Budget Resolutions and Economic Situation
Mark Hoban Excerpts(14 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Umunna
First, the deficit pre-November 2008 was primarily in some respects caused by increased spending to which those who are now in the Conservative Government were then committed. Conservative Members are continuing to promote the view that somehow there was no global credit crunch, and that the bankers, many of whom they are very friendly with, had nothing to do with it—but the general public do not buy that.
Conservative Members will have to accept that, but the real question that I want answered—I note that a Minister is still here—is: what comfort can he give to the people who live in places such as the Tulse Hill estate in my constituency that they will not have to pay the price? What measures will he take to help them to get back into work? What will he do to give them extra training and experience? Why on earth is he cutting programmes such as the future jobs fund, which I have seen working in my constituency, helping to get people back into work? The Government say that the future jobs fund is ineffective and a waste of money, but they do not have figures on which to base that assertion. The Red Book makes no provision for funding any programme to get young people back into work or into training that will replace what the Government are abolishing.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Perhaps the hon. Gentleman will think back to the package of cuts that was announced last month. Some £500 million of the £6.2 billion of cuts was recycled into extra training and more apprenticeships; that is where this party’s commitment to growth comes from.
Mr Umunna
I am not going to say that I do not welcome things such as apprenticeships, because we need those programmes, but at the same time as the Government are putting in place 10,000 apprenticeships, they are slashing a programme that could place hundreds of thousands of people in work. I do not understand their approach; ultimately, my constituents want to know what is happening.
Capital Gains Tax (Rates)
Mark Hoban Excerpts(14 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
We have had a good debate about the impact of the emergency Budget on the growth of the British economy over the years to come. The contributions from my hon. Friends the Members for The Cotswolds (Geoffrey Clifton-Brown), for Bournemouth East (Mr Ellwood), for Bexleyheath and Crayford (Mr Evennett), for Reading West (Alok Sharma), for Brentford and Isleworth (Mary Macleod) and for Caithness, Sutherland and Easter Ross (John Thurso) were passionate and well informed. There were contributions from the hon. Members for Hemsworth (Jon Trickett), for Kingston upon Hull North (Diana R. Johnson), for Ogmore (Huw Irranca-Davies), for Penistone and Stocksbridge (Angela Smith), for Pontypridd (Owen Smith), for Derby North (Chris Williamson), for Strangford (Jim Shannon) and for Brighton, Pavilion (Caroline Lucas). The debate was thoughtful and informative.
I am pleased to see the right hon. Member for East Ham (Stephen Timms) in the Chamber—[Hon. Members: “Hear, hear.”]
Some maiden speeches were made. There were three in yesterday’s debate. My hon. Friends the Members for Dewsbury (Simon Reevell), for Bedford (Richard Fuller) and for South Northamptonshire (Andrea Leadsom) made excellent speeches about the impact the Budget will have on their constituencies and the challenges it will address. Today, we heard maiden speeches from my hon. Friends the Members for Harrogate and Knaresborough (Andrew Jones) and for Carlisle (John Stevenson).
My hon. Friend the Member for Harrogate and Knaresborough spoke about the challenges in Harrogate. He brings to the House extensive experience in business. As someone who has contributed to the coffers of his former employers, I know that Betty’s is well known for selling fat rascals, but my hon. Friend does not appear to fit that description. I am sure that he will be a great champion for his community.
My hon. Friend the Member for Carlisle talked about the border relationship. Having been born in Scotland but now representing an English constituency, it is heartening to see that not only the coalition Government but Members on both sides of the House who might not be automatic England supporters have supported the English team in its victory today. My hon. Friend spoke well about the need to rebalance the economy, which is one of the big themes of the Budget. I am sure it will be as effective in Carlisle as in the country as a whole. He will make a great advocate for his constituency in the House.
The emergency Budget addresses the most urgent task facing our country and our economy: to put in place a credible plan to reduce the record deficit we have inherited. As a result of the mess that the last Government left behind, the Government have to borrow £1 for every £4 we spend, which is increasing the national debt by £3 billion each week. We cannot afford to let that go on at a time when fear about the sustainability of sovereign debt is the greatest risk to the recovery of European economies.
Failure to deal with the deficit is the greatest threat to growth. Failure to act now would mean higher interest rates hitting businesses, hitting families and hitting the cost of repaying the Government’s debt. That would mean more business failures and sharper rises in unemployment, and would risk a catastrophic loss of confidence and the end of the recovery. The Budget takes action now to restore the confidence in the economy that is needed to underpin the recovery.
The hon. Member for Harrow West (Mr Thomas) quoted from the IFS report. Let me quote from Moody’s commentary on the Budget:
“The UK budget is supportive of the country’s AAA rating and stable outlook because it is a key step towards reversing the significant deterioration in the government’s financial position that occurred over the past two years…Successful implementation would return the government’s finances to a more sustainable trend…the budget plan addresses the major concerns surrounding economic growth.”
Rating agencies endorse the message behind my right hon. Friend’s Budget—to tackle the deficit and ensure that there is a sound platform for economic growth in the future.
A number of Members on both sides of the House raised issues about the impact of the Budget on the most vulnerable in society. Yes, there have been some difficult decisions about taxes and benefits, but let us not forget the £2 billion extra that we have provided for poorer families in receipt of the child tax credit, the £2 billion extra that has gone into pension credit over the lifetime of this Parliament and the 800,000 people who have been taken out of the income tax bracket by the £1,000 increase in personal allowances. That is evidence in our Budget of the coalition’s commitment to fairness, but we must also ensure that the economy is open for business.
We will open up Britain for business by creating a more competitive system for corporation tax, reducing the rate from 28% today to just 24% over four years. That will give us the lowest corporation tax of any major western economy, one of the most competitive rates in the G20 and the lowest rate that this country has ever known. However, the Budget is about supporting not just big businesses, but small businesses, too. We will cut the small companies tax rate by reversing the previous Government’s plans to increase the rate next year to 22% and cutting it to 20% instead, thus benefiting some 850,000 companies. As well as supporting businesses with lower rates, we need to give businesses certainty about the future, so we have published alongside the Budget a five-year plan to fundamentally reform the corporation tax system, with lower rates, simpler rules and greater certainty. Even with our reforms to capital allowances, the manufacturing sector will still pay less corporation tax under the Budget proposals that we announced yesterday.
A number of hon. Members, including the hon. Member for Kingston upon Hull North, talked about the regional impact. A number of hon. Members whose constituencies are outside the greater south-east spoke in the debate, too. As the economy recovers, we must restore the balance not only between the public and private sectors, but across the different regions of Britain. As someone who was born and brought up in the north-east, I am acutely aware that the gap between the greater south-east and the rest of the country grew significantly under the last Government. Between 1998 and 2008, for every private sector job generated in the north and midlands, 10 were created in London and the south. The Budget sets out a new approach that empowers local leadership, generates local economic growth and promotes regional job creation. As well as creating a new regional growth fund worth £1 billion that will be focused on projects in the regions that will help to stimulate economic growth, we will shortly announce a new tax scheme to help to create new businesses in those regions where private sector growth is not strong enough.
For the next three years, anyone who sets up a new business outside London, the south-east and the eastern region will be exempt from up to £5,000 of employer national insurance contributions for each of their first 10 employees hired—up to £50,000 for new start-up businesses. That sends a tremendous signal to those businesses about the importance that they will play in reviving the economy and stimulating economic growth in the future. The Treasury estimates that some 400,000 businesses will benefit, thus ensuring all parts of our country benefit from a more balanced and sustainable economic future.
Huw Irranca-Davies
Will the hon. Gentleman assure us that one of the greatest drivers of economic prosperity over the next few years—high-speed rail electrification, which we have heard about in the Budget—will extend beyond Bristol? We are always told that investment in the railway from London to Bristol benefits south Wales, but we cannot expect the Welsh Assembly Government, who have no tax-raising powers, to fund an extension to Llanelli.
Mr Hoban
That is a matter for the Secretaries of State for Wales and for Transport, but the hon. Gentleman has made his plea for more Government spending. At the last general election, he stood on a platform of about £40 billion in cuts. However, what marks this Government out from our predecessor is, of course, that my right hon. Friend the Chancellor of the Exchequer has said that there will be no further cuts in capital expenditure beyond those announced by the previous Governments and the projects that my right hon. Friend the Chief Secretary to the Treasury announced last week. The major difference is that we are prepared to make the investment to sustain economic growth in the future, but the previous Labour Government were not prepared to make that decision and had announced before the election savage cuts in capital investment.
It is not just corporation tax reform that is needed to ensure that the economy continues to grow in future. There is widespread concern, as has been expressed by hon. Members on both sides of the House, about the importance of credit flowing to the business community. Several hon. Members expressed concern about the number of businesses in their constituencies that had been refused credit. That was why my right hon. Friend the Chancellor announced the £200 million extension of the enterprise finance guarantee scheme, which will support £700 million of additional lending to small and medium-sized enterprises until March 2011, benefiting at least 2,000 small businesses. However, he announced in yesterday’s Budget that we will also bring forward a Green Paper before the summer recess on alternative sources of funding for businesses so that they are not reliant only on bank finance. I believe that that will make a major contribution towards ensuring that growth continues in this country.
I have talked about the reforms to introduce a more competitive corporation tax model in this country. In the context of the regional package, I have also talked about the schemes that will be set up to enable start-ups in regions outside the greater south-east to benefit from a national insurance holiday. Of course, one of the big changes announced by my right hon. Friend was our reform to national insurance contributions. We made it clear that we thought that Labour’s jobs tax would be damaging to the economy. We want to support the growth of Britain’s businesses that will create jobs for British people.
The House will know that the previous Government planned a tax on jobs through a 1% increase in national insurance rates. The Budget reverses that negative effect by increasing the threshold by £21 a week above indexation. In one move, we are lifting 650,000 employees out of the tax altogether. Of course, the measure will have a significant benefit for regions, too. For example, there will be a £150 million benefit for businesses in the north-east, which will help to improve competitiveness. Taken together, the measures set out in the Budget offer a stable and consistent platform for a private sector recovery. They provide the element of growth that is needed alongside our necessary measures to cut spending and increase taxes to restore Britain’s fiscal position.
I referred earlier to the number of hon. Members who contributed to today’s debate, but one thing was missing from all the speeches made by Labour Members. Not one of them uttered a word of apology for the deficit. We saw not a single sign of humility for the mess in which they have left the country, and they did not give a single credible idea to tackle the legacy that they left the people of this country. At a time when Governments throughout the world are taking serious measures to restore public finances and economic confidence, it is remarkable that the Labour party is stuck in the past, refusing to accept responsibility for the problems that it left the country and that the coalition Government inherited. Labour Members are stuck in a world of their own. The mainstream political debate across the world has left them behind. They are stranded and in denial about the scale of the problems that they left this country. It has been left to the coalition to lead the debate on tackling those problems.
The Budget pays the bills of the past and plans for the future. It takes the tough decisions that Labour ducked. Labour Members say that £40 billion of cuts were outlined in their March 2010 Budget, but not one of them has been able to say where those cuts would fall. Our Budget brings spending under control and tackles the deficit. It takes difficult decisions on curbing our deficit, but at the same time, the cuts in corporation tax—reducing the headline rate for large businesses and cutting the small companies rate to 20%—the reforms to our tax system that make Britain more competitive and the reversing of Labour’s jobs tax send a clear signal that Britain is once again open for business.
The Budget tackles the toxic legacy left by Labour. It will remove uncertainty from businesses and boost confidence. It is about the values set out in our coalition agreement—values of fairness, freedom and responsibility. It marks a radical change from the economic policies of the past, offering transparency where before there was opacity. It offers a change—
Budget Resolutions and Economic Situation
Mark Hoban Excerpts(14 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
I suggest that the hon. Gentleman look at the report by the independent Office for Budget Responsibility in the Red Book, which sets out the impact on growth of the package proposed by the Chancellor and suggests that, post-2012, GDP growth will be stronger than the OBR initially estimated in its work prior to the Budget.
Sammy Wilson
As far as I am concerned, this is not about scoring political points off the Conservative party; the Conservatives do not present any threat to us in Northern Ireland. This is all about ensuring that the citizens of the United Kingdom do not have to live in the economic doldrums for a long period. I hope that the projections that have been quoted are correct, but it is right at least to look at both sides of the argument and make an assessment on that basis. Should these measures have been delayed, or should we have jumped in as we have done?
Secondly, we will judge this Budget on the basis of fairness. I look at that in two ways. First, is it fair to individuals; and secondly, is it fair to specific regions of the United Kingdom? The second point, as the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) suggested, is extremely important to people in Northern Ireland. Before the election, the Prime Minister—he has tried to explain it away and qualify what he said—stressed in a “Newsnight” interview that Northern Ireland is heavily dependent on the public sector. That is a fact, but he then implied that Northern Ireland would be targeted as a result. That is one of the reasons why the alliance between the Ulster Unionist party and the Conservative party failed so miserably—I do not know how well it would have done otherwise. People in Northern Ireland were extremely nervous that we in that part of the United Kingdom were going to be treated unfairly.
Under the proposals in today’s Budget, a regional fund will make money available immediately. However, it will not apply to Northern Ireland, or to Scotland or Wales, but only to England. Infrastructure projects have been guaranteed spending, but none of that applies to Northern Ireland. We are promised a report in the autumn on how Northern Ireland’s economy might be rebalanced, including an examination of proposals on economic enterprise zones, a possible mechanism for changing corporation tax rates, and other economic reform options. I look forward to that paper, and I am sure that the Northern Ireland Executive will do so too, but I note that that paper is merely examining options and proposals.
The Northern Ireland Executive have made a genuine attempt to restructure the economy by using public policy and public spending, trying to build up the infrastructure, trying to get people economically active by giving them new skills and preparing them for work, and so on. The reduction in public spending will have an impact on the ability to do such things, because they required that pump-priming. We will look to see how quickly the impact of the reductions in public spending is offset by some of the proposals in the promised paper on rebalancing the economy. This is important to us, and we want to drive it forward, but it will be made more difficult by some of today’s announcements.
Banking Reform
Mark Hoban Excerpts(14 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
With permission, Mr Speaker, I shall make a statement about the Government’s plans to reform the institutional framework for financial regulation.
The tripartite system of financial regulation failed spectacularly in its mission to ensure financial stability, and that failure cost the economy billions. The British people rightly ask how this Government will stop it happening again. That is why our coalition agreement committed us to reforming the regulatory system for financial services in order to avoid a repeat of the financial crisis. Let me now set out in detail the changes to the regulatory architecture that will make that possible.
At the heart of the banking crisis was a rapid and unsustainable increase in debt. Our macro-economic and regulatory system utterly failed to identify correctly the risk that that posed, let alone prevent it. No one was controlling levels of debt, and when the crunch came, no one knew who was in charge. For that reason, we need a macro-prudential regulator with a more systematic and detailed knowledge of what is happening not only in individual firms, but across the financial system as a whole.
Only central banks have the broad macro-economic understanding and understanding of markets, the authority and the knowledge required to make macro-prudential judgments. We will therefore place the Bank of England in charge of macro-prudential regulation by establishing within the Bank a Financial Policy Committee. We will also create two new, focused regulators: a new prudential regulator under the Bank of England, headed by a new deputy governor, and a new Consumer Protection and Markets Authority. All the new bodies will be accountable to Parliament, and their remit will be clear so that never again can someone ask who is in charge and get no answer.
First, we will legislate to create the Financial Policy Committee in the Bank of England. It will have the responsibility to look across the economy at the macro-economic and financial issues that may threaten stability, and it will be given the tools to address the risks it identifies. It will have the power to require the new Prudential Regulation Authority to implement its directions by taking regulatory action with respect to all firms.
The FPC will be accountable to Parliament in two ways: directly, as is the case with the Monetary Policy Committee; and indirectly, through its accountability to the Bank’s court of directors. The Governor will chair the new committee. Its membership will include the deputy governors for monetary policy and financial stability, the new deputy governor for prudential regulation and the chair of the new Consumer Protection and Markets Authority, as well as external representatives and a Treasury representative. An interim FPC will be set up by the autumn, in advance of this legislation.
Secondly, we will create a Prudential Regulation Authority as a subsidiary of the Bank of England. It will conduct prudential regulation of sectors such as deposit-takers, insurers and investment banks. The PRA will be chaired by the Governor of the Bank of England, and the new deputy governor for prudential regulation will be the chief executive. The deputy governor for financial stability will also sit on the PRA board.
Thirdly, a new Consumer Protection and Markets Authority will take on the Financial Services Authority’s responsibility for consumer protection and conduct regulation. The CPMA will regulate the conduct of all firms, both retail and wholesale, including those prudentially regulated by the PRA, and will take a strong proactive role as a consumer champion. It will have a strong mandate for ensuring that financial services and markets are transparent in their operation, so that everyone—from someone buying car insurance to a trader at a large bank—can have confidence in their dealings and know that they will get the protection they need if something goes wrong.
The CPMA will regulate the conduct of every financial services business, whether they trade on the high street or trade in high finance. We need to ensure that this body has a tougher, more proactive approach to regulating conduct, and its primary objective will be promoting confidence in financial services and markets. The CPMA will maintain the FSA’s existing responsibility for the Financial Ombudsman Service and oversee the newly created Consumer Financial Education Body, which will play a key role in improving financial capability. The CPMA will also have responsibility for the Financial Services Compensation Scheme, but given the important role the scheme plays in crises, it will work closely with the FPC and PRA. We will also fulfil the commitment in the coalition agreement to create a single agency to take on the work of tackling serious economic crime, which is currently dispersed across a number of Government Departments and agencies. Before we set up these new bodies in their permanent form, we will conduct a full and comprehensive consultation, and we will publish a detailed policy document for public consultation before the summer recess.
Our goal is radically to improve financial regulation in the UK, strengthening the prudential regime by placing it in the Bank of England and delivering the best possible protection for consumers. During the period of transition to the new regime, the Government will also be guided by the following four principles: minimising uncertainty and transitional costs for firms; maintaining high-quality, focused regulation during the transition; balancing swift implementation with proper scrutiny and consultation; and providing as much clarity and certainty as possible for the FSA, Bank and other staff affected during the transition. In order to do that, we will ensure the passage of the necessary primary legislation within two years.
I am delighted that Hector Sants, the current chief executive officer of the FSA, has agreed to stay on to lead transition and become the chief executive of the PRA. He will be supported in his work by Andrew Bailey from the Bank of England, who will become the deputy in the new PRA. This is a strong team to ensure a smooth transition.
We all know that the financial crisis has cost taxpayers dearly. The regulatory system needs radical reform to make the sector more stable and stronger. The last Government could not do that because they were caught up in a structure designed by the former Chancellor and Prime Minister. The fundamental flaws in that architecture contributed to the failure in the banking sector and ultimately undermined economic stability. The continuing financial and economic uncertainty across the eurozone strengthens the urgency with which we must equip ourselves with better tools and arrangements to tackle any future financial instability.
We have already paid a high price for the previous Government’s failings. We must do all we can to prevent this from happening again, and I commend this statement to the House.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
May I thank the Financial Secretary for advance sight of his statement, and as this is, I think, his first outing in his new role, may I congratulate him and welcome him to his post—and, indeed, wish him well?
While no one can dispute that a failure to regulate effectively was at the heart of the global financial crisis, the key failure by regulators in monitoring agencies and central banks across the globe was in understanding the growing systemic risks in financial services. We also should not overlook the failure in bank boardrooms to understand what was going on. This was not just an issue in the UK. Does the Financial Secretary accept that in some countries the central bank had prime responsibility for regulation, whereas in others, including ours, responsibility has been shared, and in our case between the Bank, the FSA and the Treasury, and that the Bank has always had responsibilities for financial stability?
Specifically, who will appoint the new Financial Policy Committee? Will individual members have their own vote, or will that be merely advisory to the Governor? Will FPC minutes be published, and will the Governor or the chief executive of the PRA ultimately be responsible for the decision on whether to act? Does the Financial Secretary also accept that there will be concern—not least among those who were victims of the Bank of Credit and Commerce International, of which my right hon. Friend the Member for Leicester East (Keith Vaz) has consistently reminded the House—about the record of the Bank of England in financial services supervision, and will he now consider publishing part two of the Bingham Report?
Will the Financial Secretary not acknowledge too that the Financial Services Authority today is a vastly different regulator from the FSA of 2007—as, indeed, the Treasury Committee has acknowledged? Will he acknowledge that a significant level of better trained new staff and the new activism of the FSA in its supervisory role has led to a bolder, more vigorous approach to financial services regulation in recent times?
How, in practice, will the Financial Secretary avoid the very real risk of a loss of energy as regulators now focus on their own future, given that there continues to be considerable uncertainty and instability in global financial markets? Specifically, can he clarify who will be responsible for supervision and regulation before 2012, and will he acknowledge the profound risk, given the proliferation of new bodies he has announced, of ongoing regulatory confusion—of issues falling between the cracks? Indeed, is it not right that there will now be effectively two different regulators for many financial firms?
I was surprised by the absence of any reference to the Banking Commission in the statement. Does the Financial Secretary not accept that proposals to break up banks would not have made any difference to Northern Rock, a retail bank, or Lehman Brothers, an investment bank, and that what is needed is increased capital held by banks and living wills to manage the possibility of future banking problems? Will he explain how the deliberations of this commission on a possible break-up of British banks, such as Barclays or HSBC, can be conducted in a way that reassures the markets and does not exacerbate financial instability?
Does the Financial Secretary recognise that the financial services industry employs over 1 million people and remains crucial to our economic future? Will he ensure that, whatever proposals he accepts—if, indeed, he does accept any from the commission—we do not put ourselves at a commercial disadvantage compared with other countries? Specifically, how will the proposals announced today impact on remuneration, and what ongoing effort is there to secure international agreement on banking levies again, so that Britain is not at a competitive disadvantage?
Is it not the case that while the work of each of the new bodies and the commission will be worthy of serious scrutiny on their own merits, as the shadow Chancellor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), said yesterday, the Government risk creating a system that injects more, not less, uncertainty into the City? While the architecture of the regulatory system is clearly important, is it not the skills and judgment of individual regulators that matter most at the moment? Surely, it is not where they sit; it is what they do.
Mr Hoban
I welcome the hon. Gentleman to his new role and I am grateful to him for his welcome to me. Although I listened very carefully to his remarks, I am not quite sure whether the Opposition accept our proposals or whether they are stuck in the past defending to the last the former Government’s regulatory architecture, which they put in place in 1997. It is time that the Opposition faced up to this problem: do they accept that the system put in place by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was flawed and needs reform, or are they the last people to defend the status quo in this country?
The hon. Gentleman asked a number of detailed questions. Let me address them. He recognised the build-up of systemic risk in the economy over the course of the past 13 years, but he must acknowledge that the reforms introduced by his right hon. Friend in 1997 took away from the Bank of England the power to monitor and respond to those risks.
The hon. Gentleman asked about the appointments to the Financial Policy Committee, and they will be consistent with the approach currently adopted towards the Monetary Policy Committee. He referred to the Bingham report and the collapse of BCCI and, as he will remember from the exchange between the right hon. Member for Edinburgh South West (Mr Darling) and my right hon. Friend the Chancellor yesterday, the Chancellor is going to look into that matter.
The hon. Gentleman is right to say that the FSA has made progress, and that is one reason why we are delighted that Hector Sants has agreed to lead the FSA through the transition period and then to become the chief executive of the PRA. No matter how far the FSA improves in the execution of its role, the reality is that the flawed architecture that the hon. Gentleman’s Government put in place undermines all that it does. This package of reforms ensures that we have the right regulatory architecture in place to identify and tackle the systemic risks to which he referred and ensures proper protection for consumers so that they will never again be let down.
Mr Andrew Tyrie (Chichester) (Con)
Is it not clear that if public money is to be put at risk during a financial crisis, the only person with the moral authority to take a decision will be the Chancellor of the Exchequer? Surely the Chancellor of the Exchequer should therefore have the power to assume the chairmanship of the Financial Policy Committee during a crisis. Will my hon. Friend confirm that that will be possible under the legislation that will be brought before the House?
Mr Michael Meacher (Oldham West and Royton) (Lab)
Since the direct causes of the financial crash were colossal bonuses that drove recklessness, the use of fancy structured investment vehicles including sub-prime mortgages, the conflict of interest whereby credit rating agencies and auditing companies are paid by the company that they are supposed to be assessing and, above all, the overly lax culture of light-touch regulation, what precise, specific mechanisms is the Financial Secretary putting in place to deal with each of those underlying problems as opposed to merely shifting around the institutional infrastructure, which is all he appears to be doing?
Mr Hoban
I am grateful to the right hon. Gentleman for his comments. He takes a close interest in these matters. Of course, he will remember that in 2006 the right hon. Member for Morley and Outwood (Ed Balls) praised the system of “increasingly light-touch” regulation and claimed that he had
“resisted pressures from commentators for a regulatory crackdown.”
The right hon. Member for Oldham West and Royton (Mr Meacher) ought to take up some of these historical issues with his own Front Benchers.
As regards a change to the regulatory approach, we need to see a move away from the prescriptive, box-ticking approach that we have seen in a recent years to a system in which the PRA and the CPMA can make more judgmental decisions about what is happening in the markets they supervise and with the prudential decisions that individual institutions are taking. If we put judgment at the heart of the system, we are more likely to avoid some of the issues that we have seen arise in recent years.
Karen Bradley (Staffordshire Moorlands) (Con)
May I warmly welcome the Minister to his role? Will he tell the House about conversations that he has had with international colleagues about the need for radical reform of the regulatory system and the failure of the last Government’s tripartite system?
Mr Hoban
I am grateful to my hon. Friend. There have been a number of conversations with other colleagues globally about the lessons to be learned from the financial crisis and from the regulatory structures. It is interesting to talk to people in other jurisdictions about their views. Christian Noyer, the governor of the Banque de France, said in July last year:
“Indeed, one of the main lessons of the crisis may be that those countries where central banks assume banking supervision took advantage of their ability to react quickly and flexibly to emergency situations.”
Others have expressed a similar view and that is why I think that the reforms we are announcing today are in the mainstream of reforms in financial regulation—a mainstream that the Opposition seem quite happy to stay outside, yet again.
Mr George Mudie (Leeds East) (Lab)
I welcome the evolution of financial regulation. I think that the present system was tested and found wanting, so the movement has to be welcomed. I want to press the Minister on the subject of the Banking Commission. It was interesting that he left it out of his statement and that worries me, because I note that it will take 18 months before it reports. If that is so, it will probably miss the Queen’s Speech for the following year, which suggests that it will be three or four years before we see legislation and the much-needed changes that will deal with the banks that caused the crisis. They continue to flaunt their behaviour on bonuses and have continued to hurt small business by not lending in the last two years. Urgent action is needed, so why is there this long timetable and why was this subject missing from his statement?
Mr Hoban
I am grateful to the hon. Gentleman for that question. He has been a distinguished member of the Select Committee on the Treasury and has taken part in many discussions in that Committee and in Public Bill Committees when we have explored some of these issues. I sense that he is much more engaged in the need for reform than his colleagues on the Front Bench.
The Banking Commission is important and it is vital that we ensure that we learn some of the lessons that arise from the structure of the UK banking system. We have a very concentrated banking structure and three out of the four principal banks in the UK are universal banks. We need to understand what risks flow from that and how best to tackle those risks, as well as considering the impact of competition in the banking sector. The appointment yesterday of Sir John Vickers as chairman of the commission has been greeted with warm applause across the business and consumer community. There are four other commissioners— Martin Wolf, Martin Taylor, Clare Spottiswoode and Bill Winters—who are equally distinguished in their own fields. The commission will provide the opportunity for a proper debate about the structure of banking in this county—a debate in which the former Prime Minister and former Chancellor did not want to participate. We think that it is time to have that debate and when we have had it, that will help remove the uncertainty about the structure of banking in the UK.
Tracey Crouch (Chatham and Aylesford) (Con)
I welcome the Minister’s statement on these much-needed reforms. Will he tell the House how the reforms set out today will affect the insurance sector, which shares the same regulatory regime as the banks but clearly operates very differently?
Mr Hoban
My hon. Friend makes a good point about the role of insurance. In this crisis, we must ensure that we distinguish between what has happened to the banking sector and the relative success of the insurance sector in withstanding the storms of this crisis. It is an important sector to the UK economy and a huge wealth generator. We need to ensure that the insurance sector, when it comes within the remit of the PRA, has the right sort of prudential regulation that recognises its strengths and challenges. It will of course be regulated as regards its relationship with consumers by the CPMA.
Nia Griffith (Llanelli) (Lab)
The people of this country want to see a bit of humility and payback on the part of the banks. One opportunity to do that would be through the so-called Robin Hood tax on banking transactions, with the money going to alleviate poverty here and to tackle climate change across the globe. Will the Financial Secretary urge his right hon. Friend the Chancellor to introduce such a tax and to influence colleagues worldwide to do likewise?
Sajid Javid (Bromsgrove) (Con)
I welcome the Minister to his new role. Does he agree that these banking reforms will help to boost confidence in the British economy once they are enacted? That will help to keep interest rates lower for longer, boost investment and create jobs.
Mr Hoban
I am grateful for my hon. Friend’s question. It is important to ensure that businesses have confidence that where macro-prudential threats arise in future, action will be taken to resolve them. They did not have that confidence in the previous regime and I hope that they will have that confidence following the reforms that we have put forward today.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Economic growth in the past decade was driven largely by consumption. As a consequence, £1.4 trillion-worth of personal debt is circulating in the UK economy, which means that the human cost of the current recession will be particularly severe. Will the new Consumer Protection and Markets Authority make sure that lenders have to undertake affordability audits so that individuals and families incur only debts that they can service?
Mr Hoban
The hon. Gentleman is right to pick up on this issue. One of the big challenges is ensuring that consumers are properly equipped to understand their borrowing and saving needs, and the Consumer Financial Education Body has a key role to play in improving financial capability in order to help people to make the right decisions. Also, there is an obligation on industry to make sure that it provides consumers with the best advice possible to help them to make the right decisions.
Harriett Baldwin (West Worcestershire) (Con)
I very much welcome that direction of travel, just as I welcomed the decision of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), in 1997, to set the Bank of England free to make decisions on interest rates. Will the Minister clarify whether the Financial Policy Committee will publish its minutes openly and on a regular basis, and how it will deal with a situation in which it is concerned about a specific institution?
Mr Hoban
It is important that the Financial Policy Committee is transparent in its dealings. It is a great strength of the Monetary Policy Committee that it is transparent and that it can be held to account by the public for its decisions. We need to ensure that similar arrangements are put in place for the FPC—while respecting, as my hon. Friend has pointed out, the confidentiality of individual firms.
Mr Philip Hollobone (Kettering) (Con)
Will one of the new organisations under the Bank of England, the Office for Budget Responsibility or someone else alert the Treasury if the housing market starts to get overheated again?
Mr Hoban
One of the roles of the Financial Policy Committee is to identify threats to financial stability as they emerge. I would expect the FPC, in its work of looking at overall trends in the economy, to identify that sort of risk and to make it known not just to the Treasury, but to the wider public through its regular reports.
Clive Efford (Eltham) (Lab)
Will the hon. Gentleman say how many people at the FSA and at the Bank of England currently earn more than the Prime Minister? Does he intend to apply the policy in the coalition document? If he decides to pay above the rate of the Prime Minister’s salary, should that element of the pay be performance-related, given the gravity of the decisions that such people will be taking?
Mr Hoban
There is an issue about pay levels, which we will need to look at. I am intrigued by the hon. Gentleman’s suggestion that there should be a greater variable element in relation to performance, given that a critique of many is that an excessive bonus culture in the City contributed to the financial crisis.
Bob Blackman (Harrow East) (Con)
Will the Minister please explain how today’s announcements will end the confusion in the markets and make sure that there is proper focus on regulation to end that confusion?
Mr Hoban
The package that we have set out today, which was greeted with a great deal of support last night when the Chancellor outlined it to the City, ends any uncertainty. The transition process that we have outlined today in relation to legislation, and the team led by Hector Sants, the current chief executive officer of the FSA, will reassure the City about the direction of travel on regulatory reform. The new settlement, which takes into account macro-prudential supervision, micro-prudential supervision and effective consumer supervision, will ensure that we have the right package of regulatory structures in future to safeguard the economy and to give confidence to consumers and others in the markets.
Mr Kevan Jones (North Durham) (Lab)
I welcome the Minister to his new position. I know that County Durham will be proud as he is a son of Country Durham. Has he given any advice to the regulator on the position of non-executive directors on banks’ boards, particularly regarding their role, remuneration and qualifications? He will know that one problem with Northern Rock was the fact that the non-executive chair’s only qualification appears to have been that he was a member of the Ridley family—he inherited it from his father.
Mr Hoban
The hon. Gentleman makes an important point about the qualifications of non-executive directors. That is why the FSA has already instituted a process of interviewing senior members of staff and directors, before their appointment to boards or positions of responsibility, to ensure that the qualifications and experience that they bring to those important roles is checked.
Geraint Davies (Swansea West) (Lab/Co-op)
Is the Minister seriously contending that had these arrangements already been in place, the financial crisis would not have occurred? If he is not making that absurd suggestion, will he accept that he cannot promise that such a financial crisis will not occur again with these arrangements in place?
Mr Hoban
It is clear that if the Bank of England had not lost its power to monitor and act upon the level of debt in the economy, it might have been in a position to consider what was happening in the housing market, to consider the role that Northern Rock played in fuelling the asset-price bubble and to take action to cool that down. The only person who tried to rule out boom and bust in the past was the right hon. Member for Kirkcaldy and Cowdenbeath.
Alok Sharma (Reading West) (Con)
Does my hon. Friend agree with the Governor of the Bank of England’s assessment that there was little real reform of banking regulation under the last Government, and that the Opposition should therefore welcome the measures that we are setting out today?
Mr Hoban
I hope that the Opposition will welcome the measures, but their views were not very clear from what the shadow Treasury spokesman said. In the past three or four years, when we have debated the reform of parts of the banking regulation sector, the problem has been that the then Government were unable to engage in the fundamental debate about whether the architecture was right. They failed to address that question, and that led to a new Government addressing that question and putting things right for the first time.
Steve Rotheram (Liverpool, Walton) (Lab)
Will the Minister invite hon. and right hon. Members who are interested in the future of Liverpool football club to a meeting with RBS officials fully to scrutinise the deal that props up its leveraged buy-out by two American business men?
Amber Rudd (Hastings and Rye) (Con)
Given the global nature of banking, will the Minister advise us on how regulation will proceed on an international basis, bearing in mind the need to maintain as many jobs as possible in this country?
Mr Hoban
It is important to make sure that debates on regulation are co-ordinated at the global level, and my right hon. Friends the Chancellor of the Exchequer and the Prime Minister take an active role in those debates in the G20. I have recently taken part in ECOFIN’s summit, at which we discussed new supervisory arrangements in Europe. I am absolutely certain that we will engage in the debate both in Europe and globally to ensure that the structure of regulation supervision going forward is right to make sure that the system is stable and to ensure that decisions that have a fiscal impact are taken here, by UK regulators, and not in Europe.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
I will accept that the banking reforms will make it more likely that if exactly the same problems happened in exactly the same way in exactly the same countries, we might be able to spot them, if not to do anything about them. Does the Minister accept that by failing to address the institutional failures in the banking system that are outside regulation—such as pay incentives within banking, the role of the rating agencies, the failure of international information flows and the lack of transaction costs in international financial markets—our country is just as vulnerable as ever to banking failures?
Mr Hoban
I do not agree with the hon. Lady. The package of reforms makes a significant improvement to the regulatory architecture in the UK, and there is further work that we can do at the European and the global level to make it more effective. She is right, in part, to say that institutions need to change their behaviour. We need to look at the structure of banking, which is why we will set up the Banking Commission that the Chancellor announced yesterday. Those reforms will help to improve structure, but let us look at what is important. Let us get the architecture right in this country, let us remedy the flawed system that her party’s Government introduced in 1997 and let us ensure that the Bank of England has the tools to do the job. That will make a significant contribution to improving financial stability.
Financial Services Authority (Annual Report)
Mark Hoban Excerpts(14 years, 5 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
The Annual Report 2009-10 of the Financial Services Authority (FSA) has today been laid before Parliament. Copies have also been deposited in the Libraries of both Houses.
The report forms a key part of the accountability mechanism for the Financial Services Authority under the Financial Services and Markets Act 2000 (FSMA), and assesses the performance of the Financial Services Authority over the past 12 months against its statutory objectives.
Equitable Life
Mark Hoban Excerpts(14 years, 6 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
For almost a decade Equitable Life policyholders have fought for a just resolution in relation to losses suffered as a result of regulatory failure. Since 2000 there have been extensive investigations and reviews into what went wrong at Equitable Life. It has been established that maladministration on the part of the Government of the day occurred, and agreement that payment should be made in relation to losses suffered as a result, but the process has taken far too long.
Today, I am confirming this Government’s pledge to making fair and transparent payment to Equitable Life policyholders, through an independently designed payment scheme, for their relative loss as a result of regulatory failure. We will set up an independent commission to determine the design of the scheme. While we appreciate the need to implement a payment scheme quickly, the impact and implications of events in relation to Equitable Life are complex, and it is important that our approach is thorough, transparent and fair. As the ombudsman accepted, we also recognise that the impact of any scheme on the public purse must be taken into account.
I would therefore like to provide an update on the steps we will be taking from here.
In yesterday’s Queen’s Speech, the Government announced that they will take an important step forward by introducing a Bill to enable payments to be made to Equitable Life policyholders.
The previous Government asked former Lord Justice of Appeal Sir John Chadwick to provide independent advice on losses suffered by Equitable Life policyholders due to Government maladministration. Sir John was due to present his final report to the Government in May.
We will allow Sir John to complete his work and submit his final report to HM Treasury. Sir John’s work brings together over a year of extensive evidence gathering and detailed analysis, including input from a wide range of interests. This work will be useful in helping to inform the development of the payment scheme.
Sir John has requested, and the Government have agreed to, a short extension to this timetable in order to take fully into account two important developments. First, Sir John would like more time to respond to issues raised by the independent actuarial panel appointed to examine the assumptions and methodology used in this provisional advice to him. Secondly, because there has been a significant evolution in his work since his third interim report, Sir John would like to discuss his views with stakeholders before completing his report.
Sir John’s final report will be provided to the Treasury by mid July. While Sir John finalises his report the Government will consult with others on the next stage of the process.
The Government will publish Sir John’s report alongside a detailed update, giving next steps towards implementing an independently designed payment scheme. While we believe the design of the scheme should be developed by an independent commission, I can confirm that we are clear about two key points: that there should be no means testing; and that the dependants of deceased policyholders should be included in the scheme.
I am very aware that there is, understandably, substantial concern in relation to Equitable Life. The Government are working hard to address the situation as quickly as possible, in order to ensure the establishment of an independently designed payment scheme that is transparent and fair to both taxpayers and policyholders. The steps we have announced today are a sign of our commitment to deliver on that pledge.