Dunfermline Building Society (DBS)

Mark Hoban Excerpts

Thursday 22nd July 2010 Written Statements

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

Today the Treasury has laid in both Houses of Parliament copies of the accounts for the Dunfermline Resolution Account for the year ending 31 March 2010.

The accounts have been prepared in relation to the operation of the Dunfermline Resolution Account established in accordance with article 6(1) of, and schedule 1 to, the Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009 (S.I. 2009/1800) (“the Order”).

The accounts have been prepared by the account holder for the Dunfermline Resolution Account, Eversheds LLP in accordance with paragraph 2(1) of schedule 1 to the order and the accounting direction issued by the Treasury.

These accounts have been examined, certified and reported on by the Comptroller and Auditor General in accordance with paragraph 2(3) of schedule 1 to the order.

Paragraph 2(5) of schedule 1 to the order requires the Treasury to lay the accounts before each House of Parliament.

The Dunfermline Resolution Account was closed on 31 March 2010 and no further accounts will therefore be produced.

The Treasury has also laid in both Houses of Parliament the report it has received from the Bank of England on the activities of the DBS Bridge Bank. Under section 80(1) of the Banking Act 2009, the Bank of England is required to report to the Chancellor of the Exchequer about the activities of the DBS Bridge Bank and under section 80(4) the Chancellor of the Exchequer is required to lay this report before both Houses of Parliament.

Offshore Financial Centres

Mark Hoban Excerpts

Wednesday 21st July 2010 Westminster Hall

[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 the debate and talking very clearly about the challenges and benefits that arise from offshore financial centres. He is right to highlight the UK’s particular interest in this area. Crown dependencies and offshore territories that have a link with the UK form half the top 30 offshore financial centres, so we have an interest.

My hon. Friend is right to highlight the important link in retail financial services with the Crown dependencies. A number of hon. Members will have had correspondence from constituents or former constituents about the impact of the Icelandic banking crisis on them, because they had deposits in the Isle of Man with Kaupthing Singer & Friedlander (Isle of Man) or in Guernsey with Landsbanki Guernsey. We have an interest on that level because those places are used as centres for banking by expatriates and a number of people who want to place their money offshore.

It is also right to identify the significant links between these offshore financial centres and the City of London. My hon. Friend highlighted their importance as a mechanism for providing funding for the UK financial services sector: people place their money on deposit in offshore financial centres and then deals flow through to London. I was struck by the fact that in quarter 2 of 2009, as mentioned in the Foot review, $332 billion of funding was provided to the City of London from those centres. That shows their importance.

I am sorry that my hon. Friend the Member for The Wrekin (Mark Pritchard) is no longer in his place, as I am about to refer to the British Virgin Islands, which he mentioned in an intervention, saying that the BVI are on the OECD white list. We welcome the fact that offshore financial centres are keen to take steps to appear on that list and we would encourage more to do so.

My hon. Friend the Member for Romford (Andrew Rosindell) asked about representation in this place for Crown dependencies and overseas territories. Under the present Government, the imperial days of the Treasury are long gone. It is very much for the Foreign and Commonwealth Office and the Ministry of Justice to take responsibility in that regard, and I am sure that since the election my hon. Friend has not been slow in making his views known to Ministers in those Departments, either.

The financial crisis highlighted the need to protect our public finances. The Government have taken steps to deal with the fiscal deficit that we inherited, and we will follow that up with the comprehensive spending review in the autumn. However, that increased vigilance must run through everything that the Government do, and part of that involves pressing for high international standards that protect against the risks posed by jurisdictions that fail effectively to impose prudential regulation, tax transparency, anti-money laundering measures and standards on countering the financing of terrorism. At last year’s G20 summit in London, leaders called on all jurisdictions to adhere to international standards in those areas. They called on the appropriate international bodies to strengthen peer review to assess jurisdictions’ compliance with the standards and to consider possible counter-measures for those that fail to comply. It is important that the international standards are applied without discrimination, allowing all jurisdictions that meet them to compete freely in international markets.

Michael Foot was asked by the previous Government to conduct an independent review of British offshore financial centres, and he reported his conclusions last October. The aim of the review was to deal with concerns about the risks caused by the financial crisis to the Crown dependencies and overseas territories and, by association, to the UK. The report provided a health check of the economic sustainability and viability of the financial services sectors in the Crown dependencies and overseas territories. The message from the report was clear: offshore financial centres must meet international standards if they want to maintain active and trusted financial sectors. The challenge for offshore financial centres was to take greater responsibility for their economic future, demonstrating that they are capable of responding to financial stability risks, while strengthening their long-term commitment to meeting globally recognised standards—issues raised by my hon. Friend the Member for Cities of London and Westminster.

Michael Foot’s report set out a series of steps that jurisdictions must take to ensure that they are inside the scope of international regulation and that they secure their long-term sustainability. To demonstrate their performance against international standards, British offshore financial centres were invited periodically to publish the details of their progress, setting out the international standards that they have met, covering tax transparency, prudential regulation and preventing financial crime, and the standards that they have not met, with details of how they intend to meet them in the future and how soon they expect to do so. We are talking about the setting out of clear benchmarks about what the territories should do and how far they are going in achieving those standards. That sends a clear signal that both we and the wider global community are interested in what they are doing. The more transparency there is about how much progress the territories are making towards those goals, the greater the acceptance will be of their activities in the wider global community.

[Mr Field]

I am also keen to ensure that the point is made robustly about capital flows. We have had a credit crunch quite recently and we may be facing another one with all the sovereign default concerns in Europe. The free movement and liquidity provided by IFCs is key. That case needs to be made robustly at a time when others are dismissive of offshore financial centres.

[Mr Hoban]

Indeed. My hon. Friend makes an important point. Adherence to the standards makes the case that offshore financial centres should be part of the global network of financial centres and that they are valued. It is also important to ensure that when people talk about offshore financial centres, the debate is proportionate and evidence based. That is the best basis for debate in the UK, EU and G20. My hon. Friend made important points in that respect in his remarks.

The Foot review recommended that Crown dependencies and overseas territories should have to meet key international standards on tax information exchange, financial regulation, countering the financing of terrorism and anti-money laundering. The review strongly recommended that British Crown dependencies and overseas territories need to diversify their tax bases in a way that helps to secure their long-term economic sustainability. My hon. Friend made the argument that a number of territories had already done that and had withstood the financial crisis.

[Andrew Rosindell]

My hon. Friend the Minister talks about long-term stability. Does he agree that any attempt to undermine the ability of Crown dependencies and overseas territories to be self-sufficient and to look after their own affairs would in the end rebound on the British Government, with the possibility that we would have to finance some of those territories, so it is vital that policies from here, from Brussels or from anywhere else do not undermine the ability of our territories to be self-sufficient for the long term?

[Mr Hoban]

My hon. Friend makes an important point, but what he refers to must be done within the context of adhering to the highest possible international standards. We need to ensure that that international framework exists and that the territories comply with it; otherwise they are open to attack by other nations. Yes, it is important that the territories are economically sustainable and are not dependent on the UK, but at the same time they must meet those international standards, and a number of territories have made quite significant progress towards that goal.

With regard to the sustainability of overseas territories, they were encouraged to improve the management of their public finances to ensure that they were well equipped to withstand unexpected economic and financial shocks without external fiscal assistance. We need to recognise the progress that has been made to comply with the standards. I understand that 28 jurisdictions—almost exclusively tax havens and offshore financial centres—have moved into the category of jurisdictions that have substantially implemented international standards on tax transparency. That shows that overseas territories are taking the measures seriously, and we encourage them to continue to do so. Over the next three years, 100 jurisdictions will be peer reviewed, which will be an important part of the process to give confidence in how the standards are being implemented.

I recognise the importance of the role that offshore financial centres can play. They are an important contributor to the City of London. They provide services to UK citizens, whether at home or abroad. However, it is vital that they comply with the highest international standards on tax transparency and dealing with terrorism financing and money laundering. Adhering to those standards would be the best safeguard for their future prosperity.

Equitable Life

Mark Hoban Excerpts

Tuesday 20th July 2010 Westminster Hall

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

First, I congratulate my hon. Friend the Member for Oxford West and Abingdon (Nicola Blackwood) on securing the debate, the first in this Parliament on Equitable Life. I am certain it will not be the last such debate.

I want to respond to a couple of points made in interventions before returning to the main thrust of my remarks. My right hon. Friend the Member for Wokingham (Mr Redwood) asked about the quality and cleansing of the data. It is important to place on the record that there are 1.5 million policyholders holding 2 million policies, and that 30 million premium transactions have taken place over the period in question. The quality of data is a huge problem. I am grateful to EMAG for the offer of access to its database to help us cleanse the information. Equitable Life and others will be working with us to ensure the best-quality database. My right hon. Friend is absolutely right that such work needs to proceed in parallel with other work streams, so that we can make payments to policyholders as quickly as possible.

Reference was made to the importance of savings. The regulatory reforms that my right hon. Friend the Chancellor announced last month include the establishment of a consumer protection and markets agency, which will help to improve the regulation of our financial services, hopefully contributing along with other measures to rebuilding a savings culture in this country.

I did not need this afternoon’s debate to remind me of the importance of Equitable Life to so many of my colleagues, having received a number of letters, answered a number of written parliamentary questions and had a number of oral representations from colleagues about how important the matter is. I understand the strength of feeling, and I hope that, over the past four or five years in this role in opposition and now in government, I have come to be seen by policyholders as a strong advocate for ending the plight of those who have suffered as a consequence of Government maladministration. I want to see a swift response but, vitally, one that is transparent and fair to all policyholders and to the taxpayer.

[Andrea Leadsom (South Northamptonshire) (Con)]

Does my hon. Friend agree that the problem is that, because it has taken so long to get to the point we have reached today, we are in a worse position than if the situation had only recently occurred? Therefore, having promised to make good the damage left by Labour, we must put the matter to rest as quickly as possible—even quicker than in normal circumstances.

[Mr Hoban]

My hon. Friend makes an important point. The crisis has gone on for too long. Lord Penrose’s report was back in 2000, and the previous Government could have tackled the issue then. They blocked the ombudsman’s second inquiry into Equitable Life, and they took six months to respond to the ombudsman’s report. At every step in the process, the previous Government delayed. We want to make rapid progress, but fairly and transparently for policyholders and taxpayers.

In our coalition agreement we pledged to make fair and transparent payments, through an independently designed scheme, to policyholders for their relative loss as a consequence of regulatory failure. In the two months since we have been in office, we have made real progress and will continue to do so over the coming months. In May, in the Queen’s Speech, we announced an Equitable Life Bill, which will give the Treasury the statutory authority to incur expenditure in making payments to those who have suffered loss in connection with maladministration and the regulation of Equitable Life. The Bill will be introduced shortly and will be an important step towards resolving the issue.

Another important step will be the imminent publication of Sir John Chadwick’s final report on Equitable Life. It will give us a greater understanding of the losses that policyholders have suffered. Some have called for us to abandon the Chadwick process or to alter Sir John’s terms of reference. However, after careful consideration, I decided to allow Sir John to continue with his work under the current terms of reference. His work has been the culmination of almost 18 months of detailed analysis and evidence gathering. He and his actuaries have delved deeply into the issues, and their work has been informed by consultations with interested parties. For example, his flexible approach to establishing loss removes from policyholders the burden of proving what they would have done had they been aware of problems at Equitable Life. It is important to have his work available, as it will aid us in providing a swift response.

[Gavin Barwell (Croydon Central) (Con)]

The Minister certainly has the reputation with EMAG members that he mentioned earlier, but an issue of concern is the Government’s attitude to Chadwick. The Minister said that their response would be published imminently. Is there likely to be a statement before the summer recess?

[Mr Hoban]

I believe that there will be a statement before the summer recess. I recognise the concerns about Sir John’s work, but it is a useful building block in the process. To dismiss it and not give it due consideration would be an error.

[George Hollingbery (Meon Valley) (Con)]

Has the shape of the Minister’s thoughts on moving this issue forward changed from what he announced as the Conservative party’s plans in March?

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[Mr Hoban]

My views have not changed in that period. An option one gets as a Minister is to drive the process forward further and faster, and to change the approach. What hon. Members will have seen over the past eight weeks, which will become clearer when Sir John’s report is published, is that we have adopted a much more transparent and open approach to the resolution of the problem.

As part of that transparency, I will publish with Sir John’s report the advice provided by his actuaries as well as correspondence he has received on the matter. In the light of the sensitivity of the issue, we must know how he developed his methodology and what has informed his thinking. To restore trust in the process, I want to be as open and transparent as possible about our approach and the losses suffered by policyholders. I believe that that is the best way to tackle the distrust that my hon. Friend the Member for Oxford West and Abingdon referred to in her speech.

[Dan Rogerson (North Cornwall) (LD)]

I am sure that people listening to this debate will be reassured by the approach that the coalition Government are taking, in contrast with that taken by the previous Government. Can the Minister confirm that, in taking into account what the Chadwick report says about the scale of the losses suffered by Equitable members, the coalition Government’s approach to how payments will be judged is new and not built on any of the previous Government’s work?

[Mr Hoban]

I will come on to the commission shortly, if Members will bear with me.

As I said, I want the process to be as open and transparent as possible. I have said to the House that when we publish Sir John’s report, I will provide a substantive update on the next steps in the process. We have already set out the important steps in how we will take the work forward, and some points about how the scheme will work.

My hon. Friend the Member for High Peak (Andrew Bingham) raised a couple of points in his intervention. I wish to make it clear that there should be no means-testing, and that the estates of deceased policyholders should be included in the scheme. We felt it important to clarify those two issues early on in order to settle some policyholders’ worries, and I am happy to reiterate those commitments today.

I will establish an independent commission that will advise on how best to allocate funds to policyholders and to help develop the scheme design. One of the key aspects of the ombudsman’s recommendations was that any scheme should be independent of Government, and I agree with the thinking behind that recommendation. The commission will be given a remit that will allow it truly to add value to the process.

The process will be time-consuming, and there is the potential that payments will be delayed if we ask the commission to start the process of determining relative loss from scratch. However, we want it to play a role in developing a fair outcome for all policyholders.

[Amber Rudd (Hastings and Rye) (Con)]

The Minister kindly mentioned how the funds will be paid out. In my constituency, a number of people are concerned that because it will take a long time to appoint the commission, which will then have to go through its own procedure, further delays could be added. Can he tell us how the commission will be put together and what his expectations are of the timing?

[Mr Hoban]

I am keen that the commission should work as quickly as possible. In many respects, the process would have been shorter without the commission, but it is an important guarantee of transparency and openness, and it is right that it be given a remit to do this work. Equally, I am mindful of the fact that we need to give it a tight timetable, so that it has time to think about the issues but is not seen as delaying the process of making payments to policyholders.

[Bob Blackman (Harrow East) (Con)]

One of the concerns is that, sadly, many policyholders have died or are dying. Can the Minister give some comfort on the issue of giving interim payments once the decision has been taken, so that people can receive payments before the commission has completed its work?

[Mr Hoban]

I am conscious of the fact that many policyholders are elderly, but there is a challenge: we need to ensure that the scheme is designed transparently and fairly, and that there is fairness between groups of policyholders as well as between policyholders and taxpayers. The commission should look at where priority payments should be made, but I am wary of the question of how we can make interim payments to people on a sound basis that will not lead to further problems later. I take on board my hon. Friend’s point, but there are some challenges in taking the idea forward.

A key issue for many policyholders and Members of Parliament is how much the scheme will cost. As the ombudsman said, it is appropriate to think about that, and we will consider the potential impact on the public purse of any scheme, and what is affordable, before we decide how much we can allocate to the scheme. We will ensure that fairness is at the forefront of our thinking when making those difficult decisions.

I would like to take a moment to mention the excellent work of EMAG, which has campaigned for many years for a fair resolution to the matter. In opposition and now in government, I have met members of the EMAG board, who have relayed to me their concerns about the Chadwick process. I will say to hon. Members what I said to them: Sir John is only a building block in our approach, and I am willing to listen to EMAG and other interested parties who can give useful and productive insight into this complex issue.

I remind hon. Members that no final decisions have yet been made on many of the important issues associated with the scheme. I want the decisions to be in the best interests of policyholders and taxpayers, and I encourage EMAG and others to be involved so that we can move the process on and find a resolution, for which policyholders have waited for many years.

I will give more details on our approach and the next steps in the process when Sir John Chadwick’s final report is published, but I can confidently say that we are moving towards our objective of resolving the issue. We are now reaching a crucial stage in the story of the Equitable Life payment scheme. What happens in the coming months will be decisive in laying out how the scheme operates and the quantum of payments that will be made to policyholders. I encourage all MPs to engage in the debate. This is certainly an issue that we must get right.

Terrorist Asset-Freezing

Mark Hoban Excerpts

Thursday 15th July 2010 Written Statements

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

Following a ruling by the Supreme Court and the passage of temporary asset-freezing legislation in February 2010, the Government are today introducing the Terrorist Asset-Freezing etc Bill in the House of Lords to put the UK’s terrorist asset-freezing regime on a secure legislative footing. The Bill will be published tomorrow.

The Bill has been informed by a public consultation exercise on draft legislation that was launched by the previous Government. The Government are today publishing by Command Paper the consultation responses received and the Government’s response.

The payment of state benefits to the spouses of designated persons

As a result of concerns raised in consultation responses and in Parliament during the discussion of emergency asset-freezing legislation and in the light of a recent European Court of Justice ruling, the Government are from today removing restrictions imposed by the previous Government on the payment of state benefits to the spouses of people who are subject to an asset-freeze (designated persons).

This Government do not believe that the asset-freezing regime should affect state benefits paid to the spouses or partners of designated persons. They do not believe that such restrictions are necessary to prevent terrorist finance and they are concerned at the impact they may have on other family members and on family life.

The Government are embedding this change in law by including a provision in the Bill to clarify that payments of state benefits to the spouses or partners of people designated by the Treasury under the UK’s domestic asset-freezing regime are not caught by asset-freezing provisions. These payments will therefore no longer have to be made under licence from the Treasury.

The Government believe that this approach will ensure that the asset-freezing regime is fairer and more proportionate, while remaining effective in preventing terrorist finance.

Annuities

Mark Hoban Excerpts

Thursday 15th July 2010 Written Statements

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

As

announced at the emergency Budget, the Government will end the effective requirement to annuitise by age 75 from April 2011. The Treasury has today launched an eight-week consultation on the details of this change. This consultation document sets out proposals that will simplify the treatment of retirement savings and reduce complexity for individuals as well as for pension and annuity providers.

This consultation is being conducted in accordance with the code of practice on consultation and will run from 15 July 2010 until 10 September 2010 inclusive.

Copies of the document are available on the live consultations page of the Treasury website and have been deposited in the Library of the House.

Oral Answers to Questions

Mark Hoban Excerpts

Tuesday 13th July 2010 Commons Chamber

[Gordon Banks (Ochil and South Perthshire) (Lab)]

4. What recent assessment he has made of the effects of the change in the rate of capital gains tax on the number of business start-ups.

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

The change in the rate of capital gains tax is not expected to have a material impact on the number of business start-ups. The lifetime limit on gains qualifying for the entrepreneurs relief—the 10% CGT rate—was increased from £2 million to £5 million in the Budget. That will benefit entrepreneurs and small business owners.

[Gordon Banks]

I thank the Financial Secretary for his response, but does he share my concern that the change in capital gains tax will mean a reduction in businesses in the private housing rental sector, and with it, as predicted by Rightmove, a growth in rents and a shrinkage in the number of houses for rent? If so, what is he going to do about it?

[Mr Speaker]

I call the Chief Secretary. No, the Minister.

[Mr Hoban]

I have not been promoted, Mr Speaker.

The changes to capital gains tax that we have introduced will ensure that the right tax regime is in place and that it is fair and responsible. The hon. Gentleman ought to remember, of course, that the capital gains tax rate for second homes prior to the Budget was 24%. It has now gone up to 28% for those paying higher rate taxes, but those on basic rate taxes will be paying only 18%.

[Annette Brooke (Mid Dorset and North Poole) (LD)]

5. What recent representations he has received on the proposals in the June 2010 Budget intended to increase economic growth; and if he will make a statement.

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[Ian Swales (Redcar) (LD)]

10. What steps his Department is taking to support economic growth in the north-east.

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

To support private sector enterprise throughout the UK and to ensure that all parts of the country benefit from sustainable economic growth, the Government will use the national insurance system to reduce the cost to new businesses of employing staff in all parts of the UK outside London, the south-east and the east of England. We will establish a £1 billion regional growth fund to support strategic growth and focus investment in the English regions. We will also publish a White Paper later in the summer on a new approach to sub-national growth, including local enterprise partnerships.

[Ian Swales]

Does the Minister agree that Teesside represents a great opportunity for the new green investment bank, and that it would be a good location for the administrative centre of the bank?

[Mr Hoban]

I welcome the interest shown in Teesside as a location for the green investment bank. Throughout the north-east, on Teesside, Wearside and Tyneside, we are seeing significant investment in green technology, which is a key way of rebalancing the economy and creating more private sector jobs in the north-east.

[Bill Esterson (Sefton Central) (Lab)]

rose—

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

As I stated in response to the previous question, there are a number of initiatives in the Budget to support economic growth in the regions. We estimate that up to 54,000 businesses in the south-west will benefit from the national insurance contributions exemption for new businesses, and our plans for NIC more broadly will save businesses in the south-west about £260 million.

[Mr Gray]

My constituents will be very glad to hear that, because times have been tough in North Wiltshire in recent years, particularly as a result of a contraction in food production and defence. What does my hon. Friend intend to do in regard to the excellent report produced by my constituent, Sir James Dyson, on innovation and technology, which seems to point the way forward for this new Government?

[Mr Hoban]

My hon. Friend is absolutely right. Sir James Dyson made an important contribution to the debate on increasing the high-tech sector, and the Government are looking at the implementation of his findings. In the Budget, we announced a review of the taxation of intellectual property, including research and development, and we are committed to ensuring that the UK again becomes a centre for high-tech manufacturing.

[Fiona Mactaggart (Slough) (Lab)]

But does the Minister agree that, in the south-west and in the whole of the UK, growth in the economy depends on growth in employment and jobs? What is his estimate, and that of the OBR, of the effect of his decisions on employment?

[Mr Hoban]

The independent forecast published by the OBR at the time of the Budget demonstrated that employment would rise over the course of the next five years.

[Richard Graham (Gloucester) (Con)]

Five thousand small and medium-sized companies in Gloucestershire will welcome the Minister’s comments on progress for economic growth in the south-west, but will he tell us what specific plans the Government have to deal with the red tape and bureaucracy, which many of those businesses feel is an impediment to growth?

[Mr Hoban]

My hon. Friend is right to point out the barriers to investment that red tape can create. That is why we have set out a series of specific measures in the Budget to reduce the burden of red tape. We believe that that will help up to 500,000 businesses in the south-west.

[Toby Perkins (Chesterfield) (Lab)]

12. What assessment he has made of the effect on levels of employment of the implementation of the measures proposed in the June 2010 Budget.

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

The OBR has published its assessment of economic prospects, taking into account the measures in the Budget. It forecasts that employment will rise, reaching 30.1 million in 2015. Reducing the deficit will mitigate the risks to the recovery, create the conditions needed for growth and enable mortgage rates to be kept lower for longer. The Government are committed to supporting private sector job creation, cutting corporation tax and raising the employers’ national insurance threshold to support the economy.

[Toby Perkins]

I thank the Minister for his response, but as the local futures group says, Chesterfield will lose 1,374 public sector jobs—almost 3% of our entire employment base—by 2016. Given that manufacturing allowances are to be cut, which will make it more difficult for us to grow our way out of the economic difficulties, and given the VAT rise, which will make it difficult for the retail sector, is not the reality that, far from this Tory Budget being courageous, the ideology behind it is going to hit people with their jobs?

[Mr Hoban]

The hon. Gentleman forgets the measures in the Budget that will increase employment opportunities —the cut in national insurance contributions, the tax break for new businesses, which will benefit businesses in his constituency, and the reduction in red tape. All those measures are geared towards improving the prospects of private sector growth in our economy. We need the economy to be led by the private sector.

[Matthew Hancock (West Suffolk) (Con)]

Given that sustainable employment can be supported only by dealing with the deficit, was the Minister grateful for the support of the shadow Chancellor, who said at lunchtime on the subject of raising VAT:

“I don’t have a philosophical problem with that”?

[Mr Hoban]

It is interesting to hear about views expressed after the election, which were kept silent before the election. We took the difficult decision in this Budget to lay the foundations for growth in the future and make sure that we pay the bills of the past. Sadly, that included the increase in VAT.

[Mr Jim Cunningham (Coventry South) (Lab)]

How does the Minister expect increases in VAT to help employment?

[Mr Hoban]

By tackling budget deficits, we will be in a better position to keep interest rates lower. Serious concerns were expressed before the Budget about the ability of the previous Government to tackle the deficit. The tough action we have taken has been welcomed across the world and by rating agencies. It lays the right foundation for future growth. This Government are prepared to take the difficult decisions that the hon. Gentleman’s Government ducked before the election.

[Esther McVey (Wirral West) (Con)]

13. What recent discussions he has had with the Secretary of State for Health on funding for mental health services.

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

My hon. Friend makes an important point. A large number of Equitable Life policyholders are very angry about how they were treated by the previous Government. We have committed to setting up an independent, fair and transparent payments scheme, further information on which will be presented to the House later this month.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

The Economic Secretary, the Chief Secretary’s Front-Bench colleague, referred to the establishment of the Office for Budget Responsibility as a welcome step forward for transparency. In the interests of transparency, could the Chief Secretary tell me precisely when he saw the revised unemployment figures produced by the OBR?

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[Mark Durkan (Foyle) (SDLP)]

In a speech last night to the bankers, the Financial Secretary referred to the Government’s proposals on a financial activities tax. Is it the Government’s intention that that sort of proposed legislation is just in reserve in case the bankers are too generous with themselves with bonuses, or are the Government determined to introduce such a tax? Why not go further, with a full financial transactions tax?

[Mr Hoban]

The Government are committed to tackling unacceptable bonuses in the financial sector, and we have put forward a series of proposals on that. We have talked about increasing the disclosure of remuneration, we have asked the Financial Services Authority to examine ways in which the link between risk and remuneration can be investigated, and we are taking forward work on the financial activities tax. Also, we have today published a consultation on a bank levy, which will raise an extra £2.5 billion in revenue from the banks.

[Richard Fuller (Bedford) (Con)]

T10. Average wages in my constituency are below the national average, so the rise in the income tax threshold announced in the Budget was most welcome. Can the Minister please give an assurance that he will maintain a focus on increasing the personal tax threshold, as the prospect of being taken out of tax altogether is far more appealing than the prospect that the previous Government offered, which was the non-stop filling in of forms to claim back just a fraction of the money that people had already earned?

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[Nicky Morgan (Loughborough) (Con)]

The issue of business start-ups and supporting small companies has been mentioned this afternoon, but many of them are finding it very difficult to access bank financing. I was wondering how the Budget proposals will assist them, because growing the private sector is essential to improving our economy.

[Mr Hoban]

My hon. Friend is absolutely right about the importance of banks being in a position to lend in order to encourage the recovery. That is why in the Budget we announced an extension of the enterprise finance guarantee scheme by a further £200 million to enable the banks to lend to small businesses. We will be publishing a paper later this month on business finance, which, again, will put forward ideas about how we can continue to sustain the recovery by ensuring that the banks are in a position to lend.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

Does not the revised forecast from the International Monetary Fund demonstrate yet again that the coalition’s Budget will hit growth and therefore jobs?

Bank Levy

Mark Hoban Excerpts

Tuesday 13th July 2010 Written Statements

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

The Chancellor of the Exchequer announced as part of the Budget the introduction of a Bank Levy from 1 January 2011.

Excessive risk taking in the banking sector was a significant contributory factor in the recent financial crisis. Alongside the wider financial regulatory reform aimed at increasing the resilience of the financial sector, the levy is intended to ensure that the banking sector makes a fair contribution that reflects the risks it poses to the financial system and the wider economy, and to encourage banks to move away from riskier funding.

The Government have today published a consultation document setting out issues around technical aspects of the design and implementation of the Bank Levy. This consultation exercise will help to ensure the levy is designed in a way that best meets its objectives, including ensuring the compliance costs faced by firms are minimised.

It is proposed that draft legislation will be published in the autumn to allow for further comments from stakeholders. Final draft legislation for inclusion in the 2011 Finance Bill will be published towards the end of 2010, ahead of implementation of the levy.

Copies of the consultation document are available in the Vote Office and have been deposited in the Libraries of both Houses.

Alignment (Clear Line of Sight) Project

Mark Hoban Excerpts

Monday 5th July 2010 Commons Chamber

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

I beg to move,

That this House approves the proposals for simplifying the Government’s spending controls and financial reporting to Parliament, as set out in the paper, Alignment (Clear Line of Sight) Project, Cm 7567, of March 2009, and the response of October 2009 to the relevant report of the Liaison Committee (Second Special Report of the Liaison Committee, Session 2008-09, Financial Scrutiny: Parliamentary Control over Government Budgets: Government Response to the Committee’s Second Report of Session 2008-09, HC 1074).

The motion seeks the authority of the House to implement changes to the structure and content of the Supply estimates that set out departmental spending plans and are subject to approval by the House. These changes stem from work that began under the previous Government, and which has enjoyed cross-party support throughout. The aim of the changes is to provide a simpler and more effective system of public spending control.

As hon. Members will remember, the previous Government announced in the Green Paper, “The Governance of Britain”, in June 2007 that they would simplify the spending control framework and the Government’s financial reporting to Parliament further to enhance consistency and transparency at all stages of the process—budgetary spending plans, parliamentary Supply estimates and expenditure outcomes in resource accounts. That will lead to the following: a simpler and more transparent system, making it easier for Parliament to understand and challenge Departments; a strengthening of the existing budgeting framework by underpinning it with parliamentary control; and the streamlining of Government spending documents, making it easier to understand what is happening with public money.

Government’s and Parliament’s control and scrutiny of public spending is currently managed against four different frameworks. First, there are the national accounts, an integrated set of economic accounts covering the whole of the economy. Those accounts are produced by the Office for National Statistics in accordance with the European system of accounts 1995. National accounts are used to determine fiscal performance. Secondly, there are budgets, which are defined by the Treasury and used to control public spending. Budgets are allocated by the Treasury in spending reviews and reported on to Parliament at successive pre-Budget reports and Budgets. Certain elements of budgets are aligned to national accounts definitions. Others, such as those introduced with the move to full resource accounting and budgeting in 2003-04, relate to commercial-style accounting concepts and are designed to improve value-for-money incentives in Departments.

Thirdly, there are Supply estimates, which seek annual parliamentary authority for the expenditure of individual Departments following the plans set out in spending reviews. Estimates are largely, if not entirely, aligned to generally accepted accounting practice—GAAP—accounting definitions, rather than to national accounts, although they do not encompass all of the departmental expenditure and income that would be accounted for under GAAP. There are significant differences between estimates and budgets: about a third of departmental spending in budgets is not included in estimates, and about a sixth of what is included in estimates is not in budgets. Fourthly, there are resource accounts, which report Departments’ actual spending during a particular financial year, following GAAP, as adapted for the public sector. That means that there are some substantial differences compared with budgets and national accounts.

Those four frameworks have developed in different ways over the years for good reasons, since they serve different purposes. However, the result is significant misalignment between the different frameworks, with only two thirds of Government expenditure fully aligned across budgets, estimates and resource accounts.

Current misalignments can broadly be broken down into two categories. First, there are differences in the various boundaries—the entities and spending included in budgets, estimates and accounts. Those cover both different types of income and expenditure within the budgets and the different treatment of entities within respective boundaries. For example, the spending of non-departmental public bodies scores in budgets, but the grant-in-aid paid to those bodies scores in estimates and resource accounts, not their total spending. Secondly, there are differences in the policies. Specific transactions are often treated differently between the three frameworks. Examples include capital grants, provisions and other non-cash items within budgets.

At present, there are significant differences between the ways in which the three main elements of the public spending control framework define and treat expenditure. Those three elements are: departmental budgets as set by the Treasury; departmental Supply estimates as authorised by this House; and departmental resource accounts presented to this House after the year-end. To give just one of many potential examples, departmental estimates and accounts currently include only the spending of the relevant Government Department, whereas budgets also include the expenditure of any non-departmental public body for which the Department is responsible. This means that Departments have different controls against which to manage, and that it is very difficult to track spending from plans through to out-turn. That, in turn, limits the scope for effective parliamentary scrutiny and adds to the complexity of managing public money; it also requires time and effort to reconcile the frameworks.

The principal aims of the proposed changes are therefore to increase the transparency of public spending information; to improve accountability to this House and to the wider public; to make it easier for Government Departments and other public bodies to understand the controls to which they are working; and to provide a more efficient control framework that builds in the right incentives to deliver better value for money.

As I have said, the different frameworks have developed in different ways over the years, and for a range of reasons. For example, international standards have helped determine the definitions of expenditure currently applied within both accounts and budgets, with budgetary definitions being determined by Government but supporting internationally recognised fiscal definitions, and accounting policies reflecting international financial reporting standards adapted for the public sector context. Some misalignments between those frameworks will inevitably remain. What matters most is that they occur only where there is good reason, and that they are properly understood and kept to a minimum.

Budgets and estimates will be fully aligned under the new framework. The remaining misalignments will be with resource accounts—amounting to about £22 billion—where enforcing alignment would be contrary to the principles of the alignment project. By far the largest example, amounting to £19 billion, is the treatment of capital grants paid by Departments to the private sector, local authorities and public corporations. That is because capital grants are treated as resource spending in departmental accounts, reflecting international financial reporting standards, but as capital spending in budgets, reflecting national accounts treatment. As hon. Members will recognise, this is not a straightforward area.

Nevertheless, there is much improvement that can be made while adhering to these standards, and the alignment project represents an excellent opportunity to achieve greater consistency between the different frameworks. The main changes designed to achieve the aims of alignment are the extension of the departmental estimates and accounting boundaries to accommodate non-departmental public bodies and other bodies classified to the central Government sector, bringing their expenditure within the coverage of estimates presented to Parliament for approval. The power to do that, through a Treasury Order listing the bodies to be consolidated into estimates and accounts, was provided in part 5 of the Constitutional Reform and Governance Act 2010.

It is worth spending a couple of minutes reflecting on the different nature of non-departmental public bodies, which vary enormously in size and in the functions they carry out. Consolidation will include bodies that spend very large amounts of public money, such as the Environment Agency and the Legal Services Commission, which will be consolidated within the estimate and accounts of, respectively, the Department for Environment, Food and Rural Affairs, and the Ministry of Justice. Both those bodies spend over £1 billion per annum. Some of these bodies are charities—the national museums and galleries, for example—and others have statutory independence, so it is important that we create alignment in a way that neither constrains their freedom to act nor puts their status at risk. The provisions of the 2010 Act, approved by this House earlier this year, include protection for that independence, so that we can combine operational freedom with financial accountability.

[Mr Edward Leigh (Gainsborough) (Con)]

Does my hon. Friend recall that in 2007, the Treasury Committee acknowledged

“that the requirements of the alignment project mean that it is not possible for Parliament to maintain control over gross totals. We are concerned that without adequate levels of information regarding income, Parliament’s authority may be diminished.”

How can the Minister reassure Parliament that our authority over Supply will not be diminished in any way following alignment?

[Mr Hoban]

My hon. Friend makes an important point and I will come later to the treatment of income in the clear line of sight project, to address in particular the issue he raises.

[Margaret Hodge (Barking) (Lab)]

May I ask a number of questions on the non-departmental bodies with which the hon. Gentleman was dealing? First, when will they be incorporated into the estimates? Secondly, how will NDPBs that get some of their grant funding from a number of Departments be dealt with in the estimates? The third, and contentious, issue is NDPBs that may have reserves of moneys raised outside of Government, and which want the freedom to spend those moneys in ways appropriate to their governing bodies.

[Mr Hoban]

The right hon. Lady raises some interesting points. On her first point, my understanding is that this provision will come into force for the financial year 2011-12. On her third point, we of course want to make sure that NDPBs still have the freedom to act, and we have said that they will—they will have the independence they had prior to this process. That issue was, I think, taken into account in drafting the 2010 Act, which the right hon. Lady will have supported as a member of the then Government. So those controls are in place.

[Margaret Hodge]

On my second point, the freedom of NDPBs to spend reserves from moneys they themselves have raised was not dealt with under the 2010 Act, which I did indeed support. As a member of the then Government, I pursued that issue and did not get to a good end. I hope that the Minister will undertake to look at it, in order to give those NDPBs their freedom.

[Mr Hoban]

We will look at it, but incorporating NDPBs into the clear line of sight project so that their results are reported in estimates and departmental annual accounts is something that should be done, and the principle underlying these reforms is to do it in a way that does not compromise their status.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

While the hon. Gentleman is on the subject of NDPBs, can he clarify now for the House the future of the Tenant Services Authority, about which there has been some speculation in the media? Apparently, the Housing Minister described it as “toast”, and the Financial Times has speculated that the Chief Secretary overruled the Housing Minister.

[Mr Hoban]

I am sure you would rule me out of order, Mr Deputy Speaker, if I started responding to questions as detailed as that.

[Mr Thomas]

Will the hon. Gentleman give way again?

[Mr Hoban]

No, I want to make some more progress. A number of Members on both sides of the House wish to participate in this debate, and I am conscious that there is also private business after this.

I want to talk now about the next stage of the alignment process: the coverage of estimates and budgets by including all non-voted budgetary expenditure and income in the estimates presented to Parliament. Parliament will not be asked to approve this spending as it will already have separate legislative authority, but Members will see the full picture of departmental budgetary expenditure. For example, spending financed from the national insurance fund will now be included in the accounts and the estimates, even though it does not have to be voted on annually. Going back to the point raised by my hon. Friend the Member for Gainsborough (Mr Leigh), we will align the treatment of income in estimates with budgetary controls. Income will be retained by the Department, provided it is of a type allowed to be netted off budgets and included in the description of income in estimates. To this end, a new description of all relevant categories of income will be included in estimates and replicated in Supply legislation. That will ensure that such information is disclosed in the estimates, and those bodies will therefore be accountable for those sums.

We will simplify the presentation of expenditure information by fully aligning budgets and estimates, reducing remaining differences with accounts to those that are absolutely necessary, and providing clear reconciliations between any necessary misalignments that remain.

[Mr Leigh]

Let us get this absolutely clear. Although the Treasury originally said that there might be a problem with this information coming to Parliament, the Financial Secretary is going to make sure that it is fully available because he appreciates that this is an incredibly complicated and difficult matter for Members of Parliament to come to grips with. There is no point in having an alignment project if less information ends up coming to Parliament and the situation is less clear than it was before. I think that my hon. Friend has given us the necessary reassurance, but I wish to press him, so that there is no doubt that we will get just as much information as we have always had.

[Mr Hoban]

My understanding is that that is the case. What we will also be able to do—this deals with something that frustrated me when I first came into the House—is track information from budgets set by the Treasury to estimates and to the out-turns. That consistency of information will help Members of this House to hold the Government to account on how public money is being spent.

These changes have been the subject of constructive cross-party consultation over the past three years. During the previous Parliament, the then Chief Secretary to the Treasury submitted three memorandums on alignment to the Chairmen of the Treasury Committee, the Public Accounts Committee and the Liaison Committee, in November 2008, March 2009 and February 2010. The March 2009 memorandum contained detailed proposals for achieving alignment and was published as a Command Paper. All the Committees indicated their support for the proposed changes, and the Liaison Committee took the lead in providing detailed responses. I am grateful to that Committee for its engagement with, and support for, the alignment proposals throughout. The Committee noted in its report on financial scrutiny published in April 2008 that the alignment project was “potentially an historic development”. I fully endorse that view.

The Liaison Committee published a further report in July 2009, which was, again, strongly supportive of the proposed changes. It also made reference to wider issues related to the parliamentary scrutiny of public spending, including the number of days available for debates on the estimates and the outcome of spending reviews, and the scope of such debates. This Government’s establishment of the Backbench Business Committee represents a significant step forward in this area. That Committee has at its disposal 35 days in each Session, some of which are taken in Westminster Hall, to schedule debates on subjects of its choosing, including the scrutiny of public spending.

This Government are fully committed to enhancing transparency in public spending and supporting effective scrutiny by this House. We have already published data held on the Treasury’s public spending database going back to 2005-06. Further measures are being taken that will see details of all new spending of more than £25,000 published from November 2010.

[Mr Thomas]

rose—

[Mr Hoban]

I am sure that the hon. Gentleman will wish to welcome that.

[Mr Thomas]

The Financial Secretary rightly made reference to the support of the Liaison Committee and to the work of the Backbench Business Committee. However, the Liaison Committee also made it clear that the Government should give an undertaking to provide a day’s debate on the outcome of each spending review and on each year’s pre-Budget report. Can he confirm that it is the Government’s intention to do that from now?

[Mr Hoban]

Clearly, the Liaison Committee’s recommendations preceded the decision by this Government to set up the Backbench Business Committee. The Backbench Business Committee has the power to use one of the 35 days available to it to deal with the issues proposed by the Liaison Committee, and that is the right way to proceed. It is right to give the House a power to engage in that degree of scrutiny.

The House is today being asked to approve formally changes that will further support the move towards greater openness and transparency, and make effective scrutiny of spending plans by this House far easier to achieve. An explanatory note outlining the purpose of the alignment project has been made available in the Vote Office. With the authority of this House, these changes will be implemented for the financial year 2011-12, and I commend this motion to the House.

--- Later in debate ---

[Mr Hoban]

I wish to respond briefly to the debate.

As someone who in his previous career was a chartered accountant, I find something elegant about ensuring that figures are reconciled, but that is not an end in itself. In my former career it was to ensure that one could hold the management of businesses to account, and in my current career it is about being held to account myself and giving hon. Members the tools to hold Ministers and the Government to account on public spending.

A number of questions were asked about income being reported on a net basis. My hon. Friend the Member for Chichester (Mr Tyrie), in his four comments, was correct on all points, as one would expect. The control of income, which was raised by my hon. Friends the Members for Gainsborough (Mr Leigh), for Sevenoaks (Michael Fallon) and for Portsmouth North (Penny Mordaunt), is an issue to consider. The Supply estimates will continue to report a Department’s expected levels of income, and they will include a note breaking them down in detail. Only income of a type included in the description of income in the estimates will be able to be retained by Departments. My hon. Friend the Member for Portsmouth North gave an example from her knowledge. Departments will continue to be subject to rules on fees and charges. That will determine the costs that can be charged for and ensure that full costs are recovered but that Departments do not generate profits. There will still be control over the types of income raised, which will be in line with legislation. There will be a note in the estimates analysis of income, which will ensure that these issues are transparent and that we can be held to account for them.

My hon. Friend the Member for Sevenoaks raised a number of technical issues to which I shall respond in writing. I commend the motion to the House.

Question put and agreed to.

Resolved,

That this House approves the proposals for simplifying the Government’s spending controls and financial reporting to Parliament, as set out in the paper, Alignment (Clear Line of Sight) Project, Cm 7567, of March 2009, and the response of October 2009 to the relevant report of the Liaison Committee (Second Special Report of the Liaison Committee, Session 2008-09, Financial Scrutiny: Parliamentary Control over Government Budgets: Government Response to the Committee’s Second Report of Session 2008-09, HC 1074).

Child Trust Fund Regulations

Mark Hoban Excerpts

Tuesday 29th June 2010 Written Statements

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

The Government have today laid draft regulations before both Houses, which would reduce Government contributions into child trust funds from August 2010.

The Government announced on 24 May 2010 that they intended to reduce and then stop Government contributions to child trust funds, as part of achieving £6.2 billion of savings from Government spending in 2010-11.

These regulations would reduce Government contributions into child trust funds at birth, and stop Government contributions at age seven, due from August 2010. They would also stop disability payments into child trust funds due from 6 April 2011, but the funding allocated to make disability payments in future years will be redirected to provide additional respite breaks.

The Government will separately introduce a Bill to stop all Government contributions to child trust funds at birth due from January 2011.

Terrorist Finance Tracking Programme (EU-US Agreement)

Mark Hoban Excerpts

Tuesday 29th June 2010 Written Statements

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

Following the conclusion of negotiations between the EU and the US, the Council yesterday signed an agreement with the United States that will allow financial messaging data stored in EU territory to be shared with the United States Treasury Department for its terrorist finance tracking programme (TFTP). The Government have opted in to the signing of this agreement.

The TFTP has brought significant security benefits to the EU and to the UK. Leads it has generated have provided valuable contributions to a number of investigations, including: the Bali bombing in 2002, the Van Gogh terrorist-related murder in the Netherlands in 2004, the plan to attack New York’s John F. Kennedy airport in 2007, an Islamic Jihad Union plot to attack Germany, the attacks in Mumbai in 2008 and the Jakarta hotel attacks in 2009. This agreement will further increase its effectiveness by imposing a binding requirement on the US Treasury to search the Society for Worldwide Interbank Financial Telecommunications (SWIFT) data on request from EU member states that comply with the terms of the agreement. It also contains strict yet proportionate data protection provisions.

The Government believe that parliamentary scrutiny of European business is extremely important and regret that, on this occasion, it has not been possible to complete parliamentary scrutiny of this important decision through the appropriate mechanism, as the timetable for the adoption of the agreement was rapid and the parliamentary scrutiny committees in the House of Commons have not yet formed. However, if the UK had not opted in, it could have put the success of the whole agreement in jeopardy.

Treasury Ministers have, of course, provided a full explanatory memorandum on the document to both Houses, and will be taking this issue forward with the scrutiny committees as soon as possible.