Banking Act 2009 Reporting

Mark Hoban Excerpts

Tuesday 15th November 2011 Written Statements

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

The Treasury has laid before the House of Commons a report required under section 231 of the Banking Act 2009 covering the period from 1 April 2011 to 30 September 2011. Copies of the document are available in the Vote Office and the Printed Paper Office.

European Budgets 2014 to 2020

Mark Hoban Excerpts

Tuesday 8th November 2011 Commons Chamber

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

I beg to move,

That this House takes note of European Union Documents Nos. 12478/11 and Addenda 1 and 2, 12474/11, 12480/11, 12483/11, 12475/11 and Addenda 1 to 3, and 12484/11, relating to the Commission’s proposal on the next Multiannual Financial Framework (MFF), 2014-20; agrees with the Government, that at a time of ongoing economic fragility in Europe and tight constraints on domestic public spending, the Commission’s proposal for very substantial spending increases compared with current spend is unacceptable, unrealistic, too large and incompatible with the tough decisions being taken in the UK and in countries across Europe to bring deficits under control and stimulate economic growth, that the next MFF must see significant improvements in the financial management of EU resources by the Commission and by Member States and in the value for money of spend and that the proposed changes to the UK abatement and new taxes to fund the EU budget are completely unacceptable and an unwelcome distraction from the pressing issues that the EU needs to address; and supports the Government’s ongoing efforts to reduce the Commission’s proposed budget.

Yesterday, the Prime Minister made a statement to the House following the G20 meeting in Cannes regarding the ongoing crisis in the euro area. As his statement made clear, it is vital that the euro area sticks to the deal agreed to two weeks ago by the European Heads of Government to resolve the ongoing crisis. A resolution to that crisis is vital to UK, European and global economic interests. It is equally important that, over the longer term, the euro area and the wider EU take the necessary steps to tackle the deficits that are the root cause of the crisis.

The ongoing instability in the euro area vindicates this Government’s decision to get ahead of the curve, cut our deficit and impose strict fiscal discipline on our budget. It is vital that EU member states demonstrate the same resolve, and we welcome commitments by Italy and Spain, among others, to do so. However, the European Commission must also lead from the front in a drive to impose financial discipline across the EU institutions. That is why it is unacceptable for the Commission to propose a 4.9% increase in the annual budget for 2012. The UK and the European Council have agreed that we could not approve such an increase at a time when member states are facing tough decisions to impose fiscal discipline and consolidation. We will be taking a firm stand on the 2012 budget when we meet in the budget ECOFIN later this month.

Let me turn now to the principal subject of today’s debate: the multi-annual financial framework that sets out how much the Commission wants to spend in 2014 to 2020 and how it will fund it. The Commission’s proposals seek to increase both its revenue and its spending. It wants new taxes to expand the Brussels coffers, and proposes inflation-busting spending increases. That is simply not acceptable. The answer is not to raise more and spend more; it is to control spending. The best way to restrain EU annual budgets is to set—

[Geraint Davies (Swansea West) (Lab/Co-op)]

On a point of clarification, the Minister mentioned inflation-busting increases, but am I right in thinking that what is being proposed is a 5% cash increase in the ceiling over the seven-year period? If so, that would be less than the rate of inflation in real terms, and therefore not an inflation-busting increase.

--- Later in debate ---

[Mr Hoban]

The most recent rate of inflation in the EU was about 2%, so clearly a 5% increase would be in excess of the rate of inflation, and therefore an inflation-busting—

[Geraint Davies]

rose—

[Mr Hoban]

No, let me continue.

The best way to restrain EU annual budgets is to set tough multi-annual framework ceilings. That is why, at the European Council in October 2010, member states agreed that the

“forthcoming Multiannual Financial Framework must reflect consolidation efforts being made by Member States to bring deficit and debt onto a more sustainable path”.

Rather than following that path, however, the Commission has meekly bowed to pressure from the European Parliament to increase the budget, thereby returning to the extravagance and irresponsible spending that sowed the seeds of the current global economic crisis. Just as we cannot accept the Commission’s 2012 budget, we also cannot accept the Commission’s proposal, as set out on 29 June, to increase the multi-annual framework budget for 2014 to 2020 by 11%. Such an increase is incompatible with the tough decisions being taken in the United Kingdom and in countries across Europe to cut spending.

Instead of consolidation, the Commission proposes expansion. It has ignored the calls made in December last year by the UK, France and Germany for a real-terms freeze in spending. The Commission claims to have done as we have asked, but let me make it absolutely clear to the House that it has not. On average, the spend in each year of the next framework would be about €14 billion higher than it is today.

[Mr John Redwood (Wokingham) (Con)]

Given that the Government are now studying the powers and duties that can be brought back to the House for national and local decision, surely we should be taking big lumps out of this budget? If, for example, we repatriated agriculture, industrial aid and regional aid, we could cut the budget by two thirds. I think that the members of the public to whom I answer would be very pleased with that.

[Mr Hoban]

My right hon. Friend makes an important point. In parallel to the debate about the ceilings for the budgetary framework over the course of the period between 2014 and 2020, debates are also taking place on the individual lines of expenditure within the EU budget, and we are proposing significant reductions in cost to underpin our strategy of curbing overall spending by the EU.

[Mr Denis MacShane (Rotherham) (Lab)]

Will the Financial Secretary give way?

[Mr Hoban]

May I make a little progress? I am conscious of the number of hon. Members, perhaps on both sides of the House, who want to take part in the debate.

In addition to the on-budget spending increases proposed by the Commission, the Commission has earmarked an extra £18 billion in off-budget spending. That is an alarming lack of transparency that brings added risks of poor oversight and control. In a further lack of transparency, the proposal fails to focus on levels of cash payments—actual expenditure that the multi-annual financial framework will allow in each heading. Instead, it opts to use commitments—planned expenditure—but frankly the cost to UK taxpayers is not how much is planned to be spent but the actual cash going out of the door. This should be the starting point for the higher control over spending, and we and our allies have made that clear to the Commission.

[Mr MacShane]

Will the Financial Secretary give way?

[Mr Hoban]

Let me make a bit more progress and I will take the right hon. Gentleman’s intervention in a short while.

The Commission also asked us to use as our starting point for a freeze—this is perhaps where the hon. Member for Swansea West (Geraint Davies) has been confused by the Commission’s numbers—the level of spend planned in 2005, but we cannot ignore the fact that the global crisis has taken place since then. Every country has had to scale back its spending from pre-crisis days and the European Commission is no different.

The Commission can also do more to ensure that money is spent more wisely. We are leading the way on reforming financial management in the EU. For the first time in 17 years, we have refused to support the sign-off of the EU accounts. We are pushing for simpler, clearer rules on spending programmes that make it easier to spot fraud and error, and we have also raised our game at home to ensure that EU money spent here is spent properly and wisely.

[Andrea Leadsom (South Northamptonshire) (Con)]

Will the Financial Secretary give way?

[Mr William Cash (Stone) (Con)]

Will the Financial Secretary give way?

[Mr Hoban]

Let me finish a couple of sentences and then I will give way.

Tackling financial mismanagement in the EU can help meet spending commitments, so our message on spending is clear. There should be a real-terms freeze on spending, a focus on the amounts actually spent, not plans dreamt up over five years ago when the world was different. Let us tackle waste and financial mismanagement across the EU. I give way to my hon. Friend the Member for South Northamptonshire (Andrea Leadsom).

[Mr Speaker]

Order. Before the Minister gives way to the hon. Lady, I emphasise that, of course it is in the gift of the Minister to give way as he thinks fit, but the total time for the debate on this matter is only one and a half hours, and it would be a pity if Back Benchers were disappointed. I am sure that the Minister will tailor his remarks and his giving way accordingly.

--- Later in debate ---

[Mr Hoban]

We could spend all one hour and 30 minutes detailing the ways in which the EU wastes money. My hon. Friend has raised one. The EU spends more on buildings in Luxembourg than on vital expenditure. So, conscious of your strictures, Mr Speaker, let me make some progress.

Curbing European spending is not the only priority for the UK. We need to tackle how the EU funds its spending, too. The Commission is trying to increase its control over funding by introducing new EU-wide taxes and amending the correction mechanisms such as the UK abatement or rebate. Now, this Government have been absolutely clear. We will defend our rebate. Last time the UK negotiated the multi-annual financial framework in 2005 the then Labour Government gave ground on the rebate in return for reform of the common agricultural policy. What has happened since then? The value of the rebate has fallen, but the spending on the CAP has not budged. We will not fall for empty promises; we will resist any change to the abatement. Our rebate remains absolutely justified. The structure of EU spending means that we get less per capita than any other member state. Without the rebate, the UK’s net contribution as a percentage of national income would be the largest across Europe and twice as large as the contributions made by France and Italy. Our rebate is fully justified, and we are not going to give it away.

[Mr MacShane]

Can the Minister confirm that, for the six years, the proposed increase is 11%. Eleven divided by six is 1.85% or about 1.9% each year. Is that factually accurate?

[Mr Hoban]

This goes back to some of the challenges in the Commission’s presentation of its numbers. The budget proposed by the Commission is £100 billion larger than the real freeze in spending that the UK and its allies have proposed. [Interruption.] The right hon. Member for Rotherham (Mr MacShane) says that I have not answered the question. It is clear that the way in which the European Commission has structured its budget, by having some things on or off-budget and by talking about commitments rather than actual spending, confuses and clouds the position, leaving some to think that the Commission has embarked on a freeze on the budget, whereas in reality the EU is proposing a real-terms increase in the budget.

Let me move on to the second issue in relation to the funding of the EU budget. The Government strongly oppose the proposal for new taxes to fund the European Union budget. They attach considerable importance to the principle of tax sovereignty. Tax is a matter for member states to decide at a national level. We oppose any new taxes or changes to the existing system that increase the UK’s contributions or pose a threat to our long-term position, including a financial transactions tax to fund the EU budget. We cannot accept a budget which asks for more and asks for a greater share from taxpayers and from the UK.

A year ago, the Government set out their plans for the consolidation of public expenditure at the spending review. Supported by the International Monetary Fund and OECD, the Government set out plans to reduce the deficit. We have shown our resolve by keeping the UK out of the storm that has engulfed the euro area, and we will show the same resolve with the European Commission. The inflation-busting increases proposed by the Commission are out of touch with the realities felt by taxpayers across Europe, and out of touch with the views of José Manuel Barroso, who in June argued that many states

“need to show more ambition when it comes to fiscal consolidation”.

We as a Government believe that the Commission needs to show much more ambition, too, when it comes to fiscal consolidation. We will continue to press the European Commission and member states to deliver a multi-annual framework that delivers real fiscal consolidation. This will be a challenging negotiation.

[Mr Cash]

Will my hon. Friend give way?

[Mr Hoban]

There will always be pressure from others to spend more, and a failure to agree the framework would shift the focus to the annual budget process which, unlike the framework, is decided by qualified majority voting. It is an uncertain prospect that we are eager to avoid. That is why we will work tirelessly to seek the best deal on the multi-annual framework, but a deal on our terms—a deal that curbs EU spending and puts a brake on the Commission’s plans for EU-wide taxes and seizing some of our rebate—

[Mr Cash]

Will my hon. Friend give way?

[Mr Hoban]

I was about to conclude to give my hon. Friend time to speak in the debate, but let me take his intervention.

[Mr Cash]

This gives me an opportunity to put one thing on the record, not necessarily in a spirit of cynicism. Last year I moved an amendment, which was accepted by the House, that we would have no increase in the budget. By the end of the convolutions that took place, the Government accepted an increase of 2.9%. May I be absolutely assured that on this occasion, given the robust nature and the tenor of what my hon. Friend has said, that there will be no increase whatsoever?

[Mr Hoban]

My hon. Friend is well versed in the intricacies of the European Union. As he knows, the budget negotiations later this month are done on a QMV basis. We do not have a veto on the 2012 budget and we will be seeking to build a coalition of allies who are as committed as we are to curbing the expenditure of the EU, and who are as committed as we are to opposing the inflation-busting increase proposed by the European Commission. I am sure that when we reach that deal later this month, my hon. Friend will seek to hold the Government to account on that. I can assure him that we are doing everything in our power to ensure that we curb the EU’s plans and reduce the spending levels proposed by the Commission.

[Mrs Anne Main (St Albans) (Con)]

Will my hon. Friend give way?

[Mr Hoban]

I will not, as I was about to end, bearing in mind Mr Speaker’s strictures.

We are committed to seeking the best deal for the United Kingdom, a deal that curbs EU spending, puts a brake on the Commission’s plans for EU-wide taxes, and seizes some of our rebate. I urge the House to support the motion.

--- Later in debate ---

[Mr Hoban]

This has been a helpful debate. It is good to see that harmony has broken out on the EU budget—something that some of us thought was unlikely. There has been a clear expression of view across the House that the EU Commission’s proposals for increases, not just in the 2012 budget but in the multi-annual framework, are excessive and need to be curbed. I welcome the support for the Government’s approach to building a coalition of allies to curb the increases and seek to restrict the increase in budget to no more than a freeze in real terms.

I want to correct the misconceptions of one or two Labour Members. The hon. Member for Nottingham East (Chris Leslie) lectured us on the need to stay firm on the rebate. That was an extraordinary position, given what happened under the previous Government. He said that the UK rebate had gone up in cash terms since the 2005 deal, but let me tell him that the OBR’s forecast says that, thanks to the giveaway by the previous Government, our rebate falls from £4.2 billion in 2009-10 to £2.7 billion in 2010-11. That is the cost of having a Labour Government in office when these debates are being held in Europe.

The right hon. Member for Rotherham (Mr MacShane), who I notice is not in his place, said that Poland was the fourth largest contributor to the UK abatement. Well, he should get his facts right; it is actually the sixth largest. But of course Poland is the largest net recipient of funds from the EU, and our support for developing the Polish economy far exceeds its contribution to our rebate.

In this settlement, we are looking for a rebalancing of funds to help economic development in those accession countries to give a spur to the economy, and that is in the long-term interest of the UK economy. The right hon. Member for Rotherham said that the EU budget was capped at 1% of EU gross national income. It is not. If one looks at what is on and off-budget, one sees that on average, over the course of the financial framework, EU spending is 1.11% of European GNI, in breach of that condition. He and the hon. Member for Swansea West (Geraint Davies) were also misled by the presentation of the numbers. It is clear, and the information in our report demonstrates clearly, that the EU Commission proposes a real-terms increase in spending, and that is simply unacceptable when countries across the EU are trying to curb their deficits and tackle their public spending.

We will take a tough line in the negotiations on the budget and the financial framework. We want to ensure that Europe lives within its means rather than seeking to expand its means with new taxes and expanding its own resources. Europe should spend the money it has wisely and well. I hope that the House will support the motion before it today.

Question put and agreed to.

Resolved,

That this House takes note of European Union Documents Nos. 12478/11 and Addenda 1 and 2, 12474/11, 12480/11, 12483/11, 12475/11 and Addenda 1 to 3, and 12484/11, relating to the Commission’s proposal on the next Multiannual Financial Framework (MFF), 2014-20; agrees with the Government, that at a time of ongoing economic fragility in Europe and tight constraints on domestic public spending, the Commission’s proposal for very substantial spending increases compared with current spend is unacceptable, unrealistic, too large and incompatible with the tough decisions being taken in the UK and in countries across Europe to bring deficits under control and stimulate economic growth, that the next MFF must see significant improvements in the financial management of EU resources by the Commission and by Member States and in the value for money of spend and that the proposed changes to the UK abatement and new taxes to fund the EU budget are completely unacceptable and an unwelcome distraction from the pressing issues that the EU needs to address; and supports the Government’s ongoing efforts to reduce the Commission’s proposed budget.

Credit Institutions and Investment Firms

Mark Hoban Excerpts

Tuesday 8th November 2011 Commons Chamber

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

I beg to move,

That this House considers that the draft Regulation on prudential requirements for credit institutions and investment firms (European Union Document No. 13284/11 and Addenda 1-4) does not comply with the principle of subsidiarity for the reasons set out in the Annex to Chapter 1 of the Forty-second Report of the European Scrutiny Committee (HC 428-xxxvii); and in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.

I am pleased to have the opportunity to discuss the European Union’s proposals on prudential requirements for the financial sector, and I welcome the Scrutiny Committee’s thorough report on the issue. I find myself in a slightly odd position today, in that the motion before us today, which stands in my name, was tabled by the Committee. The Committee has done a fantastic job in identifying this issue around subsidiarity, and we shall be supporting the motion.

[Mr William Cash (Stone) (Con)]

Will my hon. Friend give way?

[Mr Hoban]

I am one minute in to my speech and my hon. Friend wishes to intervene. I am happy to give way.

[Mr Cash]

My hon. Friend would need to be only half a minute in for the point that I am about to make. There are some recommendations sculling around in the Procedure Committee and the Liaison Committee that the Minister would not necessarily have to reply to the questions put forward by the European Scrutiny Committee and by the Chairman. Is my hon. Friend aware of that?

[Mr Hoban]

I am indeed aware of that and I think it is a good thing. Although my hon. Friends and I see eye to eye on many of these issues, there may be an occasion when a reasoned opinion is put forward which the Government do not quite agree with. That would put the Government and the Committee in a strange position.

I agree with the Committee that the Commission’s co-proposals on prudential requirements raise serious concerns over subsidiarity and, as drafted, the proposals seriously undermine the efficacy of the Basel reforms in the EU. As argued in the Committee’s report, the proposals for maximum harmonisation will severely restrict the ability of member states to conduct macro-prudential policy. They limit the ability of member states to respond to the unique characteristics and risks of their market, and where necessary, go beyond minimum standards to ensure financial stability in their own jurisdiction.

We cannot risk being straitjacketed into a one-size-fits-all approach in setting prudential levels. Across Europe, no two financial systems are the same, and in a system where euro area banks face the same centrally set interest rate, it is even more important that member states retain the flexibility to use other tools for financial stability. Let me deal with these issues in a little more detail.

As hon. Members are aware, the Commission’s proposal on prudential requirements is the mechanism by which the EU will implement the Basel III agreement to strengthen capital requirements and introduce minimum liquidity and leverage standards, changes that are absolutely necessary to correct the failures that preceded the latest crisis. Basel III is an ambitious agreement, a strong demonstration of collective endeavour and ambition, and an agreement that will fundamentally reform the global financial system. As we agreed with our international counterparts at the G20:

“We are committed to adopt and implement fully these standards”.

There are those who would seek to use current economic circumstances to row back from full implementation of Basel III—those who argue that full implementation would undermine growth at a time when we need to do everything we can to support a global recovery. We disagree. At a time of instability and at a time when bank balance sheets are under intense scrutiny and pressure, now is not the time to row back from strengthening those balance sheets. Stability is in itself a vital precondition for growth, and Basel III sets out the vital reforms that we need to increase stability in the banking sector.

Earlier this year the Commission published its draft regulation on prudential requirements for the financial sector. Despite the G20 commitment to implementing Basel III in full, the draft regulation deviates from that agreement in crucial areas. In doing so, the proposals significantly dilute the minimum standards agreed internationally for global banks and increase the taxpayer’s potential exposure to future losses. As the Scrutiny Committee highlights, the draft regulation also seeks to embed maximum harmonisation of prudential requirements.

I share the Committee’s concern that the draft regulation will severely limit the ability of member states to conduct macro-prudential policy, and where necessary, go beyond minimum standards to ensure financial stability in their own jurisdictions. We believe that it remains the case that member states are best placed to identify risks to financial stability in their jurisdiction. This is particularly the case when it comes to taking action concerning their own financial stability. Given the considerable experience, expertise, information and knowledge available to member states, it is difficult to see how the Commission can be considered to be better placed to assess macro-prudential conditions, systemic risks and appropriate policies for each member state than the member states themselves.

Furthermore, it is not clear that the Commission would be able to respond faster than the competent authorities of member states to risks as they arise. Therefore, I share the Scrutiny Committee’s concern that the inclusion of article 443, which contains a delegated power for the Commission to adopt delegated acts to impose stricter prudential requirements on member states, is entirely inappropriate. Not only is subsidiarity a matter of economic principle, but it is a matter of past experience. The financial crisis taught us that it is vital that national authorities retain discretion to react decisively and speedily to economic developments. It is vital that member states retain their flexibility to adjust prudential requirements to respond to emerging systemic risks and cyclical variations in economic activity, which, as we have seen in the build-up to the eurozone crisis, can be very large.

The crisis also taught us that we were not alert to those systemic risks, and not just at the firm level. It is vital that we are not caught out again. National authorities must retain the tools and flexibility to tackle those risks. Therefore, although Basel III provides an historic and coherent set of minimum standards, the ability to go beyond them if necessary and deploy macro-prudential policy to tailor our response to idiosyncratic macro-financial risks is in our vital economic interest.

We are not alone in making that judgment. The previous head of the European Central Bank, Jean-Claude Trichet, has said that

“the Basel requirements are minimum, and they have to be considered as minimum.”

Likewise, the IMF argued in its UK spillover report:

“UK financial stability will be weakened (with adverse spillovers) if EU rules constrain UK financial regulations at insufficiently ambitious levels or if they limit the ability to use macro-prudential instruments to address emerging risks.”

Retaining that flexibility will not, as the Commission has suggested, undermine our commitment to the single rule book. Of course, a single rule book helps to reduce the burdens on cross-border firms, but that cannot come at the expense of a member state’s ability to implement higher prudential regulations. Instead, a single rule book that establishes harmonised definitions and minimum requirements would protect the flexibility to allow member states to adjust their prudential requirements as necessary, while at the same time helping to reduce burdens on cross-border firms.

Indeed, recommendation No. 10 of the Larosière report on financial supervision states that

“a Member State should be able to adopt more stringent national regulatory measures considered to be domestically appropriate for safeguarding financial stability as long as the principles of the internal market and agreed minimum core standards are respected.”

It is interesting that we have an agreement here. My hon. Friend the Member for Stone (Mr Cash), Jacques de Larosière, who is the architect of the financial regulation, and the Government all agree with that we must have the flexibility to go further if that is appropriate.

I believe that we have a once-in-a-lifetime opportunity to reform financial services and ensure that we embed a system that works in the interests of consumers and underpins stable and sustainable economies. The Government have neither dithered, nor delayed in implementing fundamental reform of our financial sector and our system of regulation. We are reforming the failed tripartite system, leading the debate on the future of the financial sector through the Independent Commission on Banking and leading the international agenda for full and fundamental reform across the global financial system.

At a time of instability, the European Commission will inevitably come under pressure to delay, obfuscate and pander to vested interests across the EU that want to soften standards. It is critical that the Commission stands firm against those pressures and, with respect to the prudential requirements legislation, implements the Basel agreement in full. We must ensure that the Basel requirements are implemented as harmonised definitions and minimum requirements, not a maximum, that member states have the flexibility to respond to the unique risks and characteristics of their own markets, and that we implement regulations that are effective, credible and consistent. I commend the motion to the House.

--- Later in debate ---

[Chris Leslie]

The hon. Gentleman’s work on the European Scrutiny Committee has been useful in respect of the proposals before us, and it would have been helpful if the Minister had clarified where we stand in terms of qualified majority voting versus any veto options that we might have. I would be grateful if the Minister could set them out.

[Mr Hoban]

The regulation and the directive would come in through QMV.

[Chris Leslie]

Which proves the point that we need to ensure that we negotiate firmly.

The motion before us is worded correctly. It focuses very much on subsidiarity, and on article 443 and the proposals that would give the Commission the right to vary national regulations, even though it would prevent member states from changing their own rules beyond the maximum harmonisation arrangements—a step, I believe, too far. I agree with the draft reasoned opinion and, therefore, with the motion that the Clerk of the House forward this view to the presidents of the European institutions.

Article 443 does indeed go too far, and it would not be appropriate. Paragraph 18 of the European Scrutiny Committee’s report sums that up well, stating there is no evidence to prove that

“the Commission is better placed than the competent authorities of Member States to address national prudential concerns. Indeed, there is a strong argument to say that national authorities are not only better placed, but can react more quickly than the Commission can by means of delegated legislation, thereby enhancing financial stability.”

--- Later in debate ---

[Mr Hoban]

This has been a helpful and thoughtful debate, and it will give the Government immense support in making the arguments over the coming months about the need to get CRD IV right; about recognising that it should be the responsibility of competent authorities in member states to set appropriate levels of bank capital beyond high minimum standards; and about the fact that we need the flexibility to do so in order to protect the stability of our financial system. That recognises the fact that banking structures and systems vary between member states. The complexity of those banking systems manifests itself in the extraordinary length of the document before us. These are complex issues that we need to tackle.

I want to make a point about engagement with Europe, picking up on the comments made by the hon. Member for Nottingham East (Chris Leslie) about trade bodies. The same comments were made to the Treasury Select Committee today. There is nothing new about regulators co-ordinating the views of others when representing the UK on regulatory bodies. At the moment, the Financial Services Authority is our representative on the European Securities and Markets Authority, and in its representative role, the FSA must also reflect the views of other regulatory bodies not represented on ESMA. For example, it must take into account and reflect the views of the Financial Reporting Council and, on takeovers and mergers, the Takeover Panel.

Furthermore, the European Insurance and Occupational Pensions Authority has to represent the views of the Pensions Regulator. If I am right, at one point, the UK’s representative on EIOPA’s predecessor body, the Committee of European Insurance and Occupational Pensions Supervisors, was not the FSA, but the Pensions Regulator itself. There is nothing new, therefore, about one body representing the views of other regulators in the UK on these European bodies, and it would be wrong to suggest that this is something novel or different.

We need to ensure that, under the new regulatory architecture, we are clear about who speaks for the UK on these matters. On the European Banking Authority and EIOPA, the Prudential Regulation Authority speaks for the UK, so it will want to gather the views of the Pensions Regulator and the Financial Conduct Authority on insurance issues, for example. It is clear that the FCA will represent the UK on the board of ESMA, and it will have to gather the views not only of the FRC and the Takeover Panel, as it does now, but of the Bank of England, on clearing houses, and the PRA on prudential issues relating to securities firms.

I do not therefore see this as some great novelty or innovation. It needs to work. However, surely no one in the House is suggesting that UK regulatory bodies should be driven by what is happening in Europe, rather than meeting the needs of businesses and consumers in the UK. I do not think that anyone is seriously suggesting that we have sectoral regulation in the UK, rather than functional regulation. If the Opposition want to go down the former route, let them say so, but we should find a way of ensuring that the current system works.

[Chris Leslie]

What is the Financial Secretary’s assessment of the British Bankers Association’s suggestion for a properly resourced international secretariat to ensure a better single interface with those European institutions? He might be right that we should not necessarily follow those European arrangements, but surely he accepts that a complex existing arrangement could be made even more complex by the proliferation of financial regulatory bodies that he is proposing.

[Mr Hoban]

The hon. Gentleman has just recommended such a proliferation of bodies—with this co-ordinating secretariat. The PRA and the FCA are more than capable of talking to each other about these matters. We need to ensure that they gather people’s views and that the interests of the FRC and the Pensions Regulator are reflected. However, I do not consider it to be the huge problem that he is inflating it to be.

It is also the case, of course, that the negotiation of level 1 instruments, such as the directive before us today, is the responsibility not of the PRA, the FCA or the Bank of England, but of Her Majesty’s Government and, in particular, the Treasury. It is very clear where the focus is; we do not seem to have any problem at all in co-ordinating the views of others for that process.

This has been a helpful debate. It will help strengthen the Government’s hand in negotiation with Brussels. It is very clear that it is not just the UK Government who believe that we should have the freedom to go further beyond minimum standards if necessary, and the freedom to set our own macro-prudential strategy. That is the view of the International Monetary Fund, the view of Jean-Claude Trichet and the view of Jacques de Larosière. There is a consensus around this. What is important, I think, is that the Commission listens to that consensus and takes the right action to enable member states to tackle financial stability. I am grateful for the support for this motion and commend it to the House.

Question put and agreed to.

Resolved,

That this House considers that the draft Regulation on prudential requirements for credit institutions and investment firms (European Union Document No. 13284/11 and Addenda 1-4) does not comply with the principle of subsidiarity for the reasons set out in the Annex to Chapter 1 of the Forty-second Report of the European Scrutiny Committee (HC 428-xxxvii); and in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.

Eurozone Crisis

Mark Hoban Excerpts

Thursday 3rd November 2011 Commons Chamber

[Mr Peter Bone (Wellingborough) (Con)]

(Urgent Question): To ask the Chancellor of the Exchequer to make a statement on the euro crisis and its implication for the United Kingdom.

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

Hon. Members will be aware of recent developments in the eurozone. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer are at the G20 meeting in Cannes as we speak, and we understand that the Greek Cabinet is due to meet imminently as well. We will not be providing a running commentary on the market and media speculation of those events, but I can reassure the House that the Prime Minister will be making a statement to the House on Monday.

What is clear, however, is that the instability in the eurozone continues to have a chilling effect on the rest of the European, the UK and the entire global economy. As the Chancellor has said, a resolution to that crisis is in our vital national interest. It is vital that the eurozone members reach a solution that is coherent, comprehensive and lasting. Last week, European Heads of State reached an outline agreement that laid out a blueprint to resolve the crisis. It was a three-pronged strategy. First, weak European banks should be recapitalised. Importantly, in the assessment of the European Banking Authority and our own regulatory authorities, no British banks require additional capital, which is an important expression of confidence in the country’s banking system.

Secondly, the unsustainable position of Greece’s debts should be resolved. In particular, a headline agreement was reached to reduce the Greek debt to gross domestic product ratio to 120% by 2020, through an additional €30 billion of euro area money and private holders of Greek sovereign debt being asked to accept a nominal write-down of 50%. Thirdly, eurozone member states should reinforce the bail-out fund to create a firewall, either by using the fund to insure new debt or by attracting public and private investors through a special purpose vehicle. Both mechanisms are designed to have the capacity to leverage around €1 trillion. This package demonstrated the commitment of the euro area member states to stand behind the single currency. It was progress, but more details are needed on how it will work.

Right hon. and hon. Members will be aware, however, of developments in Greece since that agreement was reached last week. There is no doubt that the decision by the Greek Prime Minister has added to the instability and uncertainty in the eurozone. Ultimately, it is up to Greece to make its own decisions, but it is critical that all parties stick to the deal that was agreed last week. That agreement is an important part of the economic recovery here in the UK, across Europe and across the global system. If the euro area collectively does not decisively sort out its ongoing problems, the uncertainty that that creates and its impact on global confidence will continue to undermine economic recovery across the world.

This is uncertainty that the global economy can ill afford, and uncertainty that has been a drag on all our economies for months. We will continue to urge our euro area counterparts to press for a decisive resolution of the crisis at the G20 at Cannes over the coming days, but at no point have we committed any British taxpayer money—not to Greece, not to the bail-out fund.

I want to address directly the question of UK commitments through the International Monetary Fund. Britain has always been one of the largest shareholders in the IMF, and there may well be a case for further increasing the resources of the IMF to keep pace with the size of the global economy. We stand ready to consider the case for further resources if necessary, but let me be clear: we are only prepared to see an increase in the resources that the IMF makes available to all its members. We would not be prepared to see IMF resources reserved only for use by the eurozone. The IMF can use its expertise to help administer its fund, but it can only lend to countries with a programme for adjustment. A potential special purpose vehicle for the euro area bail-out fund does not fit that bill.

Last week’s announcement, however, was only the first step to resolving the immediate crisis. In the long term, it is vital that the euro area members follow the remorseless logic to closer fiscal union. It is equally vital that we work together to improve competitiveness in the peripheral countries of the eurozone, as well as the overall competitiveness of the European bloc in the world economy.

The ongoing instability in the euro area is a vindication of the Government’s decision to get ahead of the curve, cut our own deficit and improve our economic competitiveness. Our decisive action to cut the deficit means that the UK has stayed out of the storm, and is the reason we have gilt yields close to the likes of Germany, rather than similar to those of Greece, Italy or Spain. We will encourage our euro area counterparts to do the same over the coming weeks. As I said, the Chancellor and Prime Minister are in Cannes. It is vital that leaders commit in Cannes to increase confidence in the global economy, agreeing the detail of the euro area rescue. The Prime Minister will update the House on Monday.

[Mr Bone]

I thank you for granting this urgent question, Mr Speaker, and the Minister for his full response.

It has long been argued by Conservative Ministers that retaining the pound and allowing it to float in line with market conditions has enormous benefits for the British economy. If the British economy is having a difficult time, the value of the pound will fall, which makes exports cheaper and foreign companies’ imports more expensive, thereby increasing growth, jobs and prosperity in the United Kingdom. Equally, Conservative Ministers have always argued that the Bank of England’s ability to set UK interest rates allows the country to encourage growth in a recession and control expansion in a boom.

Both those powerful economic weapons are being denied to Greece, as it is in the euro straitjacket. Will the Minister explain why it is the Government’s policy to deny Greece a way out of its economic crisis by allowing it to withdraw from the euro and re-establish the drachma? Does he think it was a mistake for the German Chancellor and the French President to increase the crisis by making the Greek referendum on the bail-out a referendum on whether Greece remains in the euro? Does the Minister agree that the Greek Government were right to consult their people on the proposed austerity measures, so that if the country votes yes, they will have a mandate to drive through the reforms? What other countries does he think would come under market pressure because of the instability of the euro? Were the President of France and the Chancellor of Germany right to say that they wanted to save the euro at any cost, rather than putting the interests of Europe first? Finally, do the Government have a comprehensive contingency plan for when the euro collapses?

[Mr Hoban]

I am grateful to my hon. Friend for his question and his response to my statement. He is absolutely right: it was right for this country to stay out of the euro. That is the settled position of the coalition Government, and it is the right position to adopt. However, that was a decision that the people of this country made. It was not made under duress from other countries; it was a free choice that we made. On that basis, it is better for the Greeks to make their own decisions than for us to offer them advice.

My hon. Friend asked about contingency planning. He would expect every good Government to have plans in place to cover a range of eventualities, and this Government are well prepared for any eventuality.

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

The Minister should at least have the grace to admit that the reason we are not in the euro is because of decisions by the Labour Government.

Clearly there are major ramifications from the uncertainty in Greece. With the Greek Treasury due to refinance €8 billion on 19 December, time is of the essence. The Minister has told the House that UK banks have more than £2 billion of direct exposure to Greek sovereign debt, so what assurances did the Prime Minister seek from his Greek counterpart at last week’s summit about the implementation of that deal?

The market pressures on the Italian Government are now considerable. Can the Minister reassure the House that the Treasury is preparing for all eventualities? Will he confirm that UK banks have an estimated €10 billion of exposure to Italian sovereign debt? The Italian Government have been unable to agree a deal on structural reforms ahead of this week’s G20 meeting. While the UK has in the past offered bilateral loan aid to Ireland, clearly we would want to avoid being drawn into more significant loans to larger countries. Will the Minister therefore explain whether, in general, the Treasury will entertain support only via the IMF, or could bilateral loans be on the agenda on a case-by-case basis?

Does the Minister believe that the €1 trillion bail-out fund will be sufficient if other eurozone countries are drawn into the danger zone? Will the Greek referendum delay the establishment of the fund?

On the IMF, the Minister knows that many people are anxious to safeguard the interests of British taxpayers, and it would be wrong for the British people to pay twice over—through temporary, ongoing EU funds and the IMF. Does he therefore agree that the eurozone should not rely principally on IMF money for the bail-out and that there can be no excuses for eurozone countries not putting up their own resources? If we are to see a full and permanent euro bail-out fund, we agree that our role should be through the IMF, but what does the Treasury expect will be the scale and timing of any further increases in IMF funds for the eurozone, however they are described?

Finally, with our own growth so weak and with unemployment rising, the Chancellor must surely be regretting his claim that the UK is a “safe haven”. When will the Government take urgent steps to bolster the strength of our own economy to insulate us properly from this international turbulence? Is it not now abundantly obvious we need an immediate plan to boost jobs and growth here in the UK and across Europe? What will the Prime Minister be proposing to boost growth when he meets his G20 colleagues? The Government continue to play a dangerous ideological game, but it is time that they stepped up to the mark and opted instead for a proper strategy for jobs and growth.

[Mr Hoban]

Let me first tackle this issue of who kept us out of the euro. The fact that a previous Conservative Government secured an opt-out from the Maastricht treaty meant that we were not going to join the euro. Also, one of the things that we did when we came into office last May was to close down the euro preparations unit in the Treasury. We are taking action on contingency planning for a whole range of outcomes, and that work is under way in the Treasury.

The hon. Gentleman asked whether work would be put on hold on the three legs of the deal that was agreed last week. It is important that the euro area continues to work on those three legs, particularly on the ring fence and on the recapitalisation of the banks. They are important parts of the package, and they are needed to ensure that the eurozone is stabilised. He talked about the various European mechanisms that are in place to support finance. He will remember that the Greek bail-out was originally paid for purely by the eurozone; the UK did not contribute to it and has not contributed to subsequent parts of the bail-out package for Greece. We have negotiated that when a permanent mechanism is put in place to replace the one that the previous Government signed us up to, which we do have to contribute to, that permanent mechanism will not require UK participation. That is an achievement of this Government, getting us out of the mess that the Labour Government put us into in May last year.

The hon. Gentleman referred to the IMF. He will have to remember that it was he who led opposition to increasing our subscription to the IMF—[Interruption.] He says that that was to safeguard Britain’s subscription to the IMF, but it would in fact have marginalised the UK in international debates on tackling the global economic problems that we face today. Labour should think very carefully about its repudiation of the legacy left to it by the previous Prime Minister, who agreed to a trebling of resources for the IMF. We need to take action to stabilise the situation in the eurozone. The uncertainty is casting a chilling effect on the UK economy, and it is important that those issues are tackled as soon as possible.

[Mr Andrew Tyrie (Chichester) (Con)]

I wonder how much we can reasonably learn from the Minister, given that the negotiations are taking place in Cannes and that he is here with us today. Anyway, there are one or two questions that we might ask. What assurance can he give us about the UK banks’ exposure not only to Greece but to other eurozone countries at risk? What confidence does he have that the eurozone banks have the capital strength required to withstand a eurozone default?

[Mr Hoban]

My hon. Friend asks some interesting questions. I think that I would rather be here in the House than in Cannes at the moment—[Interruption.] It is important that Parliament should hold Ministers to account on these matters, and I am here to answer its questions. On my hon. Friend’s first question about the strength of the UK banks, there has been a process with the leadership, through the European Banking Authority, which is based here in London, and it concluded that the UK banks did not need to be recapitalised. That is partly a consequence of the measures taken over the past two or three years to increase banks’ holdings of capital and highly liquid assets, which have helped to ensure that they are to an extent insulated from the problems in the euro area.

On my hon. Friend’s wider question about the strength of the European banks, I can tell him that, in calculating the amount of additional capital that banks should hold, the EBA determined that they should hold 9% core tier 1, and that, crucially, their holdings of sovereign debt should be marked to market rather than held at face value. That led to the calculation that banks across Europe need to hold an additional €100 billion of capital.

[Keith Vaz (Leicester East) (Lab)]

May I urge the Minister not to join others who are criticising Greece for its decision to hold a referendum? George Papandreou is a decent and honourable man, and at the end of the day, if he wishes to put this to the Greek people, it is a matter for them. Whatever their decision—I hope that they will vote to accept the bail-out—we should accept it. This is a country that has voted with us on the European Council on many occasions over the last 20 years.

[Mr Hoban]

The right hon. Gentleman makes an important point. This is a matter for the Greek people and the Greek Government to decide. That is a principle to which I am sure everyone in the House would wish to adhere.

[Mr William Cash (Stone) (Con)]

The Minister will know that the presidency conclusions last week set out 10 new areas of European economic governance. What is the legal basis in the existing treaties for the creation of these new areas of governance and for the creation of a euro summit? Was the Prime Minister asked to give UK consent? Did he give his consent or were the Government bypassed? As Chairman of the European Scrutiny Committee, I would be grateful for specific answers to those questions.

[Mr Hoban]

My hon. Friend will be aware that a number of actions have been taken throughout this crisis intergovernmentally rather than through the institutions of the European Union. That applied to the creation, for example, of the European financial stability facility. There are ways in which actions can be taken that do not depend on the treaty because they are done between Governments rather than between Governments and the European Commission.

[Chris Bryant (Rhondda) (Lab)]

The Minister said something very interesting earlier. He used a phrase that I do not think I have heard a Minister of either side ever use before, which was the remorseless drive towards fiscal union—and, as I understood it, in an approving sense. The danger of that, of course, is that we will end up supporting for the first time a two-speed—a two-tier—Europe, with us very definitely at the second speed and in the second tier. Is that really what he wants?

[Mr Hoban]

We have always accepted that the remorseless logic of monetary union is closer fiscal integration. I believe that this crisis demonstrates that monetary union needs to be underpinned by closer fiscal integration. That is not a new expression on my part; I said nothing novel; the Government have taken this view for some time. We need to ensure that the institutional arrangements are in place to support that. What I think hon. Members on all sides of the House want is a stable eurozone because it will contribute towards economic recovery in the UK.

[Mr John Redwood (Wokingham) (Con)]

As joining a single currency is like taking out a joint bank account with the neighbours, when does the Minister think the neighbours will agree how much overdraft they can afford and who gets to pay the bill for it?

[Mr Hoban]

My right hon. Friend will recognise that the agreement that was reached in the European Council last week and then later in the summit of eurozone Governments was on what size the bail-out for Greece should be and what the ring fence should be around that. We welcome last week’s announcement. What is very clear, however, is that more work needs to be done on those questions—particularly what the size of the overdraft will be and who will pay for it. We need eurozone leaders to move that forward as quickly as possible.

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

Part of Europe’s plan to get Europe and the eurozone out of this mess is the introduction of a financial transaction tax. Will the Minister confirm from the Dispatch Box that such a tax could be introduced through qualified majority voting and that this is essentially own resources, just by another name?

[Mr Hoban]

I have to tell the hon. Lady that I am not entirely clear what role a financial transaction tax would play in resolving this crisis. The EU’s own impact assessments on that tax demonstrated that it would lead to lower employment and lower growth across Europe. I do not think that that is in any way going to help tackle the problems in Europe when what we need is more investment, more jobs and more growth.

[Stephen Williams (Bristol West) (LD)]

I think we all heard my hon. Friend the Member for Wellingborough (Mr Bone) advocate Greece’s withdrawal from the euro, and a worryingly large number of his Conservative Back-Bench colleagues seem to will the destruction of the euro area. Does the Minister agree that a fragmentation or break-up of the eurozone is not in our economic interest or indeed the national interest?

[Mr Hoban]

We have made it very clear that the instability and uncertainty in the eurozone has a chilling effect on the UK economy. What our actions have been driving towards over the course of the last few months is encouraging our partners in the eurozone to take the action needed to tackle the problems so that we can see economic growth strengthened across the whole of the European Union.

[Mr Dennis Skinner (Bolsover) (Lab)]

I wonder whether the Minister has seen the film “Groundhog Day”. I was here in the early ’90s with another Tory Government, another euro crisis and another Prime Minister battling for his life—the same players, only this time there are about 40 more Tory rebels. It finished up with a Prime Minister being kicked out of office.

[Mr Hoban]

I am afraid that I am reminded of “Groundhog Day” every time I hear the hon. Gentleman speak.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

Why are the Government advocating fiscal union? I put it to the Minister that the words “remorseless logic” are, in fact, a cover for a policy preference, and that the remorseless logic of the present situation is that fiscal union will be economic dictatorship, that it will fail and that we had better be planning for something else.

[Mr Hoban]

I think my hon. Friend would recognise that if a monetary union is to be successful, it requires closer fiscal integration. That is a precondition of the success of monetary union. When the decision was made to opt out of the Maastricht treaty and to keep sterling, one reason for doing so was that monetary union had to be underpinned by fiscal integration. One follows the other as surely as night follows day. That is why I think we were right to take that position then and we are right now to encourage the eurozone, if it wants the euro to be successful, to move towards closer fiscal integration. Frankly, if it does not, it will cause huge economic damage to all of us.

[Tony Lloyd (Manchester Central) (Lab)]

Is it not a matter of plain fact that the Government’s negotiating position and therefore the protection of our national interest is hamstrung because all the time this Minister and his colleagues have to address the Eurosceptics? Britain has got to be involved in these negotiations through the IMF and at Cannes. The Minister needs to face down his Eurosceptics and explain why, if the euro goes down, we lose.

[Mr Hoban]

I find the position adopted by Labour Members quite curious. They want us to be at the top table, yet they voted against the increase in our subscription to the IMF, so we would not be at the top table. I believe we have played an important role through European Councils by trying to push our eurozone partners to make progress on tackling problems in the eurozone. We are very clear that matters such as the completion of the single market, competition and financial services should be dealt with by all 27 member states, not by the 17. I believe that this Government are punching way above their weight.

[Andrea Leadsom (South Northamptonshire) (Con)]

If the remorseless logic of greater fiscal union proves to be true, can my hon. Friend tell us what steps he intends to take to ensure that Britain’s voice is still heard under QMV?

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[Mr Hoban]

That takes us back to the answer I gave to the hon. Member for Rhondda (Chris Bryant)—that when it comes to discussions about future institutional changes in the EU, we need to ensure that Britain’s interests are safeguarded. Matters such as competition, financial services and the single market should be dealt with by all 27 member states, and we will be relentless in our pursuit of the national interest in that context.

[Jeremy Corbyn (Islington North) (Lab)]

Does the Minister agree that condemnation of the Greek people’s right to have a referendum is entirely incorrect and that they do have that right to hold a referendum; that the people of Greece have suffered greatly through cuts, wage reductions, cuts to pensions and everything else—and they are due to suffer even more—and that it is entirely wrong for the eurozone leaders to try to impose a Government of so-called national unity on the people of Greece to drive through an austerity package without giving the people a choice to decide themselves on their own future?

[Mr Hoban]

I do not think anyone in this House is suggesting that we interfere in the decisions to be made by the Greeks.

[Mark Lancaster (Milton Keynes North) (Con)]

What would be the consequences of the UK failing to pay its IMF subscription?

[Mr Hoban]

We would lose our seat on the IMF board; we would lose credibility in international economic debates; and we would lose our influence on measures to solve global economic problems. We would become marginalised—rather like Labour Members when it comes to their contributions to economic debates.

[Mr Ben Bradshaw (Exeter) (Lab)]

In 2009, when the world faced economic catastrophe after the banking collapse, there was real leadership at the G20 summit in London, which helped to avert a disaster and put Britain back on to a path of growth. Where is that leadership now, and where is the plan for growth?

[Mr Hoban]

I thought that the outcomes of that G20 summit were very impressive. I particularly welcomed the achievement of the previous Prime Minister in agreeing a commitment to treble the resources available to the IMF, but the right hon. Gentleman, along with his colleagues, voted against that commitment.

[Joseph Johnson (Orpington) (Con)]

According to the BBC’s economics editor, Stephanie Flanders, the European Commission said this morning that any country that left the euro would also have to leave the European Union. Is that the Government’s understanding of the EU treaties?

[Mr Hoban]

I am not a constitutional lawyer, for my blessings, but it is plainly necessary to establish the legal basis for any such action. I am not aware of what the Commission has said, and I think it very dangerous for us to engage in speculation on the subject.

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

It is obvious that, like many other Members in the Chamber, the Minister has not read the Lisbon treaty, because the hon. Member for Orpington (Joseph Johnson) is right. I give way to no one in my support for the IMF—as is clear from the way in which I voted—and my support for the recapitalisation of the banks, but the reality is, surely, that the ordinary people of Greece will go through a massive amount of pain, whereas the bankers, both here and there, will walk off with the money. We are looking after the banks, not the people, so is it really surprising that the Greek people may want to reject the proposal that the Government were involved in placing on their backs?

[Mr Hoban]

We all recognise that difficult decisions are involved in the tackling of fiscal deficits, and those decisions must be made. It is owing to this Government’s actions that our interest rates are similar to those of Germany, while our deficit is at the same level as that of Greece.

[Mr John Baron (Basildon and Billericay) (Con)]

May I suggest that my hon. Friend should not listen too closely to what is said by Labour Members, given that this crisis is about debt, and given that the last Labour Government more than doubled the national debt? [Interruption.] Yes, they did.

Having said that, may I ask whether my hon. Friend agrees that the set of measures put together by the euro leaders are nothing more than a sticking plaster? They do not address the central cause of the problem, which is a lack of competitiveness. If countries cannot pay their way, this issue will come back to haunt them.

[Mr Hoban]

My hon. Friend is absolutely right. We need fiscal entrenchment across the eurozone to take place in the same way as we are tackling a fiscal deficit here in the United Kingdom. However, we also need measures, in Europe and elsewhere, to promote growth. That is one of the key areas in which the Prime Minister has been influential, shaping a debate in Europe and persuading European leaders to recommit themselves to improving measures to promote growth and bring about the recovery that the eurozone economy needs.

[Natascha Engel (North East Derbyshire) (Lab)]

If UK taxpayer money is being paid to the IMF and the IMF is paying towards the eurozone bail-out, how can the Minister guarantee that no UK taxpayer money is going towards the bailing out of the eurozone?

[Mr Hoban]

The money that nations contribute to the IMF goes into its general resources. I believe that there are currently 53 IMF programmes, only three of which are in the eurozone. We have made clear that if the IMF needs to increase its resources to tackle some of the global issues that face economies at present, we will listen to its requests.

[Mr Julian Brazier (Canterbury) (Con)]

While I strongly support my hon. Friend’s tough domestic stance on fiscal matters, may I suggest that, in view of the borrowing problems in Italy, the 20% fall in the monetary base in Portugal and similar problems in Spain, there is a strong case for moving the Cannes conference to the gardens of Versailles?

[Mr Hoban]

My hon. Friend’s question highlights some of the challenges that are being faced in the eurozone. Wherever the summit is being held—in Cannes or in Versailles—what is important is action arising from it that will put eurozone economies back on the right path.

[Helen Jones (Warrington North) (Lab)]

The Minister has signally failed to answer the questions put to him about the plan for jobs and growth. Will he now tell us exactly how the Government propose to ensure that we get demand back into the economy and tackle unemployment, which is the only real way out of this crisis, and how we are to exercise influence in Europe to secure a similar euro-wide plan?

[Mr Hoban]

One of the best ways of putting more money in the pockets of families and giving business men more money to invest in their businesses is to keep interest rates low. Borrowing more, which is the Labour party’s prescription, would simply put our interest rates at risk, so that households would have less money in their budgets and businesses would be strapped for cash. We will take no lessons in how to handle our economy from a party that doubled the national debt.

[Laura Sandys (South Thanet) (Con)]

The IMF is a collective that is there to build greater economic stability. Why should our approach to funding economic stability in Mexico, the Philippines or Peru be different from our approach to funding it in Greece?

[Mr Hoban]

My hon. Friend has made an important point about the global role of the IMF. It is there to support economies that face challenging circumstances. There is a range of programmes in 53 states, and it is right for the IMF to have the resources that it needs if it is to help to stabilise the global economy.

[Mr David Winnick (Walsall North) (Lab)]

Why are the EU leaders so fearful of democracy? In view of the massive cuts that are to be imposed on the Greek people under the deal that was negotiated this week, what sort of democracy would it be if they were denied the opportunity to say yes or no?

[Mr Hoban]

I do not think that anyone in the House is suggesting that the Greek people should not be in charge of their own destiny.

[Mr David Nuttall (Bury North) (Con)]

Does the Minister agree that the International Monetary Fund should not be expected to do what the European Central Bank is incapable of doing simply because of a lack of political will on the part of eurozone countries?

[Mr Hoban]

My hon. Friend has made a good point, but I think it important for the institutions in the European Union to work together to ensure that there is a return to economic and financial stability.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Is not the problem in Greece a lack of growth and no sign of growth in the future? Is not the problem in the eurozone a lack of growth and no sign of growth in the future? Is that not also the problem in the United Kingdom? When will the Government respond to the need for jobs and growth, not just here in the UK but throughout Europe?

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[Mr Hoban]

There must be structural reforms to remove some of the barriers and blockages to growth, not just here in the UK but throughout the eurozone, and that is why we included a plan for growth in this year’s Budget. The Chancellor will return to those matters in the autumn statement. I note, incidentally, that every time we propose a measure that would help to improve job prospects by tackling regulation and red tape, it is opposed by the Labour party.

[Mr Desmond Swayne (New Forest West) (Con)]

Given the interpretation that was placed on his words by the hon. Member for Rhondda (Chris Bryant), will the Financial Secretary confirm that this has nothing to do with a two-speed Europe, and that whatever the speed at which the eurozone hurtles towards fiscal integration, we will not be following it at any speed at all?

[Mr Hoban]

My right hon. Friend is absolutely right. We in the coalition Government have made clear our view that we do not want to be part of the euro, and therefore need not take part in any process of closer fiscal integration.

[Ian Paisley (North Antrim) (DUP)]

The Financial Secretary said that the Prime Minister would make a statement on Monday. Will it include the issue of the bilateral loan to Ireland, and will the Financial Secretary insist that if it does, it will address the way in which the National Asset Management Agency is now treating businesses here as a result of a soft loan from the United Kingdom?

[Mr Hoban]

I am not going to tell the Prime Minister what he should or should not say on Monday, but I am sure that he will have heard what the hon. Gentleman has said.

[Several hon. Members]

rose—

[Charlie Elphicke (Dover) (Con)]

Does the Financial Secretary agree that, while much progress has been made over the last 18 months—demonstrated most recently by this week’s excellent growth figures—we need measures to protect us from the implosion of the eurozone? What does he think are the best options to shield us from wider economic turbulence in that direction?

[Mr Hoban]

I think that what we need is the implementation of the three-point plan that was agreed last week in the eurozone.

[Kevin Brennan (Cardiff West) (Lab)]

In the wake of the eurozone crisis, the latest polls show that the UK Independence party is within 1% of replacing the Liberal Democrats as the third party in British politics. Is not the relentless logic of both that and the rebellion of the 81 a Prime Minister lurching ever further to the right and isolationism on Europe?

--- Later in debate ---

[Mr Hoban]

That is a slightly bizarre question from the hon. Gentleman, from whom we expect better. We are engaged in the debates in Europe. We need to make sure we stand up for Britain’s interests in Europe, which is why we are keen that areas of vital national economic interest—such as financial services, the single market and competition—are dealt with by all 27 member states rather than just the eurozone countries.

[Claire Perry (Devizes) (Con)]

I am sure that my hon. Friend is aware that there are only 52 shopping days left before Christmas, so for ordinary Greek families now is a terrible time to be facing such economic uncertainty. Does he agree that Governments must live within their means and deliver stable financial policies for their people?

[Mr Hoban]

My hon. Friend is absolutely right. Fiscally prudent policies that tackle the deficit and get interest rates lower must be implemented across the eurozone, so countries enable their economies to grow.

[Barry Gardiner (Brent North) (Lab)]

British banks are responding to the increased instability not only by tightening controls, but by tightening credit. How will the Government respond to the reduction in liquidity being made available to British business and ensure that firms are able to borrow and flourish?

[Mr Hoban]

As I said, British banks are better placed as a consequence of measures taken to strengthen their capital and improve their holdings of high-quality liquidity. We have also agreed lending commitments with Britain’s major banks through Project Merlin, and the Chancellor has said he will announce further measures to improve the availability of credit in the autumn statement.

[Christopher Pincher (Tamworth) (Con)]

Does my hon. Friend agree that we can only support a financial transaction tax if it applies internationally, rather than just to Europe? Does he further agree that because there is no international consensus in favour of such a tax, it will not be introduced?

[Mr Hoban]

We have said we are not against a financial transaction tax in principle, but it does need to be applied globally. The EU’s own impact assessment demonstrates that an EU-only financial transaction tax would destroy jobs and increase unemployment. It is a bad idea at a time when Europe needs jobs and growth.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

Faltering economic growth is damaging economies not only in the EU, but across the globe, yet the Financial Secretary has today refused to acknowledge the damage his Government are doing to economic growth. When will they come up with a plan B?

[Mr Hoban]

Well, the plan B proposed by the Labour party would increase borrowing by £20 billion a year, potentially lead to higher interest rates—which would affect families throughout the country such as by adding to their mortgage payments—and increase the costs on business. I do not think this economy needs a plan B from the Labour party.

[Tony Baldry (Banbury) (Con)]

Standard & Poor’s has recently reconfirmed the UK’s triple-A credit rating, but has made it clear that there will be downward pressure on that if the Government falter on fiscal consolidation. Yet is that not exactly what the Opposition are exhorting the Government to do: to falter on fiscal consolidation?

[Mr Hoban]

That is absolutely right: that is what Standard & Poor’s said in its report last month. When we came into office, the country’s credit rating was on negative outlook; now it is on stable outlook. That is a consequence of the action this Government have taken to tackle the mess left by the Labour party.

[Derek Twigg (Halton) (Lab)]

Have the Government drawn a line in the sand for the amount of money they will not exceed if asked by the International Monetary Fund to contribute to a greater extent specifically to deal with the euro crisis?

[Mr Hoban]

What we have said is that it is important that the IMF has the resources it needs to tackle the problems of the global economy. We have yet to receive a request from the IMF, but once we do so, we will respond to it appropriately.

[Jessica Lee (Erewash) (Con)]

My hon. Friend has mentioned the abolition of the euro preparations unit. In the current circumstances, will he assure the House that there is no prospect of the unit being resurrected as that would be a complete waste of public money?

[Mr Hoban]

My hon. Friend is absolutely right. I can think of far better ways to spend the money the previous Government wasted on preparing for the euro.

[Geoffrey Clifton-Brown (The Cotswolds) (Con)]

Will my hon. Friend assure the House that before the IMF gives any money to bail out the eurozone, sufficient stringent financial conditions are put in place to ensure that there is a realistic prospect of that money being repaid?

[Mr Hoban]

My hon. Friend makes an important point. Stringent conditions are linked to the packages offered to Greece, Ireland and Portugal, to ensure that the money is used well and wisely, and that the structural reforms that are needed to generate growth in those countries are implemented.

[Henry Smith (Crawley) (Con)]

I am very pleased that my hon. Friend has said that Her Majesty’s Government are preparing contingency plans for the possible break-up of the eurozone, but can he confirm that they will not include the possibility of our joining the euro, as seems to be still the official policy of the Labour party?

[Mr Hoban]

I do not think there is any intention for us to join the euro at a time when it is breaking up. The only party in this House that seems to express an interest in joining the euro is Labour, whose leader, when asked when they would join the euro, said:

“It depends how long I’m prime minister for.”

[Paul Uppal (Wolverhampton South West) (Con)]

Does my hon. Friend agree that one of the most important lessons we can learn from this crisis is that if there had not been a change of Government in this country in 2010, we would be talking today in the Chamber about the UK sovereign debt crisis, not the Italian and Greek crisis?

[Mr Hoban]

My hon. Friend is right. If we had not taken the tough action we took when we came into office, the UK could be in the firing line, not just Greece and other eurozone member states.

[Harriett Baldwin (West Worcestershire) (Con)]

Two-year Greek interest rates reached 100% this morning. Will the Financial Secretary remind everybody how important it is for jobs and growth that despite the fact that we have a higher deficit than the Greeks, our interest rates are closer to those of the Germans?

[Mr Hoban]

My hon. Friend hits the nail on the head. It is because we took that tough action and are tackling our deficit, and have a credible plan for putting our public spending back on a firm footing, that we have lower interest rates than countries with a lower deficit than ours.

[Bob Blackman (Harrow East) (Con)]

This week we have witnessed the spectacle of the Greek Prime Minister being summoned, like a naughty schoolboy, to President Sarkozy’s study for having the temerity to call a referendum in order to get the support of his people for the proposed austerity measures. Given that our deficit and debt levels are higher than Greece’s, what does my hon. Friend think would be happening if we had adopted the policies of the Opposition?

[Mr Hoban]

I think we would find that our credit rating would be under pressure, as Standard & Poor’s suggested in its report last month, and we know that when credit ratings are downgraded, the natural consequence is higher interest rates, which hits families and businesses and makes recovery harder to achieve.

[Mary Macleod (Brentford and Isleworth) (Con)]

The Leader of the Opposition does not believe that the EU has too much power. Will my hon. Friend confirm that we will never go into the euro?

[Mr Hoban]

Yes.

[Bob Stewart (Beckenham) (Con)]

My question is about Italy. Its interest rate is floating upwards and currently stands at about 6.5%, which is unsustainable. Will the Minister give us his views on Italy’s problems, especially with regard to its just paying off its interest rather than repaying its debt?

[Mr Hoban]

Tempted though I am to respond to my hon. Friend’s question, given the uncertainty in international markets I do not think it is helpful for Ministers of any country to give a running commentary on the finances of others.

Oral Answers to Questions

Mark Hoban Excerpts

Tuesday 1st November 2011 Commons Chamber

[Nick Smith (Blaenau Gwent) (Lab)]

10. What assessment he has made of the level of economic growth in (a) the UK and (b) other EU members states in the last 12 months.

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

Eurostat publishes GDP growth data on all EU member states. These data show the UK economy growing in the most recent three quarters. The IMF’s latest forecast shows the UK economy growing this year, and growing faster than the economies of France, Germany and Italy next year.

[Nick Smith]

The Times says today that the Government’s plans for growth are “piecemeal” and their implementation “patchy”. Given that long-term youth unemployment is up by 60%, do we not need a proper programme for jobs?

[Mr Hoban]

The hon. Gentleman will realise that the biggest increase in youth unemployment in recent years took place when his party was in government. This Government have put in place the long-term foundations to tackle unemployment and raise growth across the UK.

[Charlie Elphicke (Dover) (Con)]

May I welcome today’s excellent economic growth figures, which are well ahead of forecasts at 0.5%? Our growth is just as high as US growth this year, without the massive fiscal stimulus. Is that not right?

[Mr Hoban]

My hon. Friend makes an important point. It would have been better if the Labour party had welcomed today’s growth figures rather than talking our economy down.

[Stephen Timms (East Ham) (Lab)]

When we embarked on the economic course that the Government have set, Ministers told us that because they were tackling the deficit aggressively, there would be a surge of private sector confidence—and, therefore, investment and jobs. Many people agreed with them. Now that we know that expectation was mistaken, surely there must be a change of course.

[Mr Hoban]

Every reputable international organisation that talks about what is happening in the UK economy now recognises that the Government need to stick to the course, rather than throwing away the valuable credibility that we have gained as a consequence of tackling the mess left behind by the previous Government.

[Andrea Leadsom (South Northamptonshire) (Con)]

Does my hon. Friend agree that having our own currency is one of the keys to turning round our economy? Does he share my astonishment that the Labour party does not rule out joining the single currency?

[Mr Hoban]

It is remarkable, is it not, that when the Leader of the Opposition was asked whether a Labour Government would join the euro, his answer was:

“It depends how long I’m prime minister for.”

This Government have closed down the euro preparations that the Labour party set up, and that is why I think that we have taken the right decision to stay out of the euro and tackle our debt and deficit problems. That is why we have low interest rates, which help strengthen the recovery in this country.

[Mrs Linda Riordan (Halifax) (Lab/Co-op)]

13. What fiscal measures he is implementing to address youth unemployment.

--- Later in debate ---

[John Howell (Henley) (Con)]

14. What recent representations he has received from the IMF and the OECD on UK economic policy.

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

The International Monetary Fund and the OECD regularly hold frank bilateral discussions with each member country. When Christine Lagarde, the managing director of the IMF, visited London in September, she stated:

“In the United Kingdom strong fiscal consolidation is essential to restore debt sustainability, given the UK’s very high structural budget deficit and large financial sector relative to GDP.”

Angel Gurria, secretary-general of the OECD, said yesterday of the UK:

“You were successful. You cleared the markets. The package was credible…The markets never discuss the quality of the rating of the UK.”

That is a consequence of the actions this Government have taken to tackle the mess left behind by the previous Government.

[John Howell]

I thank the Minister for that reply, but what advice has he been given on the consequences of our failing to pay our IMF subscription?

[Mr Hoban]

My hon. Friend asks a very good question. It is a sad indictment of the state of today’s Labour party that it voted against the increase in the IMF subscription negotiated by the—

[Mr Speaker]

Order. The Minister has said enough, and he has said it about another party’s policy. We need to move on.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Is it not accepted now by the international community that the announcement by the Chancellor a year ago that he would cut half a million public sector jobs led directly to a reduction in consumer demand, and that it has reduced private sector investment and growth and led to an increase in deficit predictions?

[Mr Hoban]

The hon. Gentleman should recognise that the action that this Government have taken has earned the endorsement of the IMF and the OECD. That is why we have the low interest rates the economy needs. The Opposition talk about a plan B, but that would actually increase the budget deficit and the interest rates that this country would have to pay.

[Laura Sandys (South Thanet) (Con)]

15. What fiscal measures he is taking to encourage job creation in the private sector.

Arch Cru Compensation Scheme

Mark Hoban Excerpts

Wednesday 19th October 2011 Westminster Hall

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

I congratulate the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) on securing this debate and on how he introduced it. Despite a barrage of interventions, he managed to maintain his pace and tone and set out a clear narrative of what happened to Arch Cru. I also congratulate my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on his tenacious pursuit of the matter, as well as the other hon. Members who have taken part in the debate.

I express my sympathy to the many Arch Cru investors who have lost a significant proportion of their savings as a consequence of the events that we are discussing. Regardless of how large or small the investment was, and whether they have lost all their savings or a fraction, they have lost out. It is important to think carefully about the cause and what lessons need to be learned.

As my hon. Friend the Member for Chippenham (Duncan Hames) rightly predicted, I must add a note of caution about Treasury responsibilities in the matter. We do not have investigative or prosecuting powers of our own. The Financial Services Authority is the independent regulator. I have spoken to its chief executive about Arch Cru and sought further information about the FSA’s investigations and the voluntary compensation package, and I will respond as fully as I can to the points made today. Hon. Members clearly have an appetite for a lot more detail. I understand, as I have the same appetite, but enforcement action is ongoing, so there is a limit to what can be disclosed in the House.

As the hon. Gentleman and others have said, the case is complex and involves multiple layers of responsibility. Many investors will initially have engaged with Arch Cru’s UK open-ended investment companies, or OEICs, through their independent financial advisers, with Cru Investment Management conducting the marketing of the OEICs. The management of the OEICs was then the responsibility of Capita Financial Managers Ltd as authorised corporate directors and of BNY Mellon Trust & Depositary (UK) Ltd and HSBC Bank plc as depositaries. Although the legal form is that Arch Financial Products acted as the delegated investment manager, in substance, it approached Capita and proposed that fund structure.

The OEICs invested principally in more than 22 Guernsey- domiciled incorporated cell companies, which were listed on the Channel Island stock exchange and required to comply with Guernsey regulations. The cell companies had two independent directors. The administrator of the cell companies was regulated by the Guernsey Financial Services Commission and was responsible, among other tasks, for producing valuations for the cell companies, which were made available to the Channel Island stock exchange. Arch was the investment manager for the cell companies and, of course, the OEICs themselves. Both the OEICs and the Guernsey cell companies were independently audited. That complex structure should make it clear that it is not easy to apportion full responsibility to any single player in the matter.

As part of the authorisation process for UK OEICs, the FSA assesses a fund’s proposition before launch and decides whether it complies with the rules. The FSA then reviews the fund’s prospectus and, after authorisation, continues its normal supervisory activity, which includes visits to authorised corporate directors and depositaries and thematic work such as the monitoring of financial promotions. As hon. Members have identified, the FSA does not regulate descriptions of funds, such as “cautious managed”. It is worth reflecting on what “cautious managed” means. It means that a fund invests in a range of assets with a set maximum equity exposure and a minimum exposure to fixed interests and cash. A minimum percentage of assets must also be held in sterling or euro-denominated assets. That describes what such funds should be.

The FSA is not an auditor and does not check underlying investments or the veracity of share prices. That is the responsibility of others. The regulatory regime is not a zero-failure regime, and the FSA conducts risk-based supervision. It does not visit every firm every year; the frequency of visits depends on firms’ risk and impact. If hon. Members reflect on that for a moment, they will expect more resources to be devoted to a big insurer than to an insurance broker on the high street. However, it is ultimately the responsibility of the firms involved to ensure that they comply with all the relevant rules.

What did the FSA do in this situation? It has been suggested that the FSA let down investors, but its financial promotions monitoring activity picked up some of the issues with Arch Cru OEICs, which were raised with the parties involved. Crucially, in October 2008, during the course of an ARROW inspection visit, the FSA identified issues with the funds, including the fulfilment of the OEICs’ investment objectives. Those issues were raised with Capita Financial Managers, the authorised corporate director, leading to the suspension of the OEICs in March 2009.

On the payment scheme, it should be clear from my opening remarks that the structure underpinning investment in an Arch Cru fund was complex and multi-layered. The FSA could have pursued a comprehensive package of redress, which would have needed agreement from all the parties involved, some of which were responsible for the management of the funds and some for their sale or promotion. Not all those parties are regulated by the FSA or based in the UK. To have put together such a package would have been time-consuming and complex. The FSA has reached agreement with the three parties responsible for the management of the UK OEICs: Capita, BNY Mellon and HSBC. The package was announced in June 2011, and will pay up to £54 million to investors. The amount of compensation takes into account distributions already made to investors and the remaining value of the funds.

The compensation amount also has an element of proportionality, taking into account the fact that while those three parties share some of the responsibility for the losses, they are not solely responsible. Other parties contributed to the failure, and the FSA is currently considering the positions of those other parties. The pursuit of a voluntary settlement with the three parties allows investors to opt to receive payments by the end of this year rather than having to wait several years for the uncertain outcome of a more complex process, which would include enforcement action against the relevant parties. It is a trade-off. Do we want investors, some of whom invested all their funds in Arch Cru, to receive money sooner or later? A question was asked about time scales. People have until the end of next year to decide whether to opt for the package.

The FSA has required the Financial Ombudsman Service to apply the payment scheme to complaints that it receives, under the provisions of the Financial Services Act 2010, which was introduced by the previous Government and supported by us. The provisions ensure certainty to investors and a consistent regulatory approach between the FOS and the FSA. Without them, the FOS would have to consider individual cases on their own merit rather than applying the same principle to every investor. I will explain what the FOS is bound to.

[Alun Cairns]

Will the Minister give way?

[Mr Hoban]

No, I will continue. I have three minutes left and more points to make.

The FOS is bound only in respect of complaints made against Capita, HSBC and BNY Mellon. Complaints made to the FOS about other parties to the investment chain, including independent financial advisers, can still be heard by the FOS. The limitation on the FOS applies only to complaints made about the three parties. That is a clear signal to investors that they can make further complaints about other parties. Investors are free to pursue action through the courts and to challenge the IFA who advised them to invest in Arch Cru funds over whether that advice was appropriate. Numerous people have already done so. If they are not satisfied with the IFA’s response, they can go to the FOS. If a complaint has been upheld but the adviser is no longer in business, investors can also complain to the Financial Services Compensation Scheme and apply for compensation.

[Guy Opperman]

Will the Minister give way on that issue?

[Mr Hoban]

No, I cannot. I have two minutes left. My hon. Friend and others asked about section 14, which I would like to address; I am sure that he will be grateful if I do.

I have yet to be persuaded that a section 14 inquiry is appropriate. It certainly would not be appropriate to announce one while enforcement action is being taken against any party to the matter. The powers are available where it appears that significant damage has been done to the interests of consumers that might not have occurred but for a serious failure of regulation. It is worth pointing out that the power has never been used. Throughout the life of the Financial Services and Markets Act 2000, many issues have not been examined.

As I have said, it is not the FSA’s role to ensure that no firm ever fails, to approve the investment strategy of every OEIC operating in the UK or to ensure that all investments are sound. The FSA does not audit or sign off an OEIC’s accounts. That responsibility rests elsewhere. It was the FSA, through its ARROW inspection, that identified the issues in Arch Cru.

It is vital that everyone engaged in the matter—the regulator, industry players, IFAs and others—reflects on the lessons learned. Many issues emerge, including the scheme’s complexity and consumers’ need for better financial education and better-quality advice. We look carefully at every lesson learned from such cases, and that is reflected in our thinking on the operation of the FSA.

Car Insurance (Northern Ireland)

Mark Hoban Excerpts

Wednesday 19th October 2011 Commons Chamber

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

I congratulate the hon. Member for South Down (Ms Ritchie) on securing the debate. The increased cost of motor insurance has been one of the recurring themes in my postbag since I became a Minister, and those communications have gathered momentum in recent months. The matter affects all parts of the country. It also affects all age groups, but particularly young drivers. At a time when people feel that their cost of living is under pressure, it is important to ensure that the motor insurance market works in such a way as to help consumers and that it tries, whenever possible, to keep the cost of insurance as low as possible.

According to calculations from the Association of British Insurers, motor insurance premiums in 2010 amounted to £10.7 billion, and claims amounted to £10.3 billion. When the other costs of the motor insurance business were taken into account, however, that translated to an underwriting loss of £1.8 billion. The cost of motor insurance to the insurance companies themselves, therefore, is quite significant, and it is loss making. There are clearly some real challenges involved, and we need to think carefully about how we can bring down the costs for insurers, so that that can feed through to the costs for drivers. That is what we are trying to focus on.

The Government firmly believe that businesses and consumers get the best outcomes from financial services if markets are competitive and properly regulated. At the same time, disproportionate or overbearing regulation imposes costs on firms that are passed on to users, either through higher charges and lower returns or through a reduction in choice and competition. Our challenge is to strike the right balance.

It is clear that, on average, motorists faced significant increases in their premiums in the year ending 31 March 2011. That is adding substantially to the costs of motoring in the UK. The hon. Lady was right to say that we need to establish the full facts and the reasons behind any increase, and to ascertain whether there are any consumer or competition issues that need to be addressed in order to improve the functioning of the market.

The Office of Fair Trading therefore issued a call for evidence in September. The OFT is asking insurers and others for their views on a number of aspects of the private motor insurance market that might raise competition or consumer issues. This is an important piece of work; it will improve the OFT’s understanding of the market and put it in a better position to determine whether there are aspects of the market that are not functioning well and how best to address the issues.

The OFT has been actively engaging with participants in the insurance market, trade bodies, the Government, regulatory agencies and consumer groups by issuing information requests. The research that the Consumer Council for Northern Ireland has done will be helpful in informing that process, and it is to its credit that it has carried out that work. I would encourage people to think about any evidence that they can provide. The deadline for written responses to the OFT’s call for evidence closed last week, but it is still open to contributions, and I am sure that it would welcome ongoing input and views. It plans to publish its findings in December this year, and will consider next steps in the light of evidence that it receives.

The hon. Lady focused on the cost of motor insurance in Northern Ireland, and talked about some of the factors that affect it. A research paper on the same issue has been prepared for the Northern Ireland Assembly. It strikes a slightly different note from that of the hon. Lady. It states that

“the relatively high rate of accidents and related casualties in Northern Ireland, combined with higher compensation levels and legal fees suggests that insurers do, in fact, face considerably higher costs when transacting car insurance in Northern Ireland.”

The paper goes on to say that

“the higher car insurance premium rates paid by Northern Ireland drivers might be reflective of higher risks and costs associated with transacting car insurance business here, rather than a discriminatory pricing regime.”

It is interesting to note that, having looked at the cost of motor insurance, the research paper goes on to look at the cost of house insurance, and to compare Northern Ireland with the rest of the United Kingdom. There is clearly a debate to be had about the costs, and the evidence provided by the Consumer Council contrasts with that in the research paper produced by the Assembly. That is why I think it is important for the OFT to look at those particular areas and to understand the reasons why premiums in Northern Ireland might be higher than those in the rest of the UK.

Underpinning the pricing of insurers is the use of risk-based premiums. Insurers take a number of different factors into account when deciding the level of premiums and those factors correlate with the risk being covered. For example, some insurers group postal code areas in order to ensure that all those in a similar risk area are covered in a similar way, but the level of data used in underwriting is a commercial decision for firms, which the Government do not seek to control.

While a postcode does not itself determine whether or not a person will make a claim, it can be an accurate indicator of the likelihood. It is often used in cases where there are hotspots for crash fraud. The three worst hotspots are not in Northern Ireland, but where fraud is used to trigger claims, driving up costs for insurers, those costs are, sadly, borne by all those who drive.

There are other issues. For example, the Government were very disappointed with the recent European Court of Justice ruling that the use of gender as a risk factor by insurers should not result in individual differences in premiums and benefits for men and women. We expect this to have a negative impact on consumers and lead to price rises for motor insurance for young women drivers who are seen to be a safer risk than young male drivers.

What we need to do is to tackle some of the underlying causes of costs for insurers. The hon. Lady was eloquent in identifying some of the reductions in road traffic accidents. She is right to point out that it is incongruous to see road traffic accidents falling in number when motor insurance claims are rising. There is an issue there, and we need to get to the bottom of it.

We are committed to the implementation of the Jackson proposals, including the reform of conditional fee arrangements and a ban on referral fees, which we believe will reduce the risk of frivolous claims. Clearly, as justice is a devolved matter, different arrangements are in place as between the mainland and Northern Ireland. The hon. Lady is right that we need to work with our colleagues in the Northern Ireland Executive to look at where there are differences in the legal regime that could be dealt with to help reduce the cost of claims.

We are looking at introducing a statutory ban on referral fees for England and Wales. Since 2004, when the Law Society lifted the ban for solicitors in England and Wales paying referral fees, people have been encouraged to make claims. That has led to personal injury claims rising at a time when the number of collisions and casualties on the road is falling, yet the number and overall cost of bodily injury claims has steadily increased. The hon. Lady spoke about whiplash claims earlier. It is estimated that they cost insurers about £2 billion each year—a cost borne, of course, by those who pay their motor insurance premiums.

As I have said, we are trying to tackle the issue of the payment of fees in England and Wales, but the prohibition remains in place in Northern Ireland. The hon. Lady mentioned that other people might also pay referral fees. The Assembly and the Executive need to think carefully about how to strengthen the current ban on referral fees in legislation. The hon. Lady should take that up with her colleagues.

Other issues drive up the costs of insurance. The hon. Lady talked about the number of young people who want to drive to work or to college to study. What is happening is that they are in part being priced out of the market, but uninsured driving adds about £30 to each insurance premium. We want to ensure that young people take out the insurance cover that they need to enable them to get to college, while tackling the number of young people who are not taking out insurance cover as a means of driving down the cost of insurance.

In conclusion, the hon. Lady has raised an important point. It is a complex issue, as her speech set out. We want to work with the OFT and with the Assembly and Executive to find ways to reduce the cost of motor insurance in Northern Ireland as well as throughout the UK. The OFT report is an important part of that. We want to work with stakeholders so that we get the right outcome to drive those costs down so that people can use their cars for leisure, education and work without paying through the nose for that privilege.

Question put and agreed to.

UK's Counter-Terrorist Asset-Freezing Regime

Mark Hoban Excerpts

Tuesday 18th October 2011 Written Statements

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

Under the Terrorist Asset-Freezing etc. Act 2010 (the Act), the Treasury is required to report quarterly to Parliament on the operation of the UK’s asset-freezing regime mandated by UN Security Council Resolution 1373.

This is the third report under the Act and it covers the period from 1 July 2011 to 30 September 2011¹.

This report also covers the UK implementation of the UN al-Qaeda asset-freezing regime.

As of 30 September 2011, a total of just over £200,000² of funds were held frozen in the UK. This covers funds frozen under the UK’s domestic terrorist asset-freezing regime, mandated by UN Security Council Resolution 1373, and also funds frozen under the UN al-Qaeda asset-freezing regime, mandated by UN Security Council Resolution 1989.

(1) UK’s domestic terrorist asset freezing regime under the Terrorist Asset-Freezing etc. Act 2010

As of 30 September 2011, a total of 84 accounts containing just over £100,000 were frozen in the UK under the domestic terrorist asset-freezing regime. No new accounts were frozen during the quarter.

Operation of the Terrorist Asset-Freezing etc. Act 2010

Asset-freezing designations and reviews

In the period from 1 July 2011 to 30 September 2011, the Treasury made no new designations under the Act. No reviews of existing designations were completed during the quarter.

Licensing

A total of 10 licences were issued this quarter under the Act in relation to six persons subject to an asset-freeze.

In addition to issuing licences relating to a specific person, the Treasury may also issue general licences, which apply to all persons designated under a particular regime or regimes.

No general licences were issued this quarter under the Act.

Legal Challenges

Two legal challenges against designations made under both the Terrorism (United Nations Measures) Order 2009 and the Act were ongoing in the quarter covered by this report.

(2) UN Al-Qaeda Asset-Freezing Regime

The UN al-Qaeda asset-freezing regime, established under UNSCR 1267, is implemented in the UK by Council Regulation (EC) No 881/2002. Following the split of the UNSCR 1267 al-Qaeda and Taliban regime into two separate regimes in June, this quarterly report will cover just the UN al-Qaeda regime mandated by UNSCR 1989.

As of 30 September 2011, a total of 41 accounts containing just over £100,000³ were frozen in the UK under the al-Qaeda asset-freezing regime. The unfreezing of 43 accounts since the previous quarter was a result of a number of delistings by the UN (see the listings section below).

Listings

During this quarter, the EU added six people and two entities to the list in annex I to Council Regulation (EC) No 881/2002.

Six people and three entities were delisted during the quarter. Of these, five individuals and three entities had UK connections.

Licences

One individual licence was issued in this quarter in relation to a person subject to an asset freeze under the al-Qaeda asset-freezing regime.

Seventeen licences were revoked in respect of the five individuals who were delisted.

(3) Proceedings

In the quarter to 30 September 2011, no proceedings were initiated in respect of breaches of the prohibitions of the Act or the Al-Qaida and Taliban (Asset-Freezing) Regulations 2010.

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

²This figure reflects the most up-to-date account balances available and includes approximately $64,000 of suspected terrorist funds frozen in the UK. This has been converted using exchange rates as of 05/10/11.

³Includes approximately $64,000 of suspected terrorist funds in the UK.

Financial Assistance (Ireland)

Mark Hoban Excerpts

Monday 17th October 2011 Written Statements

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

I would like to update Parliament on the loan to Ireland.

Ireland completed the third quarterly review of its International Monetary Fund and European Union programme of financial assistance on 2 September 2011, at which point the first instalment of the UK bilateral loan became available for drawdown.

Upon request, the Treasury has disbursed the first instalment of £403.37 million on 14 October 2011, with a maturity date of 15 April 2019.

HM Treasury will provide a further report to Parliament, as required under the Loans to Ireland Act 2010, at the end of this reporting period.

The Government believe that it is in our national interest that the Irish economy is successful and its banking system is stable. The Government continue to support Ireland’s efforts to improve its economic situation.

European Regulation of Financial Services

Mark Hoban Excerpts

Thursday 15th September 2011 Written Statements

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

The UK Government strongly support international efforts to reform derivatives markets, including increased clearing of derivatives through central counterparties. G20 leaders, Finance Ministers and central bank governors have agreed that reforms to derivatives markets should be implemented in an “internationally consistent and non-discriminatory” way.

On 5 July 2011, the European Central Bank (ECB) published a Eurosystem Oversight Framework¹. This includes a policy that central counterparties that clear euro-denominated credit derivatives above certain thresholds (€5 billion average daily net credit exposure or 5% of certain product categories) must

“be legally incorporated in the euro area with full managerial and operational control and responsibility over all core functions, exercised from within the euro area.”

The UK considers that this policy is contrary to fundamental single market principles and fundamental principles of EU law. It is also discriminatory on the grounds of nationality and runs counter to the EU general principle of equality.

The policy, if implemented, would affect a number of central counterparties that have located their businesses in the UK to provide services in a range of currencies, EU and non-EU; and would lead to a fragmentation of financial markets by currency zone with profoundly negative consequences for the single market, international capital flows and significant costs for the European and global economies.

Accordingly, the UK Government have chosen to challenge the ECB’s Eurosystem Oversight Framework policy, which it considers to have legal effect and therefore can be challenged under the treaty.

¹ The Policy Framework was not published in the Official Journal of the European Union. It was made publicly available through publication on the ECB’s website on 5 July 2011.