Amendment of the Law

Nicholas Brown Excerpts

Thursday 22nd March 2012 Commons Chamber

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

It is a pleasure to follow the Secretary of State, if only because he has confirmed me in my long-held prejudices about Liberal Democrat politicians. I think he redeemed himself in the last part of his speech about the financial services sector, which is where I would like to begin my remarks.

In his BBC business lecture, Bob Diamond observed:

“We stand today at the end of a long cycle of excess borrowing: borrowing by financial institutions, by governments, by consumers and by businesses.”

The Chancellor made a similar point yesterday when he referred to the

“days of large deficits and the illusion of cheap finance.”—[Official Report, 21 March 2012; Vol. 542, c. 797.]

As we all move in the opposite direction, there are obvious dangers in the cumulative impact of collective repositioning. We should focus our attention on the significant differences between the output forecasts and the actual outcomes. The differences are striking. Corporate tax cuts, for example, marginally help corporate profitability; they do not of themselves stimulate growth or create jobs.

The second feature to focus on is the public expenditure cuts that have not yet taken place. In the autumn statement, a further £8 billion in cuts was announced for 2015-16 and a further £15 billion in cuts for 2016-17 —that £15 billion alone is equivalent to a 3p rise in VAT—and yesterday the Chancellor announced a further £10 billion in public expenditure cuts. This represents an unprecedented challenge.

In referring to external uncertainties, both the Chancellor yesterday and the Business Secretary today mentioned the eurozone and a spike in oil prices. I would add that the secrecy and complexity of the unregulated financial services sector in the United States is a further cause for concern, not least because of its size.

The overall Budget stance is fiscally neutral, but, of course, the impact of the Budget changes is cumulative. VAT is still at 20%. A combination of wage freezes and inflation will reduce real earnings—again, the effect is cumulative. A cut in the top rate of tax is useless for those who do not earn £150,000 a year—and most of us do not. Similarly, a change in lower income tax thresholds is useless for the one third of households that do not have anyone resident who pays income tax because they are too poor. The regressive impact of all this is even greater if the citizen’s housing costs are being driven up by 7% or more a year, which is what has happened to social housing rents. Again, the effect is cumulative.

Pensioners may appreciate the simplification of the age-related personal allowances, but not their collective loss of about £1 billion per year resulting from the freezing of those personal allowances. That does not hit the poorest; instead, it is a nasty assault on people who, in the main, are not particularly wealthy, but have tried to look after themselves in their retirement years. It is a sneaky and disreputable measure. Even the Government seem ashamed of it, since they coyly describe it as a “simplification” and, significantly, it is one of the few bits of the Budget that was not briefed beforehand.

The Chancellor said a lot about the money he is spending, but less about the public expenditure cuts that are going to pay for the fiscally neutral Budget stance. Given the times, it would be reasonable for the Government to look again at whether big-ticket items should be dropped as unaffordable. I urge them to think again about the Trident renewal programme. Why do we need to duplicate a strategic weapon that is already in NATO’s armoury? Nor am I convinced that the high-speed rail link between London and Birmingham is worth the expenditure in the current circumstances. I urge the Government to look at whether valuable tasks carried out in the public sector can be discharged in less ponderous and more proportionate and cost-effective ways, rather than to look at abolition as the only way of making the savings.

In a significant move, the Chancellor announced a general anti-avoidance measure in the context of the move to the 45p top rate and the widespread avoidance of stamp duty on expensive houses. He announced other tax avoidance legislation as well. The obvious danger is that, having gone to the expense of setting up an anti-avoidance device, the avoider gets a taste for it. The lower rate at 45p is a certainty, but the effectiveness of the anti-avoidance devices is less certain. There are further dangers in a general anti-avoidance measure. If it is necessary, it should be focused on the rich and powerful, and not be used in a disproportionate way against small and medium-sized businesses.

My final point is about the impact of all this on the north-east of England. Our region is a net exporter. Whatever might be the case for the country more generally, a broadening and deepening of the private sector employment base of our region is the right way forward for us. The Government do not disagree with this point in principle, but the economic development structures they have put in place are the wrong ones for delivering the stated policy, and I urge the Government—and in particular the Business Secretary, whose responsibility this is—to consider the alternative Minister-led approach to regional economic development that I and other Members set out in our regional debate last year.

I also urge the Government not to go ahead with the regionalisation of public sector pay. This is a “blue herring.” As well as being manifestly unjust, it will cost more than it saves and will throw up a range of unintended and unwelcome consequences. It is a myth that high public sector pay is undermining the creation of less well-paid private sector jobs. I challenge anybody, both in this House and outside, to point out a job vacancy in the north-east of England for which no candidate can be found at the going rate. Why should public sector workers suffer austerity measures longer because of where they live? They are already on the receiving end of wage freezes, job losses, rent rises, general inflation and long-term reductions in their pensions—and are hit even harder if they are trying to help their children through university, and harder still if they have lost their tax credits. Between 2011 and 2015, the average public sector worker will see their wages increase by 2% while the consumer prices index increases by 14%. Now is not the time to depress demand in the most vulnerable regions of the United Kingdom. As well as both the uncertainties to which the Chancellor referred in his address and those to do with the transnational unregulated financial services sector, he has left us with a further set of uncertainties all of his own: the substantial public service cuts that are yet to come. Of course the poor are hurt by this Budget, but it is middle-income Britain that is disproportionately the loser.

[Several hon. Members]

rose—

Financial Services Bill

Nicholas Brown Excerpts

Monday 6th February 2012 Commons Chamber

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

Along with my hon. Friend the Member for Leeds East (Mr Mudie), I represented the parliamentary Labour party in the Commons on the Joint Committee of both Houses that gave the Bill pre-legislative scrutiny. It was a pleasure to serve under the chairmanship of the right hon. Member for Hitchin and Harpenden (Mr Lilley), whom I thank for his fair-minded chairmanship. I also thank the impressive array of witnesses who gave up their time—in some cases very valuable time—to help the Committee in its deliberations.

I echo the right hon. Member for Hitchin and Harpenden in commending the Joint Committee’s report to the House. The Bill essentially addresses itself to the structure and powers of the financial services regulator. It does so at a time when the whole world is facing up to a debt and liquidity crisis and when the financial services sector is viewed by the public with even more distrust than is normally reserved for politicians and journalists.

I do not want to spend much of my remaining eight minutes dealing with the point on which the Chancellor focused. He certainly decided not to waste a good crisis. He focused on the structural questions involved. I do not think that it is primarily a structural question, and that view was shared by the Committee. Structures and architecture are not the root cause of the problem. As my right hon. Friend the shadow Chancellor said, other countries with different regulatory structures faced similar problems. It is not a structural question alone; it is also about the power, scope and information available to the regulator.

It is also—dare I say it—about the behaviour of the regulated. Effective regulation flows from getting the culture, focus and philosophy of the regulator right, as we concluded in the pre-legislative scrutiny report. We as a House should be far less tolerant of the evasive and litigious behaviour of some of the regulated. We should expect the regulator to take an interest in gathering market intelligence and anticipating emerging problems. The focus on that is one of the strengths of the proposed new architecture. It will involve co-operating closely with the regulatory authorities in other jurisdictions, particularly the United States.

If we believe that it is necessary in the broader public interest to regulate the financial services sector trans-nationally, why are we so acquiescent in the existence of a flourishing shadow banking marketplace? What defensible public purpose does that marketplace serve? What is the justification for the almost impenetrable complexity of its transaction structures? Surely the only two possible reasons for it are to avoid transparency and therefore evade the regulator or, somewhere in the details of the complex structures, to turn a small additional margin of profit on very large sums of money at the expense of the unwary. I ask again: why is that in the broader interests of society?

The Committee went to some trouble to establish the balance of power between the proposed new European regulatory architecture emerging from the Basel III process and the new United Kingdom structures. The question is important, and I am pleased that the Chairman of our Committee referred to it. The Commission’s intention is that the European Union’s regulatory regime will be mandatory for all European member states, including us, and will be asserted centrally, not legislated for by national legislation.

The Prime Minister has assured the House that it is the Government’s intention that the European Union regulatory regime should apply to the United Kingdom. The European Union regime will act as a constraining factor on UK regulators, a point that the right hon. Member for Hitchin and Harpenden made in his speech and that I hope the Minister will address when he winds up the debate.

As I argued earlier, the forward-looking, judgment-based regulatory regime must be well informed if it is to function adequately. I thought that the Governor of the Bank of England was clear on that point when he argued that the Financial Policy Committee should have the power to request information from regulated firms and determine the time frame in which that information should be sent. The Chancellor, in his address to us, seemed to support the regulator having that power. If that is his view, it is mine as well, but to the Committee, the Government seemed to be arguing for a more tortuous process that would require Treasury consent and even parliamentary approval. That does not capture the sense of urgency and the need for firmness. We should back the regulator.

While I am on the subject of timely intervention, the Bill is said to be admirably clear on who is in charge during a crisis. The Chancellor made much play of that in his address to the House. The trigger will be the potential need to call on public funds. It is essential, though, that the Chancellor be alerted, at the earliest possible moment, to an emerging situation of that kind. If there is any doubt about that, the Chancellor should get the benefit of the doubt. If he is told only at the last minute, the Chancellor will not be left with a wide range of choices, and none of them will be particularly palatable.

The effectiveness of judgment-led regulation will rest on the quality of the individuals working for the regulator. The Governor argued for a dedicated team of public servants working in a public-service culture who are able to look to a dedicated career in regulation. I believe in public service and share the Governor’s point of view. Such a career should be well-paid and the public servants should be beyond corruption and intimidation. They should be protected by transparency, powerful criminal sanctions and a new parliamentary committee acting as Parliament’s interface with the Governor and his deputies as regulators.

The regulatory system should focus on the protection of consumers and the taxpayer.

[Kelvin Hopkins]

Everything that my right hon. Friend is saying suggests that we are re-empowering Parliament when it comes to how our economy is run, which is the opposite direction from the one in which we have been moving in recent years. Is that not welcome, and does it not strengthen our democracy?

[Mr Brown]

We need to go further. How Parliament interacts with the Governor in his new role as regulator has not been properly addressed in the Bill, but we need to think about that carefully. Although finding fault with every other structural problem with financial services, the Government propose no change to the arrangements for the accountability of the regulator to Parliament. Accountability, therefore, is through Ministers, primarily Treasury Ministers, or through the work of Select Committees, primarily the Treasury Committee, which is one of the hardest-working Select Committees in the House of Commons. We should consider whether that is adequate. As the new arrangements come into effect and settle down, alongside the recommendations from the Independent Commission on Banking, surely there is a need for an authoritative forum in which emerging issues can be examined, ideas explored and recommendations made. Public discussion and transparency are important safeguards.

The other place, too, has a legitimate role in these arrangements. Acting as a check and balance on elected representatives, and public life more generally, is what the other place, as currently constituted, does well. In any event, we should consider very carefully whether we are satisfied with the present arrangements alone. Perhaps this is a suitable subject for a separate debate.

Private sector financial services in the United Kingdom are underpinned by the public sector in a number of important ways. The most significant are the £85,000 deposit compensation limit guarantee; even more importantly, the Bank of England’s role as lender of last resort; and the need to intervene when private sector misjudgments threaten a collapse of the banking system. We, as the people’s representatives, should take an interest in this democratic deficit.

There is a third point to consider. Each of us is elected to represent our fellow citizens. There is nothing more frustrating and upsetting for a constituency MP than to know that individual constituents are faced with an injustice and that there is no effective remedy. Such situations occur far too frequently in the financial services sector. One thinks of the present Arch Cru scandal as the latest of a depressingly large number of similar scams.

I welcome the fact that the Bill gives the FCA powers to intervene in the case of individual products and their promotion. The Bill allows consumer bodies to make super-complaints to the FCA and facilitates a reform of consumer credit with a view to better protecting consumers. That is welcome too. It is important to ensure, however, that the FCA’s strategic objective is clearly stated. I was taken by the suggestion from Which? of

“ensuring a fair and transparent market in financial services”,

which is reflected in the Joint Committee’s recommendation that the FCA’s strategic objective

“should be amended to focus on promoting fair, transparent and efficient financial services markets that work well for users.”

That is more specific than the Bill, as drafted, which refers to

“ensuring that the relevant markets function well.”

The phrase is too general—how else would one want markets to function? There are still concerns that section 348 of the Financial Services and Markets Act 2000 is too restrictive and discourages the publication of information. I hope that the Minister will have something to say about that, because I know that the Government propose to address the matter in Committee.

We are expecting a lot of the new structure and are placing yet more responsibility on the shoulders of the Governor of the Bank of England. The new role has been described as similar to that of a sun-king presiding over an empire. There is clearly a democratic deficit in the new structure that ought to be addressed—

[Madam Deputy Speaker (Dawn Primarolo)]

Order.

[Mr Brown]

I say: “Every man a king, but no man wears a crown.”

[Madam Deputy Speaker]

Order. The right hon. Member is not supposed to take up other people’s time.

Tax Avoidance (Public Servants)

Nicholas Brown Excerpts

Thursday 2nd February 2012 Commons Chamber

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

(Urgent Question): To ask the Chief Secretary to the Treasury if he will set out the Government’s policy on the operation of tax avoidance schemes in the civil service.

[The Chief Secretary to the Treasury (Danny Alexander)]

I am very grateful to the right hon. Gentleman for giving me the opportunity to set out the answer to this question. As hon. Members might be aware, departmental public spending encompassing the appointment of senior civil servants is audited against the Treasury’s “Managing Public Money” guidance. That document makes it clear that

“public sector organisations should avoid using tax advisers or tax avoidance schemes as any apparent savings can only be made at the expense of other taxpayers or other parts of the public sector.”

There is no place for tax avoidance in Government.

A recent case has highlighted those issues, and although I cannot comment on the specifics of an individual’s tax affairs, for reasons of which the right hon. Gentleman will be fully aware, I want to take the opportunity to explain the action that I have taken.

As hon. Members are already aware, for senior civil service appointments whose salary exceeds £142,500, terms and conditions are negotiated by the appointing Department and are presented to me for approval of the salary. Those arrangements are in place to control excessive pay.

In the light of that recent case, I have asked the Treasury urgently to review the appropriateness of allowing public sector appointees to be paid through that mechanism—[Interruption.] I have also asked the Treasury Officer of Accounts—[Interruption.]

[Danny Alexander]

I am grateful, Mr Speaker.

As I was saying, I have also asked the Treasury Officer of Accounts to write to all accounting officers across Whitehall to remind them that all appointments should, in line with existing guidance, consider the wider cost of lost revenue to the Exchequer when considering value for money.

Furthermore, I have requested that all Departments carry out an internal audit by the end of March. As my right hon. Friend the Minister for Universities and Science has said, the Student Loans Company will for the remainder of the contract in question change the arrangements and deduct tax and national insurance at source. Across Government, if any appointments that do not provide value for money are found, whether agreed by this Government or the previous one, I have urged Departments to seek to unwind them as quickly as possible and as quickly as is compatible with securing good value for public money.

At a time when we all have to pull in the same direction to tackle the country’s financial problems, it is essential we all pay our full and fair share. That is why I have taken this action to ensure that Government Departments do not support tax avoidance schemes.

[Mr Brown]

May I point out to the Chief Secretary to the Treasury that the chief executive of the Student Loans Company is the accounting officer? Perhaps the Chief Secretary can tell the House what sort of reply he expects from that accounting officer when he writes to him.

It is reassuring that the Chief Secretary told the House that national insurance and income tax will be paid in future, but the purpose of those arrangements was to avoid paying income tax and national insurance. When considering those arrangements, did he consider the demoralising and corrosive effect that such an arrangement must have on the rest of the public service? What fees are paid by the Department to the service company that is laundering that money? The loss is to the Exchequer and not to the Department’s budget, in which I would have thought the Chief Secretary would take an interest.

The Chief Secretary says—I support him in this—that he will now, belatedly but correctly, scope how many such arrangements there are in the public service. When his investigation is completed, will he put the facts—all of the facts—in front of the House of Commons? Given the controversial nature of those arrangements, will he tell the House whether the Cabinet Secretary approved them, and whether the Prime Minister, the Deputy Prime Minister and the Secretary of State for Business, Innovation and Skills, which is the Department responsible for the Student Loans company, were explicitly aware of those arrangements and whether they explicitly agreed to them?

[Danny Alexander]

I am grateful for the right hon. Gentleman’s support for the action that I have taken in respect of this case. He is right that accounting officers of organisations are responsible for implementing the “Managing Public Money” guidance. That is why the Treasury Officer of Accounts is contacting all such officers within the Government as we speak. I look forward to seeing the responses, including from the range of individuals to whom he referred.

As I said in my response to the right hon. Gentleman’s original question, my responsibility in such matters is with regard to the salary level. In this case, I reduced the salary level and amount of expenses paid under the contract, the details of which were the responsibility of the Student Loans Company and the Department for Business, Innovation and Skills. I was not made aware of any tax benefit to any individual as a result of this case, which is precisely why I have put in place the arrangements for the review that I have set out.

I can tell the right hon. Gentleman that I would of course want to update the House on the results of that review when it is completed, and I look forward to having a further opportunity to discuss the matter with him.

Independent Banking Commission Report

Nicholas Brown Excerpts

Monday 12th September 2011 Commons Chamber

[Mr Osborne]

I can absolutely give my hon. Friend that assurance. The report addresses the issue of Lloyds, which is required to sell branches under European Union state aid requirements. John Vickers thinks that the key test for the Government’s handling of the Lloyds issue will be whether we have created an effective challenger bank. He thinks that any such new bank should have about 6% of the personal current account market, which is more than the state aid proposals would lead to, and that it should be properly funded. I take those recommendations very seriously.

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

What reassurance can the Chancellor give the House that the ring-fencing will be effective at the time when it is most likely to be tested—namely, in the run-up to another debt or liquidity crisis? I listened to his earlier answer about the investment banks putting money into the high street banks, and about that being an advantage for the proposals for ring-fencing, but I have to tell him that I do not find that wholly convincing. If the idea is to get support, he has to be able to explain to the House how this proposal will work when it is required to do so.

[Mr Osborne]

In a sense, the right hon. Gentleman is right. The proof of all the arrangements that we are putting in place, and the international arrangements, will be in the pudding—although it is not really the kind of pudding that we want, because it is a banking crisis.