on from this announcement, and consistent with the Government’s approach to tax policy making, the Government published a consultation document in July. Following the conclusion of the consultation on 5 October, the Government are now taking forward the policy process by publishing the relevant draft legislation.
The levy has been designed to encourage less risky funding and complements the wider agenda to improve regulatory standards and enhance financial stability. It will apply to the global balance sheets of UK banks, and the UK operations of banks from other countries. Once fully in place, the levy is expected to generate around £2.5 billion of annual revenues.
The consultation sought views on a number of technical aspects of the design and implementation of the levy. The Government have considered carefully the responses from all interested parties. The draft legislation sets out the Government’s policy decisions on aspects of the design, including:
the £20 billion threshold is replaced by an allowance;
a principles based approach for the netting of derivatives and other assets and liabilities;
a deduction for high-quality liquid assets; and
uninsured customer deposits (except for those from financial institutions) will be subject to the half rate.
The draft legislation is accompanied by explanatory notes and a consultation response summarising the Government’s policy decisions. Final draft legislation will be published towards the end of the year, alongside final confirmation of the rate of the levy, as part of consolidated draft clauses planned for the Finance Bill 2011.
Copies of the draft legislation, explanatory notes and consultation response are available in the Vote Office and have been deposited in the Libraries of both Houses. Copies of these documents are also available via the HM Treasury and HM Revenue and Customs websites.
Independent Financial Advisers
Mark Hoban Excerpts(14 years, 1 month ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
I think that that commentator was my right hon. Friend the Member for Wokingham (Mr Redwood).
I congratulate my hon. Friend the Member for West Worcestershire (Harriett Baldwin) on securing the debate. She said that it is the first debate we have had on IFAs for some time, which surprises me given the amount of interest it has generated and the volume of correspondence that hon. Members received during the previous Parliament about the RDR.
The structure of regulation in the UK means that regulation is the responsibility of the FSA, not the Treasury. Treasury Ministers cannot dictate to the FSA how it should do its job. That might seem to my hon. Friends an attractive idea in the present circumstance, but they may be able to think of other circumstances where it would be less attractive. Today of course we are announcing the settlement in relation to Equitable Life. Those losses arose when the Government were responsible for the regulation of financial services, so do not be tempted down the route of suggesting that the Treasury should do all financial regulation.
Access to high-quality and independent financial advice is vital to increasing confidence in the financial sector and to ensuring that people are encouraged to save, plan for the future and make appropriate choices. As my hon. Friend said in her speech, the impact of receiving poor adviser advice can be financially disastrous for the consumer. We do not need to go far to find evidence of that—look at cases of widespread mis-selling of products such as pensions and endowments and, more recently, of structured products.
The Financial Services Authority’s view is that the regulation of independent financial advisers, in particular through the retail distribution review, is essential in rebuilding trust in the industry when confidence in financial services is at an all-time low.
Dan Rogerson (North Cornwall) (LD)
The Minister is clearly outlining that risks are involved in the advice given by independent financial advisers. Does he agree that a risk-based approach, which is responding to complaints and which might require longer-standing financial advisers to undergo retraining, could be a better way of tackling the issue?
Mr Hoban
That is an interesting point, but my hon. Friend should bear in mind that with some products, which might be long term, it can be some time before an issue emerges. If people buy a product in their 30s—a pension product, for example—they might only find out in their 60s that they had been mis-sold something. There is a real issue about looking at complaints records in that way.
The retail distribution review aims to address the structural problems in the distribution of retail financial products, such as conflicts of interest, transparency and professional standards. Although the RDR is the responsibility of the FSA, I fully support its aims—all colleagues should support those objectives. I hope that the RDR will lead to increased confidence, simplicity and clarity in the financial advice sector.
On professionalism, hon. Members are familiar with the fact that the rules seek to ensure that all financial advisers adhere to common professional standards, including an increased minimum qualification level, effective maintenance of knowledge and subscription to a code of ethics. The current minimum financial adviser qualification is at the same level as a diploma in shift management offered by McDonald’s. We should all reflect on that for a moment: the products being sold by IFAs are infinitely more complex and more long-lasting in their effect than a Big Mac.
The rules aim to improve trust and the service offered to consumers. Consumers will have confidence that their financial adviser is up to the job. Investment advice will be seen as a professional activity, financial advisers will have a new status and fresh talent will be attracted to the industry. The FSA reports that, rather than being put off by studying, many financial advisers are going on to obtain more advanced qualifications than those required by the RDR. One of my constituents, who is an IFA, has said that when the FSA raised the minimum bar he wanted to go even further, to demonstrate that his qualifications, knowledge and technical expertise went beyond those of his peers. The FSA also noted that take-up for financial planning degree courses has increased.
I know that many financial advisers have concerns about meeting the increased qualification standards required by the RDR, but almost half of advisers already meet the required level, with two years to go before the RDR is introduced.
Many financial advisers feel that the new rules should be “grandfathered,” so that those advisers with experience are exempt. However, how do we know how good those advisers are? Someone might have been in the industry for some time, but is that necessarily a guarantee of the technical expertise and quality of advice?
Mr Hoban
I only have seven minutes left and my hon. Friend the Member for West Worcestershire gave way quite a lot, so I would like to make some progress.
The existing qualification requirements for advisers focus mainly on knowledge, whereas the new higher level is primarily about understanding and applying that knowledge, which are core skills for every adviser to demonstrate. The result is a level playing field where consumers can have confidence that their adviser meets a required standard.
IFAs are not the only people who have an interest in this debate. The consumer group Which? welcomes the FSA’s increased standard, as it does not feel that the current qualification level is sufficient.
Advisers are required to maintain competence under the FSA’s current rules as part of their approval conditions, and so those advisers that have actively engaged in maintaining competence by keeping up to date with market developments should not have to commit a significant amount of time to study. Continuing professional development can be used to fill any gaps between existing and revised examination standards, and financial advisers can opt to undertake an alternative basis of assessment, instead of a traditional written qualification. That addresses one of the points made by my hon. Friend the Member for West Worcestershire, about how someone who is slightly long in the tooth, as I am, might not be as exam-ready as someone straight out of university. The alternative assessment might well help advisers in such a situation.
On adviser charging, at present financial advisers earn different amounts of money as commission payments, depending on which particular firm they recommend a product from and on what product they recommend. That creates a potential conflict of interest which can be damaging to consumers and undermines trust in the investment industry. The RDR rules on adviser charging are designed to tackle the risk, as well as the perception that commission paid by product providers might bias advice.
FSA consumer research also found that only half of respondents understood how the value of their product would be affected by commission. To add to that, in October 2007, Which? conducted a survey of IFAs and found that 82% of advisers failed to explain the document on the key facts about the costs or to have a meaningful discussion with their client about how advice would be paid for. There is a big issue to be addressed—getting people to understand how they are paying for advice at the moment—and IFAs have a role to play.
It should be noted that consumers already pay for advice, through the commission structure in their product. We are not doing anything new by ensuring that consumers know how much advice costs. It is important that consumers understand the value that good financial advice can add and that we create a much more transparent market in which advisers compete on cost and quality. That is a good outcome for consumers.
My hon. Friend mentioned how banks reward employees for pushing certain products—I understand her point—and the FSA is to look into how the reward structures of in-house sales staff in banks affect their performance.
On ability to pay for advice, we need to bear in mind that not enough people are in receipt of financial advice. That is one of the reasons why our party, in opposition and now as part of the coalition Government, has been able to support the Consumer Financial Education Body, the introduction of a social responsibility levy on the financial services sector and the funding of a free national advice service, which will help people review their financial affairs regularly, plan ahead and ensure that they hold appropriate products. Such measures will help to tackle some of the advice gap. I hope that the industry will work in partnership with the CFEB and the Government to ensure access to financial advice.
A number of my hon. Friends raised the issue of the disproportionate impact of RDR on small firms. I appreciate that concern. Smaller IFA firms, in remote areas in particular, will feel the impact, and they are more likely to struggle to meet the challenges of the RDR proposal, unlike the larger IFA firms and the banks, and instead might decide to exit the market. However, the RDR will apply to all advisers in the retail investment market, not just to IFAs.
Although the change will bring challenges in the short term, it is important that we see the advice sector grow and strengthen in the long term. New and existing firms can increase supply in the long term to meet that demand, and indeed the FSA has found that a larger proportion of the costs of the RDR will be borne by larger firms.
In respect of the costs being passed on to the consumer, it is true that with the RDR come implementation costs. The Oxera research commissioned by the FSA found that such costs could translate into higher prices placed on consumers in the short term. However, over the longer term, it concluded that the higher prices could be competed away through increased transparency of prices, encouraging consumers to shop around.
I could respond to many more issues. I will write to my hon. Friend the Member for West Worcestershire on RDR and tax issues.
We all want to ensure that consumers have access to good-quality advice, delivered in a transparent and professional way, so that people understand what they are buying and have paid for. I believe that that will be taking a major step forward in improving the financial outcomes for our constituents.
Equitable Life Payment Scheme
Mark Hoban Excerpts(14 years, 1 month ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
Our programme for government pledged to
“implement the Parliamentary…Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policyholders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure.”
It has been this Government’s priority to provide a swift resolution to policyholders who have been waiting 10 years for justice.
A commitment to fair payments must be founded on a fair assessment of the losses suffered by policyholders, and that must start with the ombudsman’s approach. She sets this out in her report. “Equitable Life; a decade of regulatory failure”, where she introduces the concept of “relative loss”: that is the difference between what Equitable Life policyholders actually received from their policies, and what they would have received if they had invested elsewhere .The representations I have received over the summer from policyholders and their representatives have overwhelmingly supported this definition, and I believe that it is the right basis for calculating loss.
I am aware that parts of Sir John’s analysis were controversial, and I have always said that I would consider representations from interested parties on his work alongside it. Last week’s inquiry by the Public Administration Select Committee and their subsequent report recommended that Sir John’s final findings could not be used in order to determine the payments due to policyholders as his terms of reference included only the findings of maladministration accepted by the previous Government.
I have therefore decided to reject the final findings of Sir John’s report, as the later parts of his methodology are dependent upon which of the parliamentary ombudsman’s findings were included in his terms of reference, and which were not.
However, Sir John’s methodology includes a calculation of total relative loss, calculated from the end of 1992, is not affected by the restrictions on his terms of reference. Although there is disagreement around some aspects of this figure, there is considerable consensus around the main tenets that produce it, including the “alternative approach” he advocates which removes the need for individual assessment of policyholders’ claims. The comparators chosen to reach it have generally been recognised as being appropriate by various interested parties. The parliamentary ombudsman has also told me that she broadly supports the manner in which Sir John has approached this calculation.
Therefore, I believe that it is a fair representation of the relative loss suffered by policyholders. Towers Watson calculate this figure as £4.3 billion.
As the parliamentary ombudsman and PASC have recognised, the Equitable Life payments scheme must deliver fairness to taxpayers as well as policyholders. Given the significant pressures on public finances, it would not be fair to taxpayers for the payments scheme to pay out the full value of relative loss. Taking into consideration other spending commitments , and the reduction in bonuses suffered by policyholders as a result of the policy value cuts in 2001 and 2003, the Government have decided that £1 billion should be allocated to the payments scheme in the first three years of this spending review period.
However, when affordability is taken into consideration, it is important that the position of those who have been hardest hit by their losses is recognised. Policyholders with with profits annuities were particularly vulnerable to reductions in the value of their policies because they were unable to move their funds elsewhere, or to mitigate the impact of their losses through employment. They have consistently been highlighted to me by all groups as those most in need of compensation.
In the light of these factors, the Government will cover the cost of the total relative loss suffered by with profits annuitants (WPAs) who took out policies after 1 September 1992, estimated at £620 million. WPAs will receive regular payments, based on their full past and future relative losses.
The £1 billion set aside for the first three years of this spending review period will cover both the cost of the first three years of WPA regular payments, and all payments to other policyholders. The Independent Commission on Equitable Life Payments will advise on the allocation of funding to policyholders other than WPAs. I have also asked the independent commission to advise me on the prioritisation of payments to policyholders within this group, to ensure that those whose need is greatest are paid first. WPAs will continue to receive regular payments beyond the spending review period, over the course of their lifetime. In this way, the payments will effectively replace the income that they would have received from their Equitable Life policies. Once these payments are taken into account, I expect that the total amount paid out through the scheme will be in the region of £1.5 billion.
I have further decided that these payments will be free of tax.
I have today written to the Independent Commission on Equitable Life Payments informing them of my decision and its implications for their work, and reiterating my request for their advice on how this funding should be distributed by the end of January. As I announced on 22 July, it is our ambition to make the first payments to victims by the middle of 2011, and I hope that all parties will work together to help meet this goal.
I am publishing alongside this the Government’s response to PASC’s Third Report on Equitable Life, copies of which are available in the Vote Office. I am further publishing an updated letter from Towers Watson providing their final calculation of relative loss figures. This is available on the HM Treasury website, along with further information.
Banking in Scotland
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Chris Leslie
I understand where the hon. Gentleman is coming from. It would be unfortunate if a cashier or teller was wrongly blamed by a member of the public for something that their bank or institution had done. I know that only a small number of individuals were involved in what happened, but this is an institutional problem and not just a personalised one. We cannot just change the faces of the directors at HBOS or RBS and expect that all the problems will be ironed out. Although we must consider the regulatory environment, we should understand that the problem is more the culture of the companies in that sector in general. As we know from other circumstances, Government can cajole and set the rules, but ultimately they are not the ones who should be running those firms responsibly. Good corporate governance should have taken a different path; it did not in the credit crunch. I hope that we can get things back on the rails, so that we have a sustainable and solid—perhaps some would say boring—financial services sector in future, and regain some of the trust that the City and the financial services industry both here and in Scotland truly deserve.
The report raises issues that definitely deserve attention. My hon. Friend the Member for Glasgow South West talked about the bonuses paid to high earners and the juxtaposition between ordinary front-line staff and the well paid senior executives. I am glad that the previous Chancellor instituted that one-off bank bonus levy of 50% on discretionary bonuses above £25,000. It yielded £2 billion, which was far more than expected. It will be interesting to watch how the current Administration and the Minister seek to deal with the ongoing concerns of the general public about excessive remuneration. Those concerns are legitimate and need to be addressed to rebuild the trust that is much deserved by those who are genuinely working hard to do their best in a very complex industry.
The hon. Member for Argyll and Bute (Mr Reid) mentioned the willingness of banks to lend to businesses. Discussions are under way with the British Bankers’ Association and others, and reports have been published today. We are hearing many conflicting reports. The banks themselves are adamant that money is available, yet the reports that we consistently receive in our surgeries across the country is that small and medium-sized enterprises are finding the hurdles that they have to jump over too high and that, too often, banks are not willing to do business with them. That exerts a lag effect on our economy in general and the problem definitely needs the Minister’s attention. We want the commitments that were given at the time of the rescue of the banking sector to be properly enforced. We should also see the public stake in our banking sector activated. Given that the public own that stake, they, like any owner of any company, should be able to ask that lending arrangements are fulfilled in the best interests of our economy.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Will the hon. Gentleman clarify whether he is moving away from the previous Government’s position of managing RBS and Lloyds Bank at arm’s length to one in which the Government play an active role in their day-to-day management and lending decisions?
The Financial Secretary to the Treasury (Mr Mark Hoban)
First, let me congratulate both the Chair of the Select Committee on opening this debate, and you, Mr Rosindell, on chairing your first Westminster Hall sitting. You need no lessons from the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) on controlling bad boys.
This is a helpful report. Every hon. Member at the start of their speech has positioned themselves in relation to it. It was my predecessor, Lord Myners, who gave oral evidence to the Committee, but it is this Government who responded to the report. I want to take the opportunity to talk through our response and the progress that we have made since July and to address some of the issues that hon. Members have raised. It is worth bearing in mind some of the remarks that have been made about the Scottish financial services sector. Although the problems at RBS and Lloyds TSB and the failure of the Dunfermline building society cast a long shadow, they are only part of the Scottish financial service sector—a point made to me when I visited fund managers and insurers in Edinburgh earlier this year.
It was more than 300 years ago that William Paterson founded both the Bank of Scotland and the Bank of England. Today, that heritage of innovation, education, and expertise is still very much alive, and reaches across a whole range of financial services, beyond the roots of banking in Scotland in the 17th century. General insurance, life and pensions, asset management and related services all have a place in Scotland’s financial hubs of Glasgow and Edinburgh, and also in people’s high streets. We think of financial services as being related to the City, Canary Wharf or the big centres in Glasgow, Edinburgh and Aberdeen, but of course they are part of our high streets too. We cannot forget that.
Some of the reasons why we see a vibrant financial services sector in Scotland are the highly talented and educated work force, the strong infrastructure and the first-class support businesses such as law and accountancy, which all provide a firm foundation for the Scottish financial services sector. I believe that the sector will play a role in our recovery and future prosperity, not only in Scotland but in the United Kingdom as a whole. However, that will happen only if it reconnects with businesses and families.
The financial services sector in Scotland has been through difficult times. Extraordinary action has been taken to restore stability to the financial services sector, as the hon. Member for Nottingham East (Chris Leslie) said in his remarks. Since March, when the Committee’s report was published, I think that the situation in Scotland and throughout the UK has improved considerably. Actions taken by financial authorities, along with improving global conditions, have enabled banks and building societies to stabilise, begin restructuring and slowly start to restore consumers’ trust.
However, we must continue to be vigilant. We cannot take the strength of Scotland’s financial sector for granted and I welcome the Committee’s contribution to the discussion about how improvements can be made. The opportunity exists now to deliver real and lasting reform of the financial sector, to ensure that it is stronger, safer and more resilient. The Government are determined to deliver that reform.
In the future, we must examine the structure of banking, including the links between size, risk and competition. To that end, we have tasked the Independent Commission on Banking, under the chairmanship of Sir John Vickers, to consider structural and non-structural reforms to the UK banking sector, in order to promote stability and competition.
My hon. Friend the Member for Argyll and Bute (Mr Reid) talked about competition in the banking sector. Clearly, we need to think about issues such as the transparency of the financial information available to customers, so that they know how much their bank account is costing them. During an intervention, my hon. Friend the Member for Skipton and Ripon (Julian Smith) talked about improving data on interest rates and the Government have made steps, following a super-complaint on individual savings accounts, to ensure that there is much more transparency and that people can move their accounts from one provider to another more quickly.
Cathy Jamieson
As a follow-up to that point, I wonder whether the Minister can ensure that the mutual sector is not unfairly disadvantaged, given that it largely avoided the problems that we have seen with some of the other banks. Will he ensure that any changes in legislation support the continuation of the mutual sector?
Mr Hoban
Indeed. I am very grateful to the hon. Lady for mentioning that point, because one of the commitments in the coalition agreement is, of course, to foster diversity and ownership in the financial services sector, including strengthening the mutual sector. The hon. Lady’s intervention also reminds me that she raised issues about set-off. I know that set-off is very important to many consumers and she will be pleased to know that the Financial Services Authority is reviewing it at the moment.
I was talking about reducing risk and the role of the Independent Commission on Banking. The debate about how we reduce risk is not just a UK debate. We have been at the forefront of developing common international standards of regulation—for example, in Basel and through the capital requirements directive negotiations in the EU. In addition, we have led the way in developing approaches to minimise the risk of failure and to ensure that, when failures do occur, the call on the taxpayer is minimised. Of course, it was the previous Government who introduced the special resolution regime, which we supported, and “living wills”—the recovery and resolution plans that were in the Financial Services Act 2010. We also supported that measure.
We will continue to work with international colleagues to ensure that the implementation and sequencing of regulatory changes are taken forward in a way that balances the need to act now on the lessons of the crisis with the need to maintain the competitiveness of the industry.
A number of hon. Members talked about the regulatory framework. Clearly, the reputation and long-term success of Scotland’s banks also depend on trust. Customers need to know that they will be treated fairly and appropriately by all financial institutions. The robust regulatory framework that we are creating will help to cement the attractiveness of Scotland’s financial sector, by providing certainty for banks and confidence for consumers without stifling innovation and growth.
We have learned the lessons from the financial crisis and set out a radical reform to the architecture of financial regulation that we inherited. Earlier this year, the Chancellor announced that the Government will legislate to create a new prudential regulation authority as a subsidiary of the Bank of England. The PRA will be responsible for prudential regulation of all deposit-taking institutions, insurers and investment banks. It will cover all issues affecting the safety and soundness of individual firms, including remuneration. It will have the focus, expertise and mandate to ensure effective prudential supervision and regulation of individual firms, thereby strengthening the UK’s financial system and its resilience to future crises.
We will ensure that financial regulation delivers financial services and markets that are secure and within which private individuals, small businesses and multinational firms have all the information available to them to make the right choices, as well as the right level of protection if things should go wrong. That is crucial.
Consequently, alongside the PRA we will establish a consumer protection and markets agency, which will be a new and integrated conduct regulator. The CPMA will take a tougher, more proactive and more focused approach to regulating conduct in financial services and markets. That will ensure that the behaviour of firms—whether they are based in the high street or trade in high finance—is placed at the heart of the regulatory system, giving consumers greater clarity. The CPMA’s primary objective will be to ensure confidence in financial services and markets, with a particular focus on protecting consumers and ensuring market integrity.
Appropriate regulation is vital to instilling confidence in financial services, protecting customers’ interests and ensuring clean and efficient markets, where both retail and wholesale customers can engage confidently and with the degree of protection appropriate to their needs.
Regulators are continuing to monitor firms for poor practice and they will develop new initiatives to ensure that consumers are treated fairly. A specific focus will be given to cases of unarranged overdraft charges. Working alongside the industry, the Office of Fair Trading has developed commitments on unarranged overdraft charges. They include an agreement that consumers should be able to opt out of unarranged overdraft facilities and minimum standards for how that process of opting-out should work.
Furthermore, earlier this week we laid the regulations to turn on the new section 404 powers—a provision in the Financial Services Act 2010, which was passed just before the election—that will enable the FSA to require firms to establish consumer redress schemes. We believe that it is right to turn that provision on.
However, we also need to ensure that consumers have advice at their fingertips. We have already announced the introduction of an annual financial health check. That check will help families and individuals to get into the habit of taking a thorough look at their finances. It will show them where they are most at risk and how they can regain control of their finances and plan for the future. It will give people a “prescription” that will offer clear advice on what they can do to improve their financial situation now and for the years ahead.
My hon. Friend the Member for Milton Keynes South (Iain Stewart) and the hon. Member for Kilmarnock and Loudoun talked about the importance of inculcating the habit of saving among children early on in their lives—indeed, the hon. Member for Nottingham East also highlighted that issue. It is absolutely vital. Of course, it is a responsibility that we all share and it is an idea that is supported by a number of financial services bodies.
The hon. Member for Kilmarnock and Loudoun mentioned the Cumnock and Doon Valley credit union. Across the UK, credit unions play an important role in this area of education. I have been to see a project that HSBC sponsors in primary schools; I saw it in the Wallisdean infant school in my own constituency. It was quite interesting to talk to children between five and seven about the importance of saving and spending. Clearly, even at that early age they have thought about this issue very carefully.
The new consumer financial education body will roll out the national financial advice service, which will be free and impartial. Of course, that service will be funded by the industry through a social responsibility levy. The cost of the service will not be picked up by the taxpayer; the service will be industry-funded, as part of the industry’s contribution to tackling some of these issues. I think that the service will help consumers throughout the UK to get the best from their financial providers and to give them the information that they need to manage their finances responsibly. The service will be further complemented by the simple products initiative that we announced in July.
The hon. Member for Glasgow South West raised the issue of repossessions. I say to him that in 2009 47,700 homes were repossessed, compared with an estimate that 75,000 would be repossessed. In the first quarter of this year, 9,800 homes were repossessed and in the second quarter 9,400 homes were. In part, that is due to the forbearance of lenders, but clearly the low interest rate environment has made it possible for more people to stay in their own homes. That is to be welcomed. [Interruption.]
Andrew Rosindell (in the Chair)
Order. There is a Division in the House. Would the Minister like to finish his comments now, or shall I suspend the sitting?
Andrew Rosindell (in the Chair)
Okay. The sitting will be suspended for 15 minutes. Order.
Mr Hoban
I want to respond to the comment made by my hon. Friend the Member for Argyll and Bute about the Post Office bank. Part of the coalition agreement was that we would consider the case for a Post Office bank. He will know that the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), has responsibility for the Post Office. We are looking through the options at the moment and thinking about how the Post Office can expand the scope of the financial services that it offers across the counter. That would be of benefit to many—particularly those in rural areas, where the nearest post office may be closer than the nearest bank.
I shall move on to address the issue of lending to small and medium-sized businesses, which has cropped up in a number of contributions. Banks can and do play a critical role in providing finance for new start-ups, growing enterprises and our largest corporations. A thriving banking sector is therefore critical for our economic recovery. Ensuring the flow of credit to small and medium-sized enterprises is particularly essential to supporting growth. In Scotland alone, SMEs account for more than 1 million jobs, so they are an important part of the economy in not just Scotland, but every constituency and part of the nation.
The importance of getting credit flowing to SMEs meant that the Chancellor made a series of announcements in the June Budget. There was the extension of £200 million to the enterprise finance guarantee scheme, which will benefit 2,000 additional small businesses across the UK and bring the lending covered by the EFG up to £700 million. In addition, an enterprise capital fund to support small businesses with high growth potential was announced, combining both Government and private sector funding. In July, we also published a Green Paper on financing a private sector recovery—consultation on that has closed—which considered a broad range of finance options for businesses of different sizes, including bank lending. We will respond formally to that in the next few weeks.
The Select Committee’s report expressed concern about the availability of lending and whether Scottish banks are truly open for business. Again, those concerns have been mentioned in the debate. Today the banks have published, through the British Bankers Association taskforce, a series of measures to help improve customer relationships, promote better access to finance and, crucially, provide better information on the availability of and demand for credit. That point was raised by the Chair of the Select Committee and by my hon. Friend the Member for Argyll and Bute.
One of the things that prompted the proposal to bring together better information is this debate. When I talk to banks’ chief executive officers, as I do regularly, they say that they have enough capacity to lend to small businesses, but that the demand is not there. When we talk to small businesses—hon. Members have raised various examples from their own constituencies—they say that they do not believe the banks are interested in listening. Part of that might be a pricing issue. The survey, which will be based on information supplied by the banks but prepared independently of the banks, will address those issues and raise the quality of information. It will enable us to scrutinise the banks more closely about their lending practices, including the rate at which they are lending.
David Mowat (Warrington South) (Con)
This discussion has always struck me as a bit odd, because banks need to lend to make money. I understand the things that the Government are doing—the two things that the Minister mentioned—but are there not two real issues here? First, it is not that UK banks are lending less; it is simply that a lot of foreign banks have left the market and UK banks have not filled that gap.
Secondly, the banks’ real issue is the requirement that has been placed on them to rebuild their balance sheets and to change their credit ratios in the run-up to Basel 3. They have less money because the Government are effectively telling them to do two contradictory things: to lend more; and to rebuild their balance sheets and have better capital ratios.
Mr Hoban
My hon. Friend raises two interesting points. On his second point, a number of banks have raised the point about whether the capital requirements restrict their lending. The agreement reached last month on Basel 3 requires banks to raise their core tier 1 capital to 7%. UK banks are already well placed to achieve that, so that is less of a constraint. They have been given until 2018 to achieve that level, which will enable them to phase in the increased capital requirement, so I do not think that that necessarily acts as a disincentive to lend.
The other side of the argument relates to the risk attached to lending to SMEs, which is an issue that banks have raised with me. The Bank of England’s financial stability report stated that there is scope for banks both to build capital and to continue lending to the real economy, so that is less of a concern than my hon. Friend suggests. However, he made the valid point that a number of foreign banks have exited the market, creating a gap that several UK banks have sought to fill, and we should not overlook that fact in any debate on banking.
It is important that we have the necessary information available to be able to hold banks to account on lending across all parts of the UK. I know that the Scottish Government, in the absence of that information, commissioned a review of lending in February 2010. When we start to look at the regional data, we will be helped by the fact that the banks will want to engage in an outreach programme at regional level, through chambers of commerce, to start to discuss what is happening in the sector on a regional basis. It is not only about what is going on in London and in the headquarters; it is also about engaging in the regions. That is an important part of the process.
Much more data on mortgage lending are available through the Council of Mortgage Lenders, which publishes regional and national data. A positive story on that from Scotland is that mortgages to the value of £1.4 billion were advanced there in the second quarter, compared with £1.1 billion in the first quarter. That increase in Scotland is actually greater than the increase for the rest of the UK as a whole, so clearly we should recognise that there is strength in the Scottish housing market.
In addition to the enhanced information requirements that banks are committed to, they have agreed to establish and invest in a new business growth fund, which will build up to £1.5 billion. That will help to address the equity gap and will be aimed at investments in the £2 million to £10 million bracket. All previous Governments have thought about and tried to fill that gap. The banks are going to try to fill it in that practical way, as 3i, or the Industrial and Commercial Finance Corporation, did in the past. We have been absolutely clear that banks need to improve the lending environment for small businesses, and we welcome the taskforce’s report as an important first step. It is now important that banks deliver on that.
Bonuses were referred to several times in the debate. We need to bring about a cultural change in the sector. The issues on bonuses that were mentioned in the report are at the heart of that. Recent stories of bank bonuses have caused concern, which is understandable given the current environment.
The Government are taking action. We have already introduced a permanent bank levy, which will raise £2.5 billion—something the previous Government refused to do—and we will shortly consult on a remuneration disclosure regime that will require the disclosure of detailed pay information from large banking organisations operating in the UK. Performance-related pay is an important part of rewarding valuable contributions, but it must be reward for long-term success that takes into account an appropriate level of risk. It is important not to abolish bonuses, but to ensure that they encourage the right sort of behaviour.
The FSA issued a consultation paper on a revised remuneration code of practice in July, laying out detailed principles that will require not only large banks, but a wider range of financial services firms, to establish remuneration policies that are consistent with effective risk management on a proportionate basis. The Government are also exploring with international partners the costs and benefits of a financial activities tax on profits and remuneration. When I talk to banks operating in the UK, they say that the UK regime is tougher than those in place elsewhere in the world. That is a matter of complaint for them, but I think that it is something from which we can take a degree of satisfaction.
In conclusion, the UK economy turned a corner in 2010, but the recovery of both our economy and our financial services industry will necessarily be gradual. It is vital that we act now to support a sustained recovery, backed by a resilient financial services industry that serves the needs of consumers and the broader economy. In that recovery, Scotland will continue to be proud of its long history in providing financial services and of the new financial centres that are emerging. It strikes me as entirely appropriate that Scotland, which pioneered the modern-day ATM, should now host the headquarters of one of our new financial services players, Tesco Personal Finance. We are confident that the Government’s proposals will restore to Scotland a secure, profitable and sustainable banking sector that will be capable of serving the customers, businesses and economy of Scotland.