Draft European Union Budget
Mark Hoban Excerpts(12 years, 4 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
I beg to move,
That this House takes note of an unnumbered Explanatory Memorandum dated 5 June 2012 from HM Treasury on the Statement of Estimates of the Commission for 2013 (Preparation of the 2013 Draft Budget); recalls the agreement at the October 2010 European Council and the Prime Minister’s letter of 18 December 2010 to European Commission President Manuel Barroso, which both note that it is essential that the European Union budget and the forthcoming Multi-Annual Financial Framework reflect the consolidation efforts of Member States to bring deficit and debt onto a more sustainable path; notes that this is a time of ongoing economic fragility in Europe, with countries across Europe taking difficult decisions to reduce public spending; agrees that the Commission’s proposed 6.8 per cent increase in European Union spending in 2013 is unacceptable; agrees that the Commission’s proposal for a larger European Union budget is not the way to fix Europe’s problems, and that large savings are feasible without compromising economic growth; notes that the proposed increase would impose unaffordable costs on taxpayers in the UK and other Member States; notes that UK contributions to the European Union budget have also risen in recent years due to the 2005 decision to give away parts of the UK rebate; and so supports the Government in seeking significant savings to the Commission’s proposals across all budget headings and in its strenuous efforts to limit the size of the 2013 European Union budget.
Mr Deputy Speaker (Mr Lindsay Hoyle)
I must inform the House that Mr Speaker has selected the amendment in the name of the hon. Member for Nottingham East (Chris Leslie).
Mr Hoban
I am pleased to have this opportunity to discuss the 2013 EU budget.
As Members will know, the economic climate in the EU has changed dramatically in recent years, and the situation remains fragile. The uncertainty in the euro area is the biggest challenge facing the EU economy, and there is a risk that it will affect growth and jobs in Britain. That is why we have pressed the euro area to address both the immediate challenges and the long-term systemic issues that it faces. In the midst of one of the biggest debt crises to hit Europe, this Government and Governments across the EU have made difficult decisions in order to consolidate their public finances and implement structural reforms.
The EU budget, funded by EU taxpayers, cannot be immune from the changes that are sweeping across Europe. An ever-increasing EU budget is not the way in which to fix Europe’s problems, and it is time for the EU to live within its means. That requires a strict reprioritisation and the targeting of areas that support growth and reduce the waste and inefficiency that has become characteristic of EU spending.
John Healey (Wentworth and Dearne) (Lab)
The Financial Secretary mentioned supporting growth. As he will know, as part of the preparation for the EU’s next budget period there are proposals for “transition regions” status, which could benefit at least 11 regions in this country. We in south Yorkshire are aware of the benefits that it could bring by supporting local jobs, businesses and growth. Are the Government in favour of the concept of transition regions?
Mr Hoban
I am surprised that the right hon. Gentleman has raised that point, given that the amendment tabled by a member of his own Front Bench calls for a more restrained budget and given that one of the consequences of a cut in the budget would be a further constraint on spending. Our main priority is to deliver a freeze in the multi-annual financial framework, and we need to establish which measures in the budget are consistent with that. However, we do need to focus on jobs and growth, and the biggest challenges in that regard are often presented by the newer accession states when the gap between their economies and those of countries such as the UK, France and Germany is at its widest. We need to focus on spending in the areas where there is the greatest potential for those countries to yield real fruits in terms of economic growth and jobs.
John Healey
I am not entirely sure whether that was a yes, a no, a maybe, or an “I don’t like to say.” The Financial Secretary will know that the qualification for transition regions status is a GDP that is between 75% and 90% of the EU average. Some parts of our country require that extra help; they need more balanced growth, and support for jobs and businesses. Does the Financial Secretary support the concept—I am not asking about the quantum—of transition regions in the next EU budget period?
Mr Hoban
The negotiations on regional funding are a matter for my colleagues in the Department for Business, Innovation and Skills, and I am sure that they will respond to the points that the right hon. Gentleman has made. Our overarching priority is to ensure that our spending in the EU gives us value for money, and the overall settlement for the next seven years and the multi-annual financial framework must reflect that. He may wish to participate in the debate on the preparations for the framework which will take place in European Standing Committee B when the House returns in September. That is one of the many opportunities for debate provided by my hon. Friend the Member for Stone (Mr Cash) in his role as Chairman of the European Scrutiny Committee.
Chris Heaton-Harris
According to a paper produced recently by the Fresh Start group, of which I am co-chairman, if we repatriated structural funds among countries whose GDP is more than 90% of the EU average, we would be able to spend £4 billion more—money that would come directly from the Government—on growth in the United Kingdom without having to go through the middleman of the European Union.
Mr Hoban
My hon. Friend makes a powerful point. We need to view expenditure issues in the context of the impact of our contribution and how it is linked with the rebate, but I do not want this to turn into a debate entirely about structural funds. There will be many other opportunities to discuss those.
Mr Hoban
Let me make some more progress. My hon. Friend described the EU as a middleman. I suspect that the right hon. Gentleman is asking me to be a middleman between him and my hon. Friend, so I shall press on.
As Members know, the size of the annual budget is guided by the multi-annual financial framework, which is equivalent to a seven-year spending review. This was agreed by the previous Government in 2005, and set a rising trajectory for EU spending to 2013. Under the ceilings negotiated by the previous Government, the 2013 EU budget may increase by 14% in payments compared with the 2012 budget. That has encouraged the Commission to seek even more EU spending. In the current economic climate, the framework negotiated by the previous Government is out of date. We have been seeking to put right the mistakes made in the past by making every effort to rein in EU spending in recent years.
This year, however, the European Commission has again shown that it is hopelessly out of touch with the mood of Europe’s taxpayers. On 25 April, it proposed the largest recent increase in the EU budget: a 6.8% increase in 2013, taking total spending to €137.92 billion. It claims that the increase will support growth and jobs while also allowing the Commission to catch up on payments on programmes announced in previous years. We are acutely aware of the risk a budget increase of this scale poses to the UK’s contribution. At a time when we are tightening our belts in the UK, an increase in the order of 6.8% would cost the UK, taking into account the rebate, roughly €1 billion more than this year. Of course, this is not helped by the previous Government’s abatement giveaway in 2005, a decision that is costing today’s taxpayers an extra £10 billion over this Parliament. The amendment seeks to airbrush that from the record.
Graham Stringer (Blackley and Broughton) (Lab)
I agree that a 6.8% increase is unacceptable given the current economic situation, but why are the Government settling for a flat budget, when local government in this country is suffering cuts of 30%? Why is Europe getting a better deal than Manchester or Plymouth?
Mr Hoban
That is an important point, and I shall address it shortly.
Our response to the Commission’s inflation-busting proposal has been robust. At a time when Governments across Europe are making difficult decisions on public spending, a 6.8% increase in EU spending in 2013 is completely unacceptable. First, the economic circumstances have changed dramatically, and the Commission cannot ignore the facts. By 2014, the level of public debt across the 27 member states will be over 50% more than it was back in 2007, two years after the last seven-year budget was agreed. Secondly, a larger EU budget will not solve the eurozone crisis. A smaller, leaner and better-targeted budget is the best way to drive growth across the EU.
We have identified many areas of EU spending that are ripe for reform. It is time to cut the quangos, EU staff pay and programmes that offer low added value or are poorly implemented. For example, the Commission set itself the target of reducing its headcount by 1% this year. Although 286 posts have been cut—equivalent to a 0.7% reduction—that has been offset by the creation of 280 posts for Croatia’s accession. There has been no attempt to redeploy staff to meet the needs of Croatia’s accession. As ever, the Commission’s knee-jerk reaction is simply to increase the number of people employed in the EU. As a consequence, this year the Commission has cut just six posts. We estimate that if it had cut the headcount by 1%, it could have saved €45 million.
The total salary bill for the EU institutions’ staff in 2011 was over €3.5 billion, more than 2.8% of the Commission’s budget proposal for the year, and more than double the amount spent on freedom, security, justice and citizenship. Staff at EU institutions, who may have lived in Brussels for more than 30 years, continue to be paid an extra 16% “expat allowance” on top of an already generous salary, and a teacher at the European school is paid twice the average UK teacher pay.
Mr William Cash (Stone) (Con)
My hon. Friend is making a powerful case and I take it seriously. I do not in any way suggest cynically that the Government are merely trying and not succeeding, but when I see the words
“seeking significant savings…across all budget headings and in…strenuous efforts to limit the size”,
I feel that there is another answer. In the light of his powerful argument, which has not yet even finished, there is a strong case for our saying that we insist, rather than merely seek, and for saying, “We will not pay any more. We will refuse to do so if you are not prepared to do something about it.” This really is getting out of control, as is the work load of law that we discussed in the previous debate.
Mr Hoban
I will come on to deal with the process of negotiation that we are going through, but my hon. Friend will, of course, be aware that the EU budget is determined by qualified majority voting, whereas the framework is determined by unanimity. As he said, he has practised law for some time, so I am sure that he would not be encouraging us to break the law—
Mr Cash
I am grateful to my hon. Friend for walking straight into that one. He knows the formula that I have adopted in the past, notwithstanding the European Communities Act 1972. I have put it to the Prime Minister, and the European Scrutiny Committee report endorsed it as a potential weapon. I simply say to my hon. Friend that there comes a point when we simply have to draw a line and we may have to override European law. The EU breached the law with the stability and growth pact and the fiscal compact. I think it is about time we started showing a bit more mettle.
Mr Hoban
I have to say that I always thought it was appropriate to obey the law, even in circumstances where we would perhaps rather not do so. We need to take our obligations seriously, but that does not in any way weaken our resolve to get the best possible deal for British taxpayers.
Jacob Rees-Mogg (North East Somerset) (Con)
I am sure that the Minister has as much backbone as Margaret Thatcher had. She went along to European Councils and said, “Give us back our money.” I think that is the line he should take.
Mr Hoban
Indeed, I think that the achievement of the rebate at Fontainebleau was a signal achievement of her time in office, but of course that was done in the context of a multi-annual financial framework debate, and we are going through that process at the moment with our European partners. We have made it clear that the rebate is one of our red lines, and we will continue to stick to that, in the same way that we have been very clear about our outright opposition to the financial transaction tax. We will show backbone in these debates, but let us identify those opportunities where our power and leverage is at its highest, to maximise the price that we want in return.
Chris Leslie (Nottingham East) (Lab/Co-op)
While the Minister is in such a fine and confident mood, can he give a commitment that the UK Government will settle for nothing less than a real-terms reduction in the budget for the multi-annual financial framework—that spending review seven-year period?
Mr Hoban
I have to say that talk is very cheap on the Opposition Benches, as the amendment demonstrates. They may talk things up, but what was the previous Government’s record? It was to give away our rebate in the hope of some vague common agricultural policy reform. So let the negotiations continue and we will come to the House when they are concluded; we have been very clear about what we are seeking to achieve.
Mr Hoban
The hon. Gentleman may say “Ah”, but the reality is that when his party was in office it gave away the rebate and allowed a spending increase that permitted the EU budget to rise by another 11% this year. I do not think the Labour party’s record in government is anything that the Opposition should be proud of or crowing about.
Mr David Nuttall (Bury North) (Con)
Perhaps I can help the Minister. In 2010, I asked about the cost to the UK taxpayer of the reduction in rebate negotiated by the previous Government and was told that the full cost, now that the rebate is fully phased in, is £2 billion a year. Will he confirm that?
Mr Ian Davidson (Glasgow South West) (Lab/Co-op)
As the Minister will be aware, I am no great defender of the previous Government’s position on these matters. However, simply pointing to the previous Government’s position is not answering the question. Will this Government make it clear that they will not agree to an increase in the money going to the EU? Yes or no?
Mr Hoban
We are going through the process and we have been very clear about our red lines for own resources and the rebate. We have tried to reach a common position with our allies on the size of the budget and of the multi-annual financial framework. We have been very clear that, at a time when member states across the EU are being asked to curb their spending, the EU should play its role in doing that, too. That is what we are seeking to do, not just in the budget but in the financial framework. Just as we have delivered spending restraint at home, we are urging the case for delivering spending restraint in the EU. We have argued forcefully that we need to tackle the chronic over-budgeting and strictly prioritise EU spending. We need significant cuts in the Commission’s spending and I think that they are possible without impeding efforts to boost growth.
Kelvin Hopkins (Luton North) (Lab)
I, like many Members, have criticised the decision in 2005 to give away part of our rebate in return for a non-existent reform of the CAP. The Government make much of that, but as I have said more recently, if they really are concerned, why not say to the European Union that we want the £2 billion a year back? We might not be able to recoup all the money that has been lost already, but at least let us get the rebate back to where it should have been had that 2005 agreement not occurred.
Mr Hoban
The hon. Gentleman makes a proposal. We are in the early stages of the discussion on the next multi-annual financial framework. Clearly, maintaining our rebate is a key priority in that debate and we will continue to work to protect the rebate, using our veto if necessary.
There are things that we can do to support growth without massive increases in spending. We can deepen the single market, sign free trade agreements with third countries and reduce regulatory burdens. The Commission claims that bills must be paid, but its proposals simply create new bills for future generations to pay by announcing new programmes this year. It cannot complain on the one hand about needing more money to pay bills due this year when it is also making fresh promises that will have to be paid for in future years. We expect the Commission to look for savings in programmes that either are not under way or represent poor value for money, rather than simply asking member states and their taxpayers to pay more.
It is time that Brussels woke up to the economic reality that member states face and started helping us to tackle our debts at home. Following the Commission’s proposal in April, we have been working with other member states to drive down the Council’s opening position on the EU budget but, as Members will be aware and as I mentioned in response to the intervention from my hon. Friend the Member for Stone (Mr Cash), the Council’s position on the annual budget negotiation is agreed by QMV, not unanimity. Following lengthy negotiations, the position in Council limits growth in spending to 2.79% on 2012 levels. We voted against that in Council because it is simply too high, but we must recognise that it is an unhappy compromise. A higher increase would have been blocked by net contributors such as ourselves and a lower increase would have been blocked by net recipients. Each, in different circumstances, have a qualified majority.
The outcome reached in Council cuts €5.2 billion off the Commission’s proposals and saves the UK taxpayer about £500 million. It is larger than the spending cut that saved us €3.6 billion last year and is €11.3 billion lower than the ceiling of EU spending agreed by the last Labour Government, saving the UK around £1.1 billion. Within the overall budget we have slashed the Commission’s proposed increase for the CAP by €490 million.
The debate on the budget will continue. We now have a period when we have to discuss the budget with the Council and Parliament and when we will come under pressure from both the Commission and Parliament to increase spending and move away from the 2.79% increase agreed in Council. That is why we have worked with France, Germany, the Netherlands, Sweden, Austria, Finland and Denmark, not only outlining our disappointment with the 2.79%, but making it clear in a statement made at a meeting earlier this week that further increases to EU spending should not be agreed later this year. That sends a clear signal to the Commission and the Parliament that they should not expect the Council to compromise in budget discussions later this year, and it is a reminder that we will continue to take a tough line on the multi-annual financial framework and on any spending increases proposed for the 2012 budget.
It takes a bit of barefaced cheek for the hon. Member for Nottingham East (Chris Leslie) to table an amendment that deletes reference to the fact that Labour gave away our rebate in 2005. It is an attempt to hide Labour’s record in office. It gave away that rebate in return for a review of CAP that did not take place, at a cost, as I said earlier, of £10 billion to British taxpayers. It would have been better if the hon. Gentleman had recognised the serious mistake that had been made by Tony Blair and the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) in giving away our money.
In his amendment the hon. Gentleman talks about trying to make friends and secure allies, but he was the campaign manager for the right hon. Gentleman—something that is not often quoted in the right hon. Gentleman’s biographies—who attempted not to go to ECOFIN to build alliances with other Finance Ministers to help to get a satisfactory outcome for our budget rebate; the man who did not even turn up for the public signing of the Lisbon treaty, and who wanted to do it in the dark, which shows an inability to create alliances. We will take no lessons from the Labour party on the need to create alliances with other member states. As we have clearly demonstrated with the agreement that we have reached on how the future negotiations on this year’s budget will proceed, we can and do build alliances and successfully impact the course of policy development in the European Union.
Kelvin Hopkins
I do not really agree with the amendment, because it seems to suggest that the Prime Minister is some sort of militant Eurosceptic, which is far from the truth. I would like him to take a stronger line.
Chris Heaton-Harris
My hon. Friend is being a bit soft on the Opposition, because their amendment is absolutely pathetic. It is like student politics, trying to re-write a bit of history and deny the past. It is quite pathetic, because they signed up to the rules by which this Government have to negotiate.
Mr Hoban
My hon. Friend is spot on. It is absurd to try to re-write history and deny that it is because of the actions taken by the previous Government that we have a real challenge in curbing EU spending. It is because they were soft in their negotiations on the rebate and on the level of EU spending across the financial framework that we are spending more than we ought to be spending. It is not just the £10 billion that we have lost as a consequence of the rebate. They negotiated a spending ceiling for this year that is £11 billion higher than the Commissions proposals, so we could face an even bigger bill as a consequence of the weakness of the previous Government. To try to use this amendment to airbrush history lets the Opposition down and shows how unfit they are for office.
Kelvin Hopkins
The hon. Member for Daventry (Chris Heaton-Harris) suggests that this is tit-for-tat student politics, but the Government constantly refer to the 2005 budget settlement—which I agree was wrong—and then propose to do nothing about it.
Mr Hoban
Unlike the Opposition, who were prepared to sacrifice our rebate for some sort of illusory review of spending, we stand firm. It is one of our red lines. In the same way, we stand firm on the financial transaction tax. That is why we vetoed it. We have cut €500 million off the CAP budget this year, which is much more concrete than some review that cost us £10 billion.
Mr Redwood
What would the member states that want a high budget say if the UK Government pointed out that public sector wages and benefits in Greece and Spain are having to be cut in cash terms because the EU will not cut its own budget? When there is so much waste and programmes that are not very important, one would think it was much easier and preferable to cut those.
Mr Hoban
My right hon. Friend needs to reflect on the fact that there are, crudely, two groups of member states: those that are net contributors to the EU budget, such as the UK, Germany, the Netherlands and France; and those that have no incentive to curb the size of the budget because they are net recipients. That is one of the reasons there was a tension in the Council debate on this year’s budget and, effectively, two blocking minorities: one if the budget settlement were too low and the other if it were too high. We are making the case across Europe that we need to curb spending and that the money is spent much better at home than through Brussels. We have a group of like-minded allies on that, although not all member states see it in the same way. I think that we need continually to send the message that there are better ways to boost growth in Europe than simply by spending more taxpayers’ money, whether it comes from Belgian, Greek or British taxpayers.
Mr Redwood
But they need to be educated, because in order to get money out we also have to put money in, so higher EU spending affects all member states adversely, not just those that make a net contribution.
Mr Hoban
In the dynamics of budget debates, the net recipients see that they have a net benefit from increased EU spending, rather than a net cost, which we have. That is one of the driving forces behind their negotiating position. We are taking the argument to them, engaging with them, explaining some of the problems with EU spending and trying to get the EU back on track. Let us wean people off the idea that simply spending more is the answer to our economic problems and find concrete ways in which Europe can contribute to growth without spending more of our taxpayers’ money.
The Government have taken a tough stand in negotiating this year’s budget and are working with like-minded member states to curb increases in EU spending. We are hampered by the fact that the rebate was given away by the previous Government, which cost the taxpayer dear, but we are trying to recover that money. I urge hon. Friends to vote against Labour’s amendment if it is put to a vote and to support our motion.
Keith Vaz
We did not give notice of that allegation, so we had better not pursue it. However, the hon. Gentleman is right: the issue he raises is another area that can be looked at as a possible means of dealing with this important subject.
The second issue—[Interruption.] My hon. Friend the Member for Glasgow South West (Mr Davidson) keeps reminding me that I said I would speak for three minutes, and my time is now almost up. Let me therefore ask the Minister to look at the cost of enlargement. I am a great supporter of enlargement. When I was Minister for Europe, my job was to go to the European Union, as Tony Blair told me to, and ensure that we became best friends with all the countries in eastern Europe that sought to come into the European Union, and that is what I sought to do. I am therefore very much in favour of enlargement, but I am a bit worried by some of the figures for the cost of it. Croatia has been promised €150 million, while Turkey, which is not even a member, has been given €3 billion. We all support Turkish membership, but I am worried about all the money that is going to candidate countries and the possibility that we do not know precisely what is happening to it.
Mr Hoban
The right hon. Gentleman makes an important point. Last week the Commission proposed a €10 billion increase in the financial framework to cover the cost of Croatia’s admission. However, it should find that money from the existing budget, rather than loading additional costs on to taxpayers across all 28 member states, as they will become.
Keith Vaz
I am pleased to hear that the Minister is seized of the issue, and presumably he resisted that attempt to increase the budget. However, we seem to be giving a lot of money to some of the other potential candidate countries—Iceland, Serbia and Montenegro, as well as Turkey, of course—without knowing precisely what the benchmarks are. We should therefore look at that issue in the budget.
My final point relates to the Europe 2020 strategy and the benchmarks set when it was created, starting with the Lisbon agenda, which was agreed in 2000. Are we sure that enough of that money is going on growth and jobs in the European Union? There are other issues that need to be dealt with, but ensuring more jobs and growth is the key to getting Europe out of its current mess.
Jacob Rees-Mogg (North East Somerset) (Con)
It is a great pleasure to follow the right hon. Member for Leicester East (Keith Vaz), although I note that we are all glad that he is Chairman of the Home Affairs Committee rather than the Select Committee on the Treasury, because 13 minus six is certainly not three. None the less, it was a great pleasure to listen to what he had to say.
I want first to deal with the hypocrisy of the European Union. It seems to me outrageous that the European Union is saying to the peripheral nations—the nations in trouble—that they must cut, be austere and have reduced budgets forced on them while it builds up its own empire and takes more money for itself, so that it can enjoy the fleshpots of Brussels while the people in Greece can hardly afford to eat. This is deeply shameful and another reason for being suspicious of the European Union and the way it operates.
On the other hand, I support the Government because they have been valiant, in extremely difficult circumstances, in trying to keep the budget under control. As my hon. Friend the Member for Daventry (Chris Heaton-Harris) pointed out, it is almost impossible to get a qualified majority to keep the budget down when so many people benefit from an increased budget. However, the Government have done incredibly well in getting allies and in working with other member states whose interests are aligned to ours to keep the increase down to just a little above inflation. Of course I would like to see more; I would like a cash decrease in the budget and a remarkably small EU budget in general, but, given the difficult circumstances that the Government face, they have done extraordinarily well.
The Government have a bigger challenge ahead of them, however, because this arrangement is just for 2013 and they will have to negotiate the multi-annual financial framework. They hold one crucial card in that respect, which is unanimity—the veto. I would be interested to hear from the Minister whether the starting point for the multi-annual financial framework will be the budget for 2013 as agreed or the limit for the 2013 budget as agreed under the last multi-annual financial framework, because I believe that there is a difference of €11 billion between the two. If we are starting from the much higher level, we might find ourselves being told that the reduction has been a great success when in fact there has been an overall increase. That technical point is important.
I also want to issue a warning to the Government, and here I am going to sound like a Treasury stooge—a position that I hope to achieve at some point—who supports the Treasury line on everything. I support it in this regard, however, because I believe in austerity, and in cutting public spending and getting it under control. I am very worried about the partial general approach that is being taken to the multi-annual financial framework. I am worried that other Ministries are agreeing to programmes that will require funding, and that they will subsequently present the Treasury with a fait accompli.
Jacob Rees-Mogg
I am reassured by that, but I note that some of the documents that we have seen in the European Scrutiny Committee make it seem as though it would be difficult to un-agree some of the things that have been agreed. I am reassured, however, that the Minister is going to watch the situation carefully.
I should like to finish by thanking the Opposition for their marvellous amendment. It has without doubt achieved one thing, which is to unify the Conservative party in ridiculing an amendment that could hardly be sillier, more foolish, more erroneous, more wrong-headed or more potty—I hope that that word counts as parliamentary. Let us look at it. It states that
“the UK’s ability to negotiate a satisfactory European Union budget deal has been weakened by the Prime Minister’s failure to secure allies”,
yet the Prime Minister has secured allies right, left and centre. He did it for this year’s budget, and he has done it again for next year’s. It was one of his great European negotiating triumphs over the mendicant nations that get more money out of the European Union than they pay into it.
The Opposition also have the brass neck to state in their amendment that they want a real-terms reduction in the multi-annual financial framework, and that the Government will not answer their questions. I asked the hon. Member for Nottingham East (Chris Leslie) a simple question about the £10 billion that we lost, whether he regretted it in any way. I phrased my question as gently as I could, acknowledging that he had not been in Parliament at the time—a sad loss to the nation—but did he answer me? Did he say that it had been a great humiliation and a great shame that the last socialist Government had lost £10 billion of hard-earned British taxpayers’ money? Not a bit of it. He wandered on, and he meandered around, but he said nothing helpful of that kind. He therefore unites the Tory party in chortling at the effrontery of the socialists in coming here, when they spent money as if it was going out of fashion, and expecting us to do a job that even Hercules would probably have found beyond him.
I urge the Government—I beseech them—to cut the spending of the European Union. I am with my hon. Friend the Member for Daventry in saying that we should say to the EU: “For those 17 years of not having your accounts written off, we are deducting £1.7 billion from our contribution.” That has a nice symmetry. Let the EU take us to the Court—the Court that, as we discovered earlier, is gummed up with cases—and let it see whether it could bring a case against us to show that the law was on its side. I doubt that it would be.
VAT on Air Ambulance Fuel Payments
Mark Hoban Excerpts(12 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
I congratulate my hon. Friend the Member for Hexham (Guy Opperman) and the hon. Member for York Central (Hugh Bayley) on securing this debate, and the more than 150,000 who signed the e-petition that triggered it.
I thank my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch), the hon. Member for Bethnal Green and Bow (Rushanara Ali), and my hon. Friends the Members for Leeds North West (Greg Mulholland) and for York Outer (Julian Sturdy) for speaking. When the right hon. Member for Wentworth and Dearne (John Healey) spoke, I was waiting to find out whether he looked at this issue when he was a Treasury Minister, but he did not share that insight. My hon. Friends the Members for Rugby (Mark Pawsey), for South Dorset (Richard Drax) and for Hendon (Dr Offord) also spoke.
The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) showed remarkable restraint in speaking for nine minutes before mentioning the five-point plan. Perhaps she should have shown more restraint and mentioned that this Government are deferring the fuel duty increase for which her Government legislated. She should be careful about the comments that she makes on this matter, because her Government’s record in introducing the fuel price increases that we have deferred or cancelled is nothing to boast about.
This is a good opportunity to explain the Government’s position on an issue that has generated a great deal of public interest. First, I want to reaffirm how much the Government appreciate the commitment of air ambulance charities. Since every other Member has named their local service, I will mention the excellent work of the Hampshire and Isle of Wight air ambulance service. We can all agree that, whether it is in Hampshire, Yorkshire, London, Cornwall or elsewhere, air ambulances play an important role in our society and we are very lucky to benefit from the valuable service that they provide.
I shall remind the House of the current position on VAT. It is a broad-based tax levied on final consumption, and businesses can recover VAT charged on supplies that will be used to produce products that will carry VAT. If a service is not charged for, the provider cannot claim back VAT, and that is the position of air ambulance charities.
Throughout the debate, hon. Members have mentioned their concern about the impact of VAT on air ambulance fuel and asked how it can be mitigated. One suggestion is that we seek an exemption from VAT for that fuel. Members, including the hon. Member for York Central and my hon. Friends the Members for Leeds North West and for Hendon, have drawn a comparison between air ambulance services and the provisions that apply to lifeboat services. The analogy between the critical life-saving services that both provide is clearly strong, but the relief from which the RNLI benefits relates not to charities or to life-saving services but to international transport. The RNLI makes good use of that, but it is not about life saving.
There is no equivalent provision for air ambulance services, or indeed for any other rescue services, and rectifying that would require a change to EU law. That would need unanimous approval by all 27 member states, and I am sure it will not surprise the House if I make the point that that is exceptionally difficult to achieve. The most recent discussions on reduced VAT rates took six years of charged negotiation to conclude. For that reason, I believe that there is little prospect of agreement on new zero VAT rates in the medium term, and the Government cannot legally introduce new zero rates without that agreement.
As my hon. Friends the Members for York Outer and for South Dorset noted, the air ambulance service comes in many shapes and sizes, and the VAT system supports different operating models in different ways. Charities that purchase their helicopters outright benefit from full VAT relief on the purchase cost, saving about £600,000 on the cost of a £3 million helicopter, whereas charities that lease their helicopters benefit from a similar relief on their leasing costs of about £86,000 a year for each helicopter. If the helicopter contractor makes no separate charge for fuel, the whole leasing cost is covered by the zero rate.
That situation has been likened to a zero rate on fuel for some charities and an unfair charge on others, but I disagree. Each charity is free to decide on the commercial operating arrangements it thinks best, so I would not describe the situation as an anomaly. Different operating models have different costs and benefits, and organisations of all kinds often lease their equipment because it is difficult, costly or risky to make a large up-front investment. I have seen no evidence to suggest that significant investment decisions are taken purely for tax purposes, given the many other substantial considerations that go into them.
The majority of air ambulances use aviation fuel rather than diesel, and aviation fuel for commercial flights is exempt from excise duties and taxed at a reduced VAT rate of 5% on each occasion when less than 2,300 litres is purchased. Although that is not specific to air ambulances, it represents a significant reduction in the cost of services for the majority of air ambulance charities, which use aviation fuel in their helicopters rather than diesel.
My hon. Friend the Member for Chatham and Aylesford came up with the typically ingenious suggestion of using the Value Added Tax Act 1994. However, I have to disappoint her, because the exemption to which she referred relates to relevant goods and accessories for ambulances. Relevant goods cover parts and accessories, but not fuel, as fuel is neither a part nor an accessory. It was an ingenious idea for dealing with the matter, however.
The motion suggests that there should be an investigation into what should be done. There are many merits to reviewing the position of air ambulances to see whether some consistency can be achieved, and in that context it is useful to consider two separate reviews that the Government have already conducted. First, on the London air ambulance, which was raised by the hon. Member for Bethnal Green and Bow and my hon. Friends the Members for Hendon and for Brentford and Isleworth (Mary Macleod), the Department of Health is working with other bodies to undertake a review of the capability and funding of emergency medical care of the type provided by the London air ambulance service. That follows the publication of the coroner’s report into the 7 July bombings. It is likely that the outcome of the review will have implications for other air ambulance services operating across the country. I can confirm that my officials will engage with the Department of Health on the review.
Rushanara Ali
Will the Minister indicate on what date we can expect the outcomes of the review and the publication of the report?
Mr Hoban
I do not have that information available but I will ensure that either my colleagues in the Department of Health or I write to the hon. Lady with it.
The second review that is being undertaken looks at the tax position of health care charities. The Secretary of State for Health is required by the Health and Social Care Act 2012 to lay a report before Parliament on matters that might affect the ability of providers of NHS services to carry out their activities. That report is expected to cover the full range of different providers, including charities, and will include taxation issues. Treasury officials will be actively involved in the review.
I therefore suggest that, rather than having a separate, Treasury-led review, the most efficient way forward is for the existing engagement to continue, and for the Department of Health and the Treasury to work collaboratively to consider the tax impacts of different funding models as part of the wider work already in hand.
John Healey
The Minister mentions the review under the 2012 Act, but it is a review of charities that carry out NHS services. The whole point about the air ambulance services is that they are not NHS services, although they play a great role in emergency health support. Therefore, they are unlikely to be covered by the second review. The Minister says that the review proposed in the motion is useful, but will he accept the motion and conduct the review it urges on him? I am still not clear about that.
Mr Hoban
I appreciate the right hon. Gentleman’s knowledge—he is a former shadow Secretary of State for Health—but my point is that the Treasury is working with Department of Health officials to ensure that the matter is covered by the review. I can confirm that, if it is ultimately not covered, the Treasury will carry out its own review. However, rather than having three reviews into air ambulances, I believe that two are sufficient if the second covers the tax issue. We are working with the Department of Health to ensure that that is the case. I can confirm to hon. Members that there will be a review and that the Government will not vote against the motion. Indeed, we believe it raises valid issues.
It would be possible in principle to introduce a refund system for air ambulance charities’ non-business activities, although it is important to consider that in the context of broader public spending, as I am sure my hon. Friends appreciate.
To refer to a point made by my hon. Friend the Member for Rugby, it is important for us to consider carefully how air ambulance charities can provide a better service by improving efficiency, and not just through refunds and tax breaks. Effective co-ordination of services could bring cost reductions that far outweigh the scale of a VAT refund on fuel. I am sure the House will join me in applauding such innovation and agree that we should continue to do all we can to improve this excellent service further. As my hon. Friend said, the air ambulance based in his constituency delivers a co-ordinated approach to providing the service across Warwickshire, Northamptonshire, Leicestershire, Derbyshire and Rutland. It has made significant cost savings and earned the transformational change award at the Orange national business awards last year.
I hope I have set out clearly my reasoning on why a change to the VAT law is impractical. I believe the best review on a level playing field for providers is being done by the Department of Health, but, as I have made clear, if that does not fully cover air ambulances, the Treasury will conduct its own, separate review.
Bank of England (Appointment of Governor) Bill
Mark Hoban Excerpts(12 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
John McDonnell
The roles are different, as I will mention later, but the Chancellor did give the Treasury Committee responsibility, in the way it is asking for here, for the appointment of senior members of the Office for Budget Responsibility. Obviously, then, he had sufficient confidence in the Committee to involve it in appointments.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Of course, there is a distinction between the chairman of the OBR and the Governor of the Bank of England. The former does not have an Executive role; their role is more akin to that of the Comptroller and Auditor General.
John McDonnell
I shall come to that almost Jesuitical distinction between Executive roles.
It is critical that the right person be appointed to the crucial role of Governor of the Bank of England in this coming period. The new Governor will need to demonstrate not only that he or she is professionally competent, but that they can exercise sound ethical judgment. They must be able to convince the public and the markets that they can turn the liner that is financial services around. To have any credibility they will need to demonstrate that they have the confidence of not only the Chancellor of the Exchequer but of Parliament as a whole, and that they are independent—no crony, no place person, no political appointee—and able and willing to give robust independent advice. Given the scale of the task facing the new Governor and the heightened political atmosphere and context in which the banking reforms are to be developed, now, more than ever, this critical appointment cannot be left in the hands of a single Minister.
John McDonnell
I suggest that people listen to my speech. I will get to that point, but if I miss it out, perhaps the Minister can intervene again.
The wider engagement of Parliament in the appointment process is more likely to result in the appointment of a talented and competent professional whose independence is demonstrable and protected, and who will therefore have the authority to drive through the reforms and change of culture in our banking system for which we are all calling.
This is not a revolutionary proposal. To allow Parliament, via the Treasury Committee, to have a decisive say in the appointment of key posts is nothing new. If Members read the Institute for Government’s excellent report “Balancing Act”, by Akash Paun and David Atkinson, which the Committee recommended, they will see that the Bill stands in an evolutionary line on the growing role of Parliament in public appointments. In the past 30 years, there has been an evolution from all public posts historically being appointed by prerogative of the Executive through to pre-appointment hearings, confirmation hearings for the Monetary Policy Committee, to the current Chancellor granting the Treasury Committee a veto over the senior posts in the OBR. That was enshrined in the Budget Responsibility and National Audit Act 2011, the wording which I have simply transferred into my Bill.
The OBR is not the only area where appointments are made subject to the approval of a Select Committee. For example, last year the Ministry of Justice announced that the appointment of the Information Commissioner would not be made if the Justice Select Committee opposed it. The proposal in today’s Bill, then, is nothing new or revolutionary but simply part of the evolving relationship between Parliament and the Executive.
In line with the evolutionary progress in that relationship, when the Treasury Committee undertook its investigation into the accountability of the Bank of England, the report of which was published in October 2011, it examined parliamentary involvement in the appointment and dismissal of the Governor and concluded:
“The power of veto with respect to the OBR was given to ensure the independence and accountability of that body. The Governor of the Bank’s independence from Government is crucial for his or her credibility. Given the vast responsibilities of the Governor, the case for this Committee to have a power of veto over the appointment or dismissal of the Governor is even stronger than it is with respect to the OBR.”
The Committee recommended, therefore, that it be given a
“statutory power of veto over the appointment and dismissal of the Governor”.
That was a fair, appropriate and responsible submission from the Committee.
John McDonnell
It is a matter of striking a balance and, at the moment, the Governor’s independence is undermined by association with appointment by one Minister and the Executive. My Bill would spread the burden of accountability and responsibility for the appointment.
On the issue of politicisation, the argument was that the Committee veto would politicise the post of the Governor. However, spreading the decision, to include all parties in determining the appointment, would avoid the charge that the person had been appointed by one party or one coalition grouping and was therefore a party political appointee. The charge of politicisation also neglects to acknowledge that our Select Committees have, over decades, developed a good culture of cross-party working. Where there have been disputes over a ministerial appointment in the past, they have not been on political lines. There have been only two rejections of a Minister’s recommendation, and they were cross-party rejections. Having to secure the approval of the Treasury Committee would override any charge of a single-party or party political fix.
John McDonnell
That charge was laid before, but when the Institute for Government examined it in detail, it found no example of that happening, because the Select Committee system—
John McDonnell
The decision in the case that my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) raised was not accepted. The Select Committee system has worked remarkably well, and when people have served on them, they have done so on a cross-party basis. However, the point the Minister makes still does not undermine the argument that it is better to have a group examining, interviewing and then coming to a decision about an appointment on a cross-party basis than to leave it in the hands of a single, party politician.
Stephen Hammond
I can only concur.
The Financial Services Bill, now in the other place, is designed to redress the inadequacies of the current regulatory regime. As the hon. Member for Hayes and Harlington noted, the new proposals view the Bank of England as absolutely at the heart of the regulatory system. It will now be charged, which it was not previously, with the protection and enhancement of the UK’s financial system. I do not need to rehearse in detail the fact that the Bank of England is therefore charged with looking at the working of the Financial Policy Committee and, underneath it, the Prudential Regulatory Authority and the Financial Conduct Authority.
Mr Hoban
To clarify, let me point out that the Financial Conduct Authority is not part of the Bank of England; it is an independent body. Failure to understand that is a mistake that the hon. Member for Nottingham East (Chris Leslie) regularly made in Committee, and I would not want my hon. Friend to make the same mistake.
Stephen Hammond
The Minister is technically correct, but I think he would agree that there is a line, dotted or otherwise, between what the Financial Policy Committee and the Financial Conduct Authority would do and their respective impacts.
Mr Hoban
My hon. Friend is correct, but I would not want to say that that makes the Financial Conduct Authority a part of the Bank of England. It will have an independent board. Martin Wheatley, the chief executive designate, has been appointed and is leading the review of LIBOR. The FCA is very much an independent body. Engagement with the Financial Policy Committee is relevant only when the FPC identifies a threat to financial stability that requires some action from the FCA. The circumstances in which the Prudential Regulatory Authority can veto acts of the FCA are limited. It is very clear in this approach that the FCA is not part of the Bank of England family.
Stephen Hammond
I bow, of course, to my hon. Friend’s greater knowledge of this matter. My key point was that the Bank of England and its family, cousins and outside friends will now have a much greater role at the centre of the regulation of our financial system and, indeed, of our overall economy.
It is in some ways understandable that the immediate drive of the Bill before us is to increase the powers of parliamentary accountability, but I think there is some confusion between accountability and independence. Parliament will gain further powers of control, scrutiny and accountability under the Financial Services Bill. The exact powers are clearly defined, with reference made to the new financial stability objective, to the position of the deputy governor and the Financial Policy Committee, to the Governor’s appointment for eight years and to the fact that the Treasury Committee and, indeed, Parliament can hold the Bank of England to account. That being so, it is not necessarily the case that giving the Treasury Committee the power of veto over the appointment of the Governor would enhance that accountability, although it might impede the Governor’s independence. It is right for Parliament to have greater accountability and greater scrutiny, but we need to be clear that the Governor, who is at the centre of the operation of macro-economic policy and macro-financial and prudential control, must be independent.
The Bill before us contains not only a power of veto but a power of appointment, which could be seen as a step backwards in the whole argument about independent policy making. The Bank of England Act 1998 took a momentous step forward in respect of the independence of the Bank and the Governor by giving the power of decision over interest rates to the Monetary Policy Committee. That was, and will remain, the historic achievement of the Labour Government. It followed from and was a continuation of what the previous Governor had introduced, in tandem with the then Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), with the publication of the minutes of the interest rate-setting committee.
Brandon Lewis (Great Yarmouth) (Con)
I oppose the Bill. Based on the principles and the ethos expressed by the hon. Member for Hayes and Harlington (John McDonnell), I share one or two common interests with him. I understand that he attended the local grammar school in my constituency of Great Yarmouth in his formative years, and I am sure that he still holds our town in great affection, as do I as its Member of Parliament. His reason for introducing the Bill is to ensure that there is full and proper scrutiny and an open and transparent approach to the appointment of such an important position, but I fear that that is the only principle on which, for this morning at least, the hon. Gentleman and I are likely to agree.
The Bill threatens us with direct parliamentary interference in the appointment of the Governor of the Bank of England and, through that, unnecessarily jeopardises the wider political independence of the Bank. I want to address two particular elements of how the Bill approaches the problem, on which some comment has already been made. First, does it provide the right mechanism in how it goes about considering an appointment? I will come to that point in a few moments. Secondly, what effect would such a change have on how the Select Committee works and on the role of a Select Committee? As a member of the Select Committee on Work and Pensions, I fully appreciate its scrutiny role, and we have also considered appointments and commented on them. To my knowledge, there has not yet been a cry from our Committee to have the direct power of veto or appointment. It is simply important that the Committee has the chance to interview, take a view and make clear our opinion on a particular appointment.
I understand that the Bill was drafted in response to the comments made in wider circles, including by the Treasury Committee, about the need to have a greater say in the appointment of the Governor of the Bank of England. That has arisen partly through the extension of powers provided by the Financial Services Bill. That Bill, as we know, is being examined in Committee in another place at this very moment and I am sure that that scrutiny will involve comment on whether there is any need for direct parliamentary involvement in the appointment of the Governor of the Bank of England.
Mr Hoban
I want to offer some assistance to my hon. Friend and to the House. The subject was debated in the other place recently and the noble Lord McFall withdrew his amendment suggesting that the Treasury Committee should have such a role, in recognition of the fact that many in the other place felt that that was going far too far.
Brandon Lewis
I thank my hon. Friend for that intervention, which highlights the fact that when this subject was considered in depth in the other place the view was taken that the Bill might not be the right way forward. When their lordships considered whether the non-statutory arrangements for scrutinising the appointment of the Governor and the deputy governors were adequate, they will have done so in the light of the extensive new powers in the Bill and will have considered whether the Treasury Committee might or might not require a more formal role in the process. They have clearly commented on that. That process and involvement would require legislation to enshrine it in law and the Bill endeavours to formalise that process within the law. I am sure the hon. Member for Hayes and Harlington will have read carefully the Lords deliberations in Committee to see whether there are any pronouncements in favour of the course of action that he prefers. So far, as we heard from the Minister, the Lords seems to have taken the view that that is not necessarily appropriate.
I shall listen carefully to the views expressed today and those expressed in another place. At present my view is that the Bill would interfere with, rather than strengthen, the Select Committee’s scrutiny. The current system used for the non-statutory hearings that precede the appointment of members of the Monetary Policy Committee is working and should continue to be used for the appointment of the Governor of the Bank of England. The Treasury Committee has held those hearings since 1997 and has carefully scrutinised, reviewed and commented on appointees.
Members of the Select Committee have disagreed with the Government’s nominee. They urged the then Chancellor of the Exchequer to think again about appointing the economist Christopher Allsopp to the MPC. Well known in some circles for his flexibility on policy, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) promptly took no notice of the Committee’s recommendation and went ahead with that appointment. That was his ministerial prerogative, as he was exercising the powers that he was given as a member of the Executive. A Treasury Committee report after that incident was still able to observe that the hearings played an important role nonetheless.
In a parliamentary democracy it is right for Ministers to make Executive decisions and it is also right for Parliament to scrutinise those decisions. I stress the word “scrutinise”. There is a clear line of differentiation in the current structure between the Executive and Parliament’s ability and role in scrutiny, and it is one that we should protect. It would be wrong for Select Committees to have Executive power, in effect, and such a change would create an Executive power for a Select Committee in an appointment.
Joseph Johnson
My hon. Friend is right. It is important to focus on the substance of what needs to change at the court, rather than on the men in pink coats and the silver platters. That means ensuring that members of the court, or the supervisory board, as the Treasury Committee would prefer it to be called, have the ability and willingness to take a tough and challenging line, with a chairman who is prepared to take on a rather more effective and higher profile role than has, perhaps, been the case in the past.
Logically, if anyone should be given a right to consent to the appointment or removal of the Governor of the Bank of England, it should be the chairman of the court of the Bank of England, rather than the Treasury Committee as a whole. That avoids many of the constitutional difficulties to which many of my hon. Friends have referred.
Joseph Johnson
I thank the Minister for that intervention. The Governor can be removed only with the assent of the court of the Bank of England, but the chairman of the court is not at present a statutory consultee in the appointment of the Governor. One of the means of strengthening the court as an oversight mechanism might be to consider whether the court, through the chairman of the court, could be made a statutory consultee in any appointment process. If the chairman and the court are to be taken seriously by the Governor, and given that it would be unacceptable if a Governor were appointed in whom the chairman of the court did not have confidence, it is essential that he should be seen to be somebody who has played a significant role in the appointment of the Governor. I am therefore sympathetic to the idea—originally floated, I acknowledge, by Baroness Wheatcroft in the other place—that the chairman of the court of the Bank of England should be consulted by the Chancellor, and I hope that the Government might consider tweaking the Financial Services Bill to that effect on Report in the other House.
The legislation as it stands does not prohibit the Chancellor from consulting widely before recommending that a candidate be appointed as Governor, and in practice the Bank of England and the Treasury work closely together to recruit key Bank of England posts. The Financial Services Bill would strengthen the governance of the Bank of England if it specifically mentioned the chairman of the court as a statutory consultee, and thereby indirectly achieved the principal objective of the Bill before us without introducing all of the constitutional risks that come with giving the Treasury Committee a veto.
As I said earlier, there is an important distinction between binding pre-appointment hearings and advisory confirmation or pre-commencement hearings. We more or less have the balance right today between those two forms of parliamentary scrutiny, and I strongly urge the House not to veer wildly to an extreme that it may later come to regret.
I have made clear my concern that the Treasury Committee’s ability to scrutinise the Bank of England effectively would be impaired if we were to make it complicit in the appointment of the Governor. I have also argued that the supposed precedents set by the role of Parliament in the appointment of the head of the OBR and the Comptroller and Auditor General are misleading. With an enhanced role for the chairman of the court of the Bank of England, potentially with a consultee role for the Treasury Committee; with an enhanced and streamlined court of the Bank of England, whose members are empowered to create a real atmosphere of challenge; with the introduction of a single eight-year term for the Governor rather than renewable five-year terms; and with regular scrutiny of the Governor, his deputies and policy committee members by an impartial Treasury Committee, we are putting in place a stable and strong governance structure for the 21st-century Bank of England that will equip it to play a central role in this country’s economic and financial system.
Matthew Hancock
I agree with my hon. Friend in one respect, which is that changing the separation between the Executive and the legislature that scrutinises them would have great constitutional implications. I ask Members to draw their own conclusions on the contrast between that and merely changing the form of appointment to one of the two Houses of the legislature. That is a matter simply within the legislature, rather than to do with the role of the Crown in Parliament, which is the basis of our constitutional monarchy.
Let me bring the debate down to more practical considerations. If the Treasury Committee were to reject the Government’s preferred choice of Governor, a small number of MPs would effectively have vetoed a Crown appointment. The whole House would not have made that rejection; a small number of MPs would have done so. I do not think that there is any precedent for such a challenge, whereby a small number of MPs who are not Ministers challenge, through the power vested in them, the authority of our Executive—at least not since the days of Charles I, and we all know how that turned out.
Where would the Bill leave the royal prerogative? That question needs to be addressed. What would it mean for the role of the Crown in Parliament? In this jubilee year, as we celebrate 60 glorious years of Her Majesty, these are questions to which we need answers. It is perhaps no coincidence that the original proponent of this broad constitutional change was himself an avowed republican, with a history of great hostility to the Crown’s role in government: Tony Benn. Indeed, I understand the heartfelt and strongly held republican position of the hon. Member for Hayes and Harlington. He does not contradict me, so I presume that is his position. The Bill directly challenges that question of parliamentary accountability.
The Governor of the Bank is already accountable to the Treasury Committee for his or her decisions on monetary policy and financial stability, but I turn to the question of the increasing role of the Bank, because there is no doubt that under the Financial Services Bill it will have a bigger role than hitherto. The separation of bank regulation from monetary policy is a flaw and a mistake that has had grievous consequences, not least because the banking system is the conduit for monetary policy’s impact on the real economy.
I therefore strongly and passionately support the relevant change in the Financial Services Bill, but it does not follow directly that, under it, the position of the Governor is stronger than hitherto, because up until and including today in matters of financial stability the Governor has been imperial within the Bank of England. Executive powers over the areas of financial stability for which the Bank is responsible are the sole responsibility of the Governor in person, accountable to the court of the Bank and to the Treasury Committee.
Under the new proposals, the Governor will chair the Financial Policy Committee, and it is in that committee, rather than in the individual, that powers over financial stability will be vested. So on matters of financial stability not only will there be accountability externally, but decision making will be conferred on a committee that the Governor chairs, rather than on the person of the Governor himself.
Mr Hoban
Does my hon. Friend, who served with me on the Financial Services Bill Committee, not share my view that we risk over-personalising the debate by suggesting that the Governor exercises all judicial power? My hon. Friend is right to highlight the fact that the Governor will be chairman of the Financial Policy Committee, is chairman of the Monetary Policy Committee and will have three deputy governors to work with. These powers are and will be vested in the institution, not in the person of the Governor.
Matthew Hancock
I am grateful to the Financial Secretary to the Treasury for making that clear, and I agree wholeheartedly. In the debate about accountability under the Financial Services Bill, one fact often overlooked is that, whereas previously a power vested in the Bank of England involved a decision by the Governor alone, for which the Bank’s deputy governors would take collective responsibility, it will now formally involve a decision by a committee, of which the Governor will be chair. That is an important distinction. Despite concerns about increased power going to one individual, in fact the increased power goes to an institution, but the internal arrangements at the institution are being changed in order to reflect that increased power. That is why I strongly support the Financial Services Bill not only in principle but in the design of the system that we are discussing.
To whom would the Treasury Committee be accountable if it had this Executive power? In the words of Juvenal, “Who watches the watchmen?” Under this proposed amendment to the Bank of England Act 1998, the Treasury Committee could stall or reject the appointment of a perfectly qualified candidate for whatever reason it chose— perhaps, heaven forfend, even in order to raise the personal profile of a member of the Committee. Given the powerful investigations by Select Committees over recent months—for instance, into phone hacking—I am sure that we would all be sceptical about the idea that any member of a Select Committee could possibly try to change the way in which an inquiry went forward in order to raise their own personal profile. I am absolutely certain that that does not happen.
Matthew Hancock
It was, but I would not wish to return to private subscription for the ownership and governance of the Bank of England, because of its role in our political economy. My hon. Friend the Member for North East Somerset might wish to push for that, but I believe that the settlement reached after nationalisation in 1946, whereby the Bank of England has its own capital base but is effectively part of the national political economy and one of the national institutions of economic governance, is the right one, rather than having private shareholders.
Since the Bank Charter Act 1844, other banks have been able to issue notes in sterling, and I believe that nine other banks do so in Scotland and Northern Ireland, but they have to be 100% backed by Bank of England banknotes held in the vaults of either the Bank of England or the issuing bank. That ensures that control of the money supply is within the grasp of the Bank of England rather than any other bank. I know that there are some Members who would prefer to return to the system from before 1844, not least my hon. Friend the Member for Wycombe (Steve Baker), with whom I regularly debate the point. I did so yesterday. However, the broad and settled view of the House is that we should retain the current situation.
Because the central bank is the monopoly provider of money and the lender of last resort, it must share a common strategy with the Government even though it is vital that its operational decisions on interest rates and financial stability are independent. The current appointment process fulfils well the twin objectives of operational independence and broad agreement on strategy. It also means that the Government can appoint a Governor who broadly shares their philosophy of economic management, even if the Governor is kept at arm’s length from party political machinations, the 24-hour news cycle, headline grabbing, tweeting and retweeting, and the Westminster bubble culture, which is the special discourse of the modern political set-up.
Economic history shows us the importance of the broad strategic agreement between the Governor and the Government of the day.
Matthew Hancock
Absolutely, and the Minister will be delighted to hear that he has anticipated the next section of my speech.
The nine years war, which the Bank of England was set up to finance, was the first example of successful co-operation on a strategy between the Governor and the Government of the day. The first Governor was a man called Sir John Houblon—his face appears on a modern £50 bank note, so hon. Members will know him well. Like many of his successors, Sir John dealt with the City but was not part of it. He was a grocer by trade and rose through the East India company—he was a business man who came to the City to oversee the Bank. At that time, the Governor, deputy governors and directors of the Bank were voted for by private shareholders, who had to have a £500 shareholding—a huge amount in those days. The Governor had to have a £4,000 shareholding.
We can only speculate who would get the job now if the late 17th century equivalent of the Treasury Committee had a veto over candidates. The House of Commons was, back in the day, notoriously corrupt and vice-ridden, unlike today. By way of illustration, the prospective parliamentary candidate for a by-election in Bath laid on a meal before polling day. There were 32 voters, but the meal consisted of two boiled haunches, two chines of mutton, four geese, four pigs, 12 turkeys, plain chickens, rabbits, an abundance of claret and sherry, and—my favourite—two venison pasties. A ball to persuade the voters’ wives followed. Glasses were broken and windows shattered at the end of it.
The modern system of corporate governance is similar to chief executive officers having skin in the game in financial organisations. As my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) pointed out, when the Bank was given operational independence in 1997, it was returning to the independence it had enjoyed for 200-odd years until it was nationalised in 1946.
There are examples of when the Bank and the Government have agreed broadly on strategy and prosecuted it effectively, but there are also historical examples of how things can go wrong. The Bank was founded before the first Governor took office by an initial loan made by a Scottish banker called William Paterson. Founding the Bank was not Paterson’s only contribution to economic history; he was also the main instigator of the infamous Darien scheme, which involved a Scottish colony in Panama that was supposed to replicate the success of the English colonies in north America. With a monopoly company facilitating trade between the new and old worlds, the Scottish public went wild for the scheme and invested a quarter of the country’s gross domestic product in the embryonic New Caledonia. Of course, the reason the Panama canal is not called the firth of the Pacific is that the colony was a disaster—thanks to poor leadership, endemic diseases and weak demand for Panamanian goods—bankrupted Scotland and led, indirectly, to the Act of Union in 1707. Although William Paterson was not the last Scot to drive a country to the brink of financial ruin, he might have been the first.
I shall cite another example of the Bank and the Government having separate strategies that shows why the Bill would be a mistake. In 1716, a man named John Law, another Scottish gambler-turned-economist, managed to persuade the Government of France that, having defaulted on their debts four times between 1648 and 1715, they could create a scheme to end the national debt by enabling them to take control of the money supply and replace gold and silver, whose price was ruled by the markets, with something that he said would be more stable. He suggested creating a central bank in France along the lines of the Bank of England. In return for the deposits on gold and silver, there would be paper money deposited in a state-owned scheme that would turn it into something more valuable. This proved irresistible to the French people.
The Financial Secretary to the Treasury (Mr Mark Hoban)
This has been a thoughtful debate and some interesting issues have been raised by Members on both sides of the House. I commend the hon. Member for Hayes and Harlington (John McDonnell) on his success in getting the first Bill in the ballot for two years running. The odds on his being first again next year are about 14 million to one—roughly the same as winning the national lottery. If he tells us his numbers, we will all enter it, although I fear that it would make only a minor dent in the deficit that we inherited from the previous Government.
The hon. Gentleman made his arguments in a calm and considered way, but I felt that he did not do justice to some of the more complex issues that have been explored over the last few hours. I am grateful to my hon. Friends for their support in teasing out the issues that underpin the Bill. My hon. Friend the Member for Wimbledon (Stephen Hammond)—the Cliff Richard of Parliament, as he was described earlier—talked about the substantial constitutional change that the Bill would make. The hon. Member for Nottingham East (Chris Leslie), who is no longer in his place, made one of his shorter speeches at eight minutes. Those of us who served on the Financial Services Bill Committee would have welcomed more speeches of that brevity and concision.
My hon. Friend the Member for Great Yarmouth (Brandon Lewis) made a powerful and measured speech, using his experience from the Work and Pensions Committee and highlighting some of the challenges that exist. The hon. Member for Foyle (Mark Durkan), who is no longer in his place, made the second of only two Back-Bench speeches in support of the Bill. He got himself into a bit of a hole trying to justify why he voted against a parliamentary inquiry last night but was in favour of the Bill today.
My hon. Friend the Member for Watford (Richard Harrington) highlighted the importance of transparency and openness in appointments, which I hope to come on to in a moment. My hon. Friend the Member for South Derbyshire (Heather Wheeler), in her typically pithy way, made some important and powerful points about the changes that the Bill would introduce.
My hon. Friend the Member for Finchley and Golders Green (Mike Freer) came with a list of original shareholders of the Bank of England and tried to identify whether any of their successors were in the House of Commons. I have with me a list of Governors of the Bank of England. [Interruption.] No, just be patient. I wondered whether Humphry Morice, the Governor between 1727 and 1729, was related to the hon. Members for Easington (Grahame M. Morris) and for Livingston (Graeme Morrice), but unlike them he was not called Graeme or Grahame. My hon. Friend the Member for Orpington (Joseph Johnson) will be interested to know that Reginald Eden Johnston was the Governor between 1909 and 1911. My hon. Friend quoted Bagehot, and I have my own Bagehot quote to trade with him. I think it rather neatly encapsulates some of the problems with the Bill. He said:
“No result could be worse than that the conduct of the Bank and the management should be made a matter of party politics, and men of all parties would agree in this, even if they agreed in almost nothing else.”
That highlights the problem at the heart of the Bill. The power in it could be used to politicise the appointment of the Governor in a way that would be to the detriment of how the Bank functions.
My hon. Friend the Member for West Suffolk (Matthew Hancock) made an impressive speech—
Mr Hoban
In its quality, too. The hon. Gentleman should acknowledge that.
Among the many facts that my hon. Friend gave, I have to correct one or two. He said that only nine banks could still issue notes in Scotland and Northern Ireland, but in fact it is only seven. The Bank Charter Act 1844 was the beginning of the move towards the Bank of England’s note issue monopoly, after which no new banks were permitted to issue notes and the stock of notes could not be increased. I am sorry that my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) is no longer in his place, because the last bank to issue notes was one called Fox, Fowler and Company, which was based in Somerset. Sticking to tradition is a feature of what my hon. Friend does, so perhaps that is not a surprise to him.
Mr Nuttall
We have heard from several Back Benchers, but is the Financial Secretary as disappointed as I am that we have not heard the views of any of our coalition colleagues the Liberal Democrats?
Mr Hoban
I hate to say it, but I thought my hon. Friend was uncharacteristically uncharitable about our hon. Friends the Liberal Democrats. Perhaps they did not get the three e-mails that I got from the hon. Member for Hayes and Harlington imploring me to be here today. I answered that call, and I am sorry that more Members on his side of the argument did not do so.
Mr Hoban
No, I think I ought to have the opportunity to summarise the Government’s position on the Bill.
We are committed to maintaining the appointments process for the Governor, which is proportionate, attracts candidates of the highest quality and represents value for money for the taxpayer. It is important to ensure the credibility of the candidate, and to safeguard his or her independence and prevent them from becoming a political pawn.
The Financial Services Bill, which is currently in the other place, already contains provisions to strengthen the Bank’s governance arrangements, including moving the Governor to a single eight-year term. Much has been made of the enhanced powers that the Financial Services Bill bestows on the Governor, but it is important to remember that the Bill does not create new responsibilities for the Bank. Rather, it is returning the Bank to a role more akin to the one it played prior to the creation of the Financial Services Authority, when it was responsible for financial stability and prudential supervision of banks. In a way, we are going back to the situation prior to the Labour Government.
The Governor is already accountable to the court and to Parliament, and the Treasury Committee holds pre-commencement hearings for the Governor and deputy governors. That is the right balance. Of course, the Governor—rightly—is regularly called before the Treasury Committee. The market-sensitive nature of the Governor’s role makes it unsuitable to be subject to the approval of the Treasury Committee. Such a step risks uncertainty, delay and disruption to financial markets. That is also true in respect of the proposal to make the dismissal of the Governor subject to the approval of the Treasury Committee. I therefore cannot offer the Government’s support for the Bill.
Mr Love
The Minister will be pleased to note that his speech does not come as a surprise, because the Government have laid out their position, not least in the Financial Services Bill. However, the relationship between the Executive and the legislature is evolving. Ad hoc relations, such as those with the Comptroller and Auditor General and the Electoral Commission, have been mentioned. Will the Minister give serious consideration to taking into account the views of both the Treasury Committee and Parliament? Can he envisage a role for them in the process?
Mr Hoban
The Treasury Committee already has a role—it conducts, for example, pre-commencement hearings for members of the Monetary Policy Committee. Paul Tucker and Charlie Bean, the two deputy governors, have been through that process, which we envisage will continue.
Even the Labour Front-Bench spokesman in the House of Lords was wary of the proposed increase of authority for the Treasury Committee. Although there has been a broader debate on the role of the House in appointments and whether there should be pre-appointment hearings, this is not the time to make those broader points. If there is to be such evolution, we need a much broader debate. Alighting on the appointment of the Government as a peg for that debate is not the right way to go about things. If I make more progress, I shall highlight the Government’s response to the Liaison Committee, which has discussed increasing the role of Select Committees.
Matthew Hancock
Will my hon. Friend take into account the views of Back Benchers who are not on the Treasury Committee, and note that a majority of hon. Members who have spoken today spoke against Second Reading?
Mr Hoban
That is a fair point. The weight of opinion has been to oppose the Bill. I gave a list of hon. Members who have spoken—I forgot to add my hon. Friend the Member for Spelthorne (Kwasi Kwarteng), who was the last Back-Bench speaker—but the balance of views has been against the proposal. There has been some discussion of the fact that the debate has continued until almost 2.30 pm, but the hon. Member for Hayes and Harlington, despite his three e-mails, could not get the 100 hon. Members required for the closure. The House has expressed its view today.
The appointment veto was proposed by the Treasury Committee. There was a consultation on, and pre-legislative scrutiny of, the Financial Services Bill prior to its Second Reading but, except for the Treasury Committee, no one called for the appointment of the Governor to be subject to its approval.
We need to recognise the changes being made to the accountability and governance of the Bank. It is facing pretty significant organisational change, and it is right that the arrangements for its governance and accountability be thoroughly debated as part of that process. In November, the Committee published its report on the accountability of the Bank and in it made several recommendations on governance. As a consequence, we have tabled amendments in the other place to strengthen and modernise the Bank’s governance arrangements.
Those amendments will replace the current committee of non-executive directors of the Bank with a non-executive oversight committee that will have a broad remit to oversee the Bank’s performance against its objectives and strategy, and provide for explicit powers to commission and publish internal and external reviews of the Bank’s policy-making process. In the Bank’s annual report and accounts, published on Monday, the Governor said in the foreword that the Bank must carry out its new responsibilities with
“openness and transparency, and be held accountable for them to Parliament and the public, just as”—
it is “for monetary policy”—an important signal from the Bank about its role.
Since the Bank’s nationalisation in 1946, appointments have been made by Her Majesty the Queen on the recommendation of the Chancellor and the Prime Minister. The Bill would require that the appointment be made by Her Majesty with the consent of the Treasury Committee as well. The current legislation states that the Bank may, with the Chancellor’s consent, remove the Governor from office in certain circumstances, but again the Bill would require that the Treasury Committee consent to that removal. We have made our position clear: we do not believe that giving the Treasury Committee a statutory power over appointments or dismissals is either necessary or appropriate.
Mr Love
The Minister indicated that we were returning to the Bank powers over financial stability and oversight of the banking industry, but he forgot to mention that it already had powers over monetary policy, which it never had in the past. In effect, the Bank and the Governor have unprecedented powers. I accept that parliamentary oversight has been strengthened—sometimes at the behest of the Treasury Committee—but, given these unprecedented powers, will the Government consider going further and putting in place appropriate parliamentary scrutiny to ensure that the powers are being used effectively?
Mr Hoban
We are improving the parliamentary scrutiny of the Bank. As a result of the Financial Services Bill, we will see more regular reports on regulatory failure, and I expect the Governor to appear before the Treasury Committee. On financial stability decisions, we are trying to ensure that the Bank’s six-monthly financial stability reports are transparent and open, and that they explain the risks facing the economy, what the FPC will do about them and what the consequences might be. There is, then, a great deal of transparency in the work of the Bank. That is a significant leap forward, and I pay tribute to the work of the Treasury Committee in encouraging that increase in transparency. We listen to the Committee and respond to its conclusions.
The Government believe, as did the previous one, that the existing appointment process is robust, appropriate and ensures the independence and accountability of the Governor. We are introducing a single eight-year term for the Governor, which will preserve his independence. That was a proposal from the Treasury Committee but also one that we made when in opposition. It will help to strengthen that independence. There are risks, however, in giving the Treasury Committee a veto over appointments. There could be an impact on market stability, with a risk of undermining market confidence. There is also a risk of creating a party political or politicised process—the very danger that Bagehot warned us against.
It would be wrong for the Bill to receive a Second Reading, although there is much more that I would like to say about the matter. I do not think that we have properly explored the issues, but I am grateful to hon. Members on both sides of the debate for their contributions. These are weighty matters that deserve proper parliamentary attention and—
Building Societies
Mark Hoban Excerpts(12 years, 4 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The Government White Paper “Banking Reform: delivering stability and supporting a sustainable economy”, published on 14 June 2012, announced that the Government would shortly publish a discussion document on the building societies sector, setting out the full detail of their proposals for building societies, and their aspirations for the sector. We are today publishing this document.
“The future of building societies” sets out the Government’s aim to maintain the distinctiveness of the sector while creating a level playing field and removing unnecessary barriers to growth. It will amend the Building Societies Act to widen the opportunities for building societies and to align them with the ring-fenced banks without compromising their mutuality and the pivotal role they play in supporting the aspirations of families. The loss-absorbency proposals will apply to building societies as they will for banks of a similar profile. More detail will be announced in due course.
Furthermore, the Government are open to reviewing those parts of the Building Societies Act that the sector believes restrict them, where this is in accordance with maintaining their distinctiveness as part of their drive to foster diversity in the financial sector.
The discussion document is available on HM Treasury’s website, and copies have been placed in the Libraries of both Houses.
Asset Protection Agency
Mark Hoban Excerpts(12 years, 4 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The annual report and accounts 2011-12 of the Asset Protection Agency (APA) has been presented to Parliament today.
The report contains commentary on key developments in relation to the APA and the asset protection scheme (APS) over the period from 1 April 2011 to 31 March 2012.
I am pleased to note the statements in the report that the probability of the Royal Bank of Scotland (RBS) being able to make a claim under the APS is highly unlikely.
Sanctions for Directors of Failed Banks
Mark Hoban Excerpts(12 years, 4 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The Government are today launching a consultation on proposals that could prevent the directors of failed banks from holding similar positions at financial institutions in the future. The Government are also consulting on the possibility of introducing criminal sanctions for serious misconduct in the management of a bank.
The Financial Services Authority’s (FSA) report into the failure of the Royal Bank of Scotland, published in December 2011, highlighted how errors made by senior management contributed to the bank having to be saved by the taxpayer. It also set out the difficulty in taking regulatory action against the individuals concerned under the Financial Services and Markets Act 2000.
The Government are committed to tackling the legacies of the crisis and implementing the most far-reaching reforms of British banking in our modern history. Today’s proposals are some of the most ambitious in Europe.
The first proposal will make it easier for the regulator to stop directors of failed banks from taking up similar positions in the future. At present, the onus is on the regulator to prove that an individual is not fit to hold an executive position in a bank. The proposals in the consultation, if taken forward, will mean that an individual who has been a director in a failed bank will have to prove that they acted properly and were not responsible for the failure before taking up a similar position in another financial institution in the future. If taken forward, the necessary measure would be included (as a Government amendment) in the Financial Services Bill.
The second proposal would involve the creation of a new criminal offence for serious misconduct in the management of a bank. Government recognise that there are practical issues to consider and that the introduction of a new criminal offence could raise complex issues. So this is an initial consultation. As a result, it would not be possible to include the proposal in the Financial Services Bill and, if it is taken forward, the Government would envisage including the necessary legislation in another Bill during this Parliament.
The consultation will close on 30 September 2012. Copies of the consultation document have been placed in the Libraries of both Houses.
Finance Bill
Mark Hoban Excerpts(12 years, 4 months ago)
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Catherine McKinnell
Then came the shocking revelations at Barclays—[Hon. Members: “Oh!”]—of traders fiddling the markets, cheating with mortgage and lending rates.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Will the hon. Lady not have the courtesy to answer my hon. Friend’s question?
Catherine McKinnell
I will answer the question, but it was rather an insult to the people who have suffered from the situation at RBS, which was caused by administrative failures and poor management. The question put by the hon. Member for South Staffordshire (Gavin Williamson) does not address the severity of the matters that I am laying before the House.
Then came the shocking revelations at Barclays: of traders fiddling the markets, cheating with mortgage and lending rates—
Mark Lazarowicz
I want to say a few words in support of a bank bonus tax. I emphasise that I am supporting that not to bash the bankers, but to end the unacceptable face of banking in the form of an excessive bonus culture that is still far too widespread.
As I said earlier, the vast majority of people who work in financial services certainly do not get vast bonuses; many thousands of people in my constituency work hard behind bank counters or in bank offices serving customers, and they are often on modest incomes. Many have paid with changes in working conditions, while others have paid with their jobs, when redundancies flowed from the financial crisis caused by the irresponsibility of senior executives. We are not targeting those people; we want to do something about the small minority who are still getting excessive rewards.
A study published at the end of June showed that average pay for chief executives at 15 leading banks in the US and Europe increased by 12% over the last financial year. That may be less than the 36% increase in the previous year, but whatever the increase—it is about 50% when we add both increases—it is wildly out of line with falls in profits and share prices that have frequently characterised the sector. That is not performance-related pay in any sense that most people would understand and it is certainly not a performance that would justify what is effectively a further tax cut on top of a tax cut for the highest paid.
A tax targeted on bank bonuses is necessary because the existing attempts to curb the bonus culture have so obviously failed. That is the key point. The issue is not about saying that people should not be very well paid at the top of banks and financial institutions, but we want to get away from a position in which sums wildly in excess of anything that could be said to be deserved are paid as a matter of course. None of the steps taken so far has changed that culture, even in an era of financial crisis among the banks and beyond.
The second reason why we want a bank bonus tax is that it would raise money for some valuable purposes. The issue of jobs for young people affects all our constituencies. My constituency normally comes in the middle range of unemployment across the UK, and we have seen a substantial increase in youth unemployment. I certainly want that issue to be tackled in my constituency.
We are also saying that the bank bonus tax would be used to provide affordable housing. That, of course, would bring two benefits. First, it would bring more housing into the sector. Constituencies such as mine have to some extent, although on a lesser scale, experienced the same phenomenon as happened in London, where high rates of pay in certain sectors such as financial services have pushed up house prices and made it harder for people on lower incomes to get affordable housing, so this proposal would be important for those people as well. Of course, building affordable housing and new homes also gives a boost to the economy through providing new jobs in the construction sector and helps people who have been out of work because of the collapse of that sector in many parts of the country.
Our proposal of a bank bonus tax would not only tackle the excessive bonus culture but provide jobs for our young people and affordable homes, giving a boost to the construction sector. I therefore hope that the House will support it.
Mr Hoban
We have heard a series of slightly strange speeches by Labour Members. We have become accustomed to their belief that they left us a golden economic legacy, but the reality is that when they left office unemployment was higher than when they came into office. They seem to believe that the problems of youth unemployment started under this Government. At least the right hon. Member for South Shields (David Miliband) has the good sense to recognise that it is a long-standing and deep-seated issue and that its growth started under the previous Government.
Labour Members seem to forget that when they left office the deficit was out of control. We have tackled that and reduced the structural deficit by a quarter.
Bill Esterson
Youth unemployment is higher than when Labour left office, unemployment generally is higher than when Labour left office, and the economy was growing when Labour left office whereas now we are back in recession. Will the Minister confirm all three of those facts?
Mr Hoban
The challenge that we face is dealing with the economic legacy left by Labour, with the huge boom in financial services and the huge bust that followed.
We have heard Labour Members’ story that they presided over a golden age in the financial services sector. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) could not bring herself to admit that the scandal over LIBOR fixing took place between 2005 and 2008 or that the interest rate mis-selling that affected so many small businesses took place in the same period leading up to the financial crisis.
Labour Members deplore the bonus culture, but let us not forget that when they were in government, bonuses were paid out in the year that they were earned and paid out in cash. That was the hallmark of the age of irresponsibility that characterised their time in office. This Government are taking action to tackle the bonus culture. This Government have introduced rules to ensure that bonuses are not paid out in the year they are earned but spread over a three-year period, that they are not paid out in cash but in shares, and, crucially, that they can be clawed back where there have been problems in the business or where there has been wrongdoing. This Government have tackled the bonus culture in the UK whereas the previous Government let it run riot, and we have seen the financial consequences of their so doing.
Mark Lazarowicz
The bank bonus tax was first introduced by the previous Government. In fact, I think that our Government should have done much more about the bonus culture in the banks in the past and was wrong not to do so. However, will the Minister at least accept that at no stage did his Government suggest any action whatsoever to tackle the bonus culture? He should not suggest that the responsibility lies only with Labour but accept his share of the responsibility as well.
Mr Hoban
We have taken action to tackle the bonus culture by ensuring that the interests of shareholders and management are aligned and that where there is wrongdoing bonuses can be clawed back. That is a significant change that has happened since this Government came to office. In the same way that we are remedying the regulatory failures left behind by the previous Government, particularly by the shadow Chancellor, the inquiry set up into the fixing of LIBOR will ensure that in future LIBOR is regulated to fill the hole in the Financial Services and Markets Act 2000 and ensure that there are criminal penalties for manipulating LIBOR—again, filling the hole left by the shadow Chancellor when he designed the regulatory system.
Mark Durkan
The Minister refers to what the Government have done since coming to office. What did the then Opposition suggest in the previous two Parliaments by way of concrete proposals on regulation or bonus culture or amendments to any of the flawed measures that the previous Government introduced?
Mr Hoban
When the previous Government brought forward the Financial Services and Markets Act 2000, we voted against the decision to transfer the supervision of the banks from the Bank of England to the FSA. We are putting right that failure by the previous Government. We criticised the financial services reforms brought forward by the previous Government in the aftermath of the financial crisis. We said that they were tinkering around the edges and did not address the fundamental problems at the heart of regulation. The work that we did in opposition laid the foundations for a much tougher, more intrusive and more interventionist regulatory regime to tackle the problems left by the previous Government.
Mr Campbell
When the Minister talks about the economic mess, does he mean the £600 billion that the Labour Government had to give to the banks to bail them out and keep them afloat?
Mr Hoban
The UK economy has suffered hugely as a consequence of the financial crisis. It has lost £140 billion in growth. We have to tackle the causes of that failure, as well as tackling the deficit that the previous Government left behind. That is what we are doing through the Financial Services Bill, which is passing through Parliament at the moment.
John Hemming
In December 2008, the then Chancellor said:
“The measures that I announced in October have stabilised the banking system, and inter-bank lending rates have fallen. The three-month LIBOR rate halved to just over 3 per cent. this week.”—[Official Report, 18 December 2008; Vol. 485, c. 1213.]
Does the Minister think that that was a fantasy, like much of what the Opposition propose?
Mr Hoban
The last Prime Minister had a problem recognising his responsibility for the problems that befell the economy.
One way in which we have sought to get the balance right in the taxation of businesses is by introducing the bank levy. We took that decision in opposition. We thought that it was right to ensure that banks paid their fair share towards dealing with the risks that they pose to the economy. The measure was opposed by the previous Government. They did not want to introduce a bank levy on a unilateral basis. We had the courage to make that decision and to ensure that banks pay their fair share.
The bank levy is a tax on the balance sheets of banking groups and building societies. It complements the wider regulatory reforms that are aimed at improving financial stability, such as the higher capital and liquidity standards. It thereby ensures that the banking sector makes a fair and substantial contribution that reflects the risks that it poses to the financial system and the wider economy. The levy is also intended to encourage banks to move away from risky funding models.
From the outset, the Government have been clear that we intend the levy to raise at least £2.5 billion each year. The Opposition should get their facts right. They have trotted out the gross figure that was raised by the bank payroll tax. They must bear in mind that the tax also reduced pay-as-you-earn and national insurance receipts. That is why the actual yield of the bank payroll tax was only £2.3 billion. Our levy will therefore raise more, year after year, than was raised by their one-off bank payroll tax.
The target yield for the levy was set out in the Government’s first Budget. We also announced our intention to make significant cuts to the main rate of corporation tax. Let me deal with another red herring from the Opposition. We were clear at that time, as we are now, that the bank levy yield will far outweigh the benefits that banks will receive from the corporation tax changes. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but banks will not benefit because of the bank levy. In the 2011 and 2012 Budgets, the Chancellor has gone further and announced two more cuts in the main rate of corporation tax. It now stands at 24%. The increase in the bank levy announced in the Budget offsets the benefit of those additional cuts to maintain the incentives on banks to move towards less risky funding.
New clause 13, tabled by the shadow Chancellor, is, in the words of Yogi Berra, the great American baseball coach,
“déjà vu all over again”.
This is at least the fifth time in this Parliament and the second time in the passage of the Finance Bill that we have debated the bank payroll tax. We have heard no new arguments from the Opposition and nothing to persuade us to vote for it.
Yet again, we have to point out to the Labour party that such a tax would be counter-productive and unnecessary. The bank payroll tax was introduced as a one-off interim measure in the last Parliament ahead of regulatory reforms and changes to remuneration practice and corporate governance. The previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling)—somebody the hon. Member for Newcastle upon Tyne North should listen to and learn from—said that it could not be repeated. He pointed out that it was a temporary measure until bank remuneration practices were changed, and we have changed those practices.
The new clause calls for the proceeds of the tax to be used to help employment, but I should take some time to remind the House of the measures that we are already taking to do that. We have introduced the youth contract and are investing £1 billion over the next three years in supporting half a million young people into employment and educational opportunities. We will provide 160,000 wage incentives worth up to £2,275 each to employers who recruit an 18 to 24-year-old through the Work programme. There will be an extra quarter of a million voluntary work experience or sector work academy places over the next three years and a further 20,000 incentive payments to encourage employers to take on young apprentices, taking the total to 40,000.
We are also providing additional support through Jobcentre Plus and the opportunity for people to be referred for a careers interview with the national careers service. We are already providing more apprenticeship places than any previous Government, with a record 457,000 apprenticeships delivered in 2010-11 and a commitment to delivering 1.2 million over the entire spending review period. That is a quarter of a million more than the previous Government’s commitment.
The hon. Member for Newcastle upon Tyne North says that the bank payroll tax should be used to help youth employment, but let us consider the number of ways the Labour party has already announced it would be used. The Leader of the Opposition was asked where the money would come from to reverse the increase in VAT, and he said:
“I said for example we should have a higher bank levy.”
It was also suggested that it be used to pay for higher capital spending of about £7.5 billion in 2010, which would have required £6 billion from the bank levy. The Leader of the Opposition said that reversing child benefit changes could be afforded by using the bank payroll tax—yet another use for it.
The bank payroll tax is the tax that continues to give, the tax that the Opposition always turn to when they want to find a way of plugging the black hole in their figures. They used it to explain how they would reverse tax credit savings, spend more money on the regional growth fund, cut the deficit and turn empty shops into community centres. We have heard a remarkable number of ways in which something that the previous Government said was a one-off would be used to fill the black hole in Labour’s economic thinking.
Charlie Elphicke
How many times over have the Opposition spent that money so far?
Mr Hoban
My hon. Friend is right to ask me that question. About 15 times. Every time there is a tricky question, what is the answer? Let us reintroduce the one-off bank payroll tax. That demonstrates the emptiness at the heart of Labour’s economic policy. It has no concrete ideas to tackle what happened in the financial crisis or the economic problems that it left behind. The Opposition are reduced to trotting out the same stale arguments for the fifth time running, and I urge the House to reject them once again.
Catherine McKinnell
We have heard some passionate speeches from Labour Members, but I am concerned about the lack of contributions from Government Members. Only one, the hon. Member for Dover (Charlie Elphicke), contributed in the entire debate. He put forward some interesting views and theories, and I commend him for engaging in the debate, because there is little of more importance right now than youth unemployment.
The hon. Gentleman concluded his speech, however, by hailing a return to the 1980s. I do not know about other Opposition Members, but it sent a shudder of fear through me, because although some people had the time of their lives in the 1980s—we have fond images of the City, the champagne flowing, the pinstripe suits and the brick-sized mobile phones—for many the 1980s were not pleasant or a time of growth but devastating, particularly for youth unemployment. Parts of the UK, including my region of the north-east, other English regions, Scotland and Wales, suffered dreadful decimation of their traditional manufacturing industries, and in many ways are still paying the price. We risk repeating that fate today, which is why we are proposing to impose a bank payroll tax on the very institutions that played a large part in causing the international financial crisis that led first to the recession and then to today’s double-dip recession.
Equitable Life Payment Scheme
Mark Hoban Excerpts(12 years, 4 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
The Treasury can confirm that the Equitable Life payment scheme has written to approximately 90% of all eligible individual policyholders to inform them of their status within the scheme, and that payments have been made to 288,823 policyholders. In addition, the scheme has today published a further progress report, which can be found at: http://equitablelifepaymentscheme. independent.gov.uk/ and I have arranged for a copy to be placed in the Libraries of both Houses.
In the coalition agreement published in May 2010, the Government pledged to
“implement the parliamentary and health ombudsman’s recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure”.
To honour that pledge the Government announced in October 2010 as part of the spending review that £1.5 billion would be made available to the scheme for distribution to up to 1 million eligible policyholders, and passed the Equitable Life (Payments) Act to establish the scheme. The Government met their commitment to start making payments by June 2011 and high volumes of automated payments were being made by December 2011.
In order to lessen the burden on policyholders, the scheme contacts policyholders directly with payment and there is no requirement to “make a claim” to receive a payment from the scheme. Therefore, the scheme committed to contact all the individual (i.e. non group) policyholders it could by June 2012 so that they knew their status within the scheme. This letter would either:
make payment;
inform of a nil payment;
inform them that they would be paid by April 2014 and the amount of any payment due.
In the previous progress report, published in January 2012, the scheme reported that 95,000 policyholders had received payments totalling £77 million. The scheme can confirm today that 288,823 policyholders have received payments from the scheme totalling £277,727,668. This means that nearly two-thirds of all individual policyholders due a payment from the scheme have received it. Additionally, around 75% (27,671) of with-profits annuitants have now been contacted by the scheme about their first year payment, 25,215 of whom have received payment.
As of 30 June the scheme can confirm that it has written to 495,823 (circa 90%) individual policyholders to either:
make payment;
inform of nil payment;
request further address verification in advance of making payment;
inform of eligibility within the scheme.
There is a group of individual (i.e. non group) policyholders for whom the data processing work to determine the payment status of their policies is ongoing. This means that while the scheme cannot confirm the amount of any payment due at this stage, the scheme can confirm their eligibility for the scheme.
The scheme has written to these policyholders to confirm their eligibility, that the data processing work is ongoing, and that any payment due should be made no later than April 2013. These policyholders need take no further action as the scheme has all the data it requires to confirm their payment status within the scheme and will be writing to them again in due course.
Following receipt of payment, the scheme has continued to receive low levels of response from policyholders—less than 0.25% of eligible policyholders have complained to the scheme. In addition, the scheme has established an independent process to assist those policyholders who are dissatisfied with any complaint response from the scheme.
As stated in June 2011, there are additional complexities in retrieving the contact details of those policyholders who bought their policy through a group (i.e. company) scheme. The scheme can confirm that it has begun the process of contacting group scheme trustees to obtain policyholder’s address details. Payment to these policyholders will start in the coming months.
The scheme can also confirm that hundreds of payments have already been made to the estates of deceased policyholders, and the process of identifying, tracing and contacting the estates of deceased policyholders continues. As this is an understandably complex area with some cases going back many years, this verification work will continue during 2012 and throughout the duration of the scheme. Payments to the estates of deceased policyholders are being made on completion of this tracing process.
Over the coming months the scheme will continue to make payments to policyholders and to contact the trustees of group schemes so that their eligible members can be paid.
The end of the first year of the scheme marks a significant milestone in the life of the scheme, and bringing closure to the Equitable Life issue. Eligible policyholders who have not yet heard from the scheme should contact the scheme via its call centre on: 0300 0200 150. The scheme will then be able to advise of the next steps a policyholder should take to receive further details on their status within the scheme.
Oral Answers to Questions
Mark Hoban Excerpts(12 years, 5 months ago)
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Mr Andrew Love (Edmonton) (Lab/Co-op)
8. When he expects to publish the consultation document on tackling excessive card surcharges.
The Financial Secretary to the Treasury (Mr Mark Hoban)
The Department for Business, Innovation and Skills is taking forward work on excessive credit card surcharges. I understand that the consultation to seek views on how and when a ban might be applied is going on in the summer.
Teresa Pearce
For many years, families in my constituency have faced surcharges—sometimes 240 times the actual processing costs—when booking plane tickets. There are now charges on theatre tickets and utility bills and some funeral directors are applying them. Given the prevalence of this issue, does the Chancellor still intend to ban excessive debit and credit card charges by the end of the year?
Mr Hoban
The hon. Lady is absolutely right to highlight the costs imposed by this on our constituents. Our estimate was that in 2010 nearly £500 million was spent by consumers on surcharges. It is still our intention to ban them. Both consumers and businesses should be clear that after many years of inaction by our predecessors, it is this Government’s intention to ban these excessive charges.
Mr Love
The super-complaint was upheld in December last year. The Government have not even started the consultation that would be necessary to introduce this measure. Meanwhile, £8 million a month has been lost just by those suffering surcharges on flights from this country. When are we going to get some action?
Mr Hoban
As I said, we are going to publish a consultation this summer and take action to ban these surcharges as soon as possible after that. We should be very clear not only that we are going to ban them, but that some firms have already responded to the action we are going to take, with a number of them reducing their charges on credit and debit card use. That shows that even without legislative action, consumers are getting a better deal as a consequence of our policy.
Mr David Evennett (Bexleyheath and Crayford) (Con)
This is a matter of very serious concern to our constituents. May I welcome the Minister’s commitment to tackling the payment surcharges and urge him to do whatever he can as soon as possible?
Mr Hoban
I am grateful for my hon. Friend’s welcome. I am working closely with the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for North Norfolk (Norman Lamb), who is responsible for consumer affairs, to ensure that we act as quickly as possible to ban these surcharges and to deliver a better deal to consumers.
Natascha Engel (North East Derbyshire) (Lab)
2. What estimate he has made of the proportion of the money issued through quantitative easing which has been used by banks to pay off their debts.
Mr David Nuttall (Bury North) (Con)
7. What recent assessment he has made of the effect of EU regulations on economic growth.
The Financial Secretary to the Treasury (Mr Mark Hoban)
The Government are taking action to reduce the burden of EU regulation on UK business. At Budget 2011, the “Plan for Growth” announced a comprehensive package for tackling EU regulation. The Government estimate that the cost of European regulations to the UK has varied from 27% to 60% of the total UK regulatory cost since October 2009.
Mr Nuttall
I am grateful to the Minister for that reply. Although British businesses will welcome the fact that the United Kingdom is not in the eurozone, and will not suffer from the loss of sovereignty and the new regulations that fiscal union would mean, they are nevertheless burdened by EU-imposed red tape, which means that it is much harder for them to compete successfully for new contracts against companies from outside the EU, which are not subject to such regulations. May I urge him urgently to conduct an investigation into and an assessment of the extent to which that is holding back the British economy?
Mr Hoban
My hon. Friend makes an important point, and that is why we are taking action through the “Plan for Growth”. We want the Commission to publish an annual audit of the cumulative cost of all planned EU regulations, but assessments are not enough in themselves, which is why as a consequence of lobbying by this Government the EU has introduced an exemption for micro-businesses and is looking at lifting the burden of regulation on the small and medium-sized businesses that are key drivers of growth in our economy.
Kelvin Hopkins (Luton North) (Lab)
I am sure I am not alone in believing that what regulation we do have should be made by this Parliament and not by the Commission in Brussels. However, I am sure that the Minister will be aware of the survey reported by the CBI that shows that 94% of businesses are concerned above all about demand and the ability to sell their goods and services. Is that not the problem with Government economic policy?
Mr Hoban
What we need are measures to tackle some of the structural problems in the economy that we inherited from the previous Government and to tackle issues to do with education, transport infrastructure and the complexity of the tax system. Those are the reforms we need to ensure that the economy grows.
Damian Collins (Folkestone and Hythe) (Con)
9. What recent steps he has taken to encourage economic growth.
Mr Rob Wilson (Reading East) (Con)
11. What recent steps he has taken to increase bank lending to small businesses.
The Financial Secretary to the Treasury (Mr Mark Hoban)
The Government have launched a package of credit easing measures to improve credit availability for smaller businesses. This includes the £20 billion national loan guarantee scheme and the business finance partnership, which will provide £1.2 billion of additional finance through non-banking channels. The Government and the Bank of England are working together on the new funding for lending scheme, which will provide funding to banks linked to their lending to the real economy.
Mr Wilson
There are a significant number of small businesses in my constituency that want to expand and create jobs but cannot get sensible bank financing. I therefore welcome the recently announced funding for lending scheme, but I understand that in exchange for this funding, banks will have to provide collateral to the Bank of England. Will my hon. Friend confirm, given that the precise details of the scheme are not available yet, whether small loans will be acceptable to the Bank of England as collateral? Otherwise, the desired lending to smaller businesses will not get off the ground.
Mr Hoban
My hon. Friend makes a very important point. He is right to point out that the details of the scheme have yet to be finalised, but I take on board his comments. We will discuss this with the Bank of England. It is important that the scheme works and that it helps funding and lending to households and businesses.
Mr George Mudie (Leeds East) (Lab)
In view of the banks’ disgraceful behaviour on delivering the Merlin agreement, will the Minister assure the House that this new scheme will be transparent and will be published and monitored independently each month? Above all, will he assure us that every pound of additional money that goes to the banks through this scheme will mean additional lending to small businesses and households?
Mr Hoban
The scheme is designed to encourage lending not just to small businesses and households but across the board to all businesses. We want to make sure that when banks put collateral to the Bank of England, it is in response to their having lent more. That is absolutely vital for a scheme that encourages lending and we will make sure that we design the scheme to do so.
Mr Russell Brown (Dumfries and Galloway) (Lab)
12. What assessment he has made of the effect of the Government's fiscal policies on the level of child poverty.
Alison McGovern (Wirral South) (Lab)
With regard to the problems at RBS this week, my constituent David Robinson has been unable to access his funds, including disability allowance, from his account with thinkbanking. It is an internet-based bank that uses the RBS platform, so he could not go into an RBS branch to resolve his problems. Will the Minister please make contact with RBS about internet banking users and make sure that my constituents—and everyone else—are not unduly affected?
The Financial Secretary to the Treasury (Mr Mark Hoban)
The hon. Lady makes an important point, and I spoke to Stephen Hester this afternoon to find out what progress RBS has made in resolving its issues. It introduced measures to help people who can access branches, but she makes a very important point about internet banking, and RBS is very keen to learn the lessons from those problems and to put in place contingency arrangements for the future. I encourage her to get her constituent to write to RBS, and, if he has suffered additional costs as a consequence of the situation, to make that claim to it.
Stephen Williams (Bristol West) (LD)
Embarrassing revelations about celebrities’ tax affairs usually bring a flurry of people to their tax accountants, asking them to check whether their affairs are all in order. Will the Treasury ask HMRC to encourage people to come forward voluntarily now and confess to what they may be up to, rather than wait for an investigation into their tax affairs?
Kaupthing Singer & Friedlander Ltd
Mark Hoban Excerpts(12 years, 5 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr Mark Hoban)
Kaupthing Singer & Friedlander Ltd (KSF) was the UK subsidiary of the Icelandic bank Kaupthing bank hf. On 8 October 2008, the Financial Services Authority (FSA) decided that KSF was in breach of its threshold conditions under the Financial Services and Markets Act 2000 (FSMA) and that it should be prohibited from accepting any new deposits.
Treasury officials have prepared a note on the events around the failure of KSF, focusing on: the chronology of events ahead of the failure of Icelandic banks in October 2008; why the FSA came to the decision that KSF had breached its threshold conditions; the discrepancies in reporting on whether Iceland would honour its obligations to UK depositors; and whether the actions of UK authorities triggered the administration of KSF Isle of Man (KSF IoM).
The note clarifies that, while the Treasury used asset-freezing powers in relation to Landsbanki Islands hf, another Icelandic bank, the use of these powers by the Treasury did not have any direct impact on the failure of KSF, KSF IoM or Kaupthing Bank hf.
I have placed copies of the document in the Libraries of both Houses.