Credit Union Maximum Interest Rate Cap
Sajid Javid Excerpts(10 years, 11 months ago)
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The Economic Secretary to the Treasury (Sajid Javid)
Last December the Government published a consultation on raising the maximum interest rate cap for credit union loans. This consultation sought views on the proposal to increase the maximum interest rate that credit unions can charge, from 2% per month to 3% per month.
Following this consultation, the Government today publish their response. The vast majority of the responses to the consultation were in favour, including individual credit unions, trade bodies, and consumer groups. The Government will therefore introduce legislation in the autumn to increase the interest rate that credit unions can charge from 2% to 3% per calendar month.
Allowing the maximum rate of interest to increase will enable credit unions to become more stable over the long term, and reduce the losses that they currently make on small, short-term loans. This means that low-income consumers will have greater access to reliable, affordable credit. Even with a 1% increase in the monthly rate of interest, credit union loans will still be substantially cheaper than the alternatives for many consumers with no mainstream options. It is important to note that this increase in the interest rate is permissive; it does not require credit unions to increase the interest rate they charge but simply permits them to do so if they judge that the benefits outweigh the costs.
Many credit unions are strongly embedded in their local communities and are committed to assisting those on low incomes. Research shows that credit unions often appeal to low-income consumers as bodies which are local, accessible and convenient, and which are community-based. Giving credit unions more flexibility in their lending will enable them to recruit new members, and further establish their role in helping the financially excluded.
I am placing copies of this document in the Libraries of both Houses.
Asset Protection Agency
Sajid Javid Excerpts(10 years, 11 months ago)
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The Economic Secretary to the Treasury (Sajid Javid)
The annual report and accounts for the Asset Protection Agency (APA) has today been laid before Parliament.
The report contains commentary on key developments in relation to the APA and the asset protection scheme (APS) and the annual accounts over the period from 1 April 2012 to 31 October 2012.
The APA closed on 31 October 2012, following the Royal Bank of Scotland’s (RBS) exit from the APS on 18 October 2012.
HM Revenue and Customs Brief
Sajid Javid Excerpts(10 years, 11 months ago)
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The Economic Secretary to the Treasury (Sajid Javid)
On 25 March HMRC published HM Revenue and Customs brief 04/13, which clarified the tax position of some regular payments to fund investors made by persons other than the fund itself. The brief stated that these payments, which are usually characterised by industry as rebates of the annual management charge, are taxable and should be subject to withholding tax and then further taxed as necessary at the investor’s marginal rate.
It has been brought to the Government’s attention that offshore investors also frequently receive such “rebates”. Given the legal position, this means that tax should now also be withheld on rebates paid to offshore investors.
However, unlike distributions to domestic investors, offshore investors are not normally subject to withholding tax on either interest or equity distributions. The “rebates” paid to investors are economically similar to additional distributions from the fund. Collecting withholding tax for offshore investors may therefore create distortions in how different forms of distribution from the fund are treated for tax purposes.
This difference could have a profoundly negative impact on the international competitiveness on the UK funds industry. Imposing a requirement to withhold tax would therefore be at odds with the Government’s investment management strategy, published at Budget 2013. The Government are determined to improve the UK’s competitive position as a centre for investment management.
The Government have therefore decided to ensure that this unintended consequence of the law as clarified by revenue brief 4/13 does not create inconsistencies in the tax system or impact on UK competitiveness.
The Government will imminently publish two short statutory instruments amending the Authorised Investment Funds (Tax) Regulations 2006 and also The Offshore Funds (Tax) Regulations 2009. These will remove the duty to withhold tax from “rebates” of the annual management charge in most cases where these payments are made to investors who are not UK resident for tax purposes.
Following a four-week consultation period, the Government expect to lay the regulations, setting out the detailed rules, subject to the usual parliamentary process.
UK Debt Management Office
Sajid Javid Excerpts(10 years, 12 months ago)
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The Economic Secretary to the Treasury (Sajid Javid)
The United Kingdom Debt Management Office (DMO) has today published its business plan for the year 2013-14. Copies have been deposited in the Libraries of both Houses and are available on the DMO’s website, www.dmo.gov.uk.
Oral Answers to Questions
Sajid Javid Excerpts(10 years, 12 months ago)
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The Economic Secretary to the Treasury (Sajid Javid)
Those buying services on behalf of taxpayers should be continuously looking for ways to maximise value for communities. As part of the sustainable procurement agenda, the Department and its agency already consider social factors when evaluating relevant tenders. The Cabinet Office guidance on the Public Services (Social Value) Act has been shared with all procurement staff in the Department and its agencies.
Hazel Blears
I thank the Minister for that reply, but as economic growth and job creation are proving somewhat elusive for the Government, will he now take practical steps to include in major infrastructure contracts—such as High Speed 2, defence procurement and house building programmes—social value clauses that promote local labour, apprenticeships, local supply chains and small and medium-sized enterprises? That is a practical measure that he could put into action now.
Sajid Javid
First, I hope the right hon. Lady will join me in commending the work done by my hon. Friend the Member for Warwick and Leamington (Chris White) to ensure that the 2012 Act reached the statute book. I also commend her for her work to promote and help its passage. However, I do not recognise her comment that jobs and growth have been elusive. We have seen 1.25 million jobs created in the past three years: one of the fastest rates of private job creation ever. Returning to her main point, it is important that social impact is taken into account in public procurement. The Treasury takes that very seriously, and we expect other Departments to do so too.
Jesse Norman (Hereford and South Herefordshire) (Con)
Will my hon. Friend join me in congratulating Hereford Futures on its new construction project in Hereford, which precisely targets drawing in local labour and local firms for the reasons of social value that the right hon. Member for Salford and Eccles (Hazel Blears) mentioned?
Sajid Javid
Yes, I join my hon. Friend in commending Hereford Futures. It is just the kind of procurement we want in promoting social impact.
Helen Goodman (Bishop Auckland) (Lab)
Q6. What recent assessment he has made of the performance of the economy in the north-east; and if he will make a statement.
Karl MᶜCartney (Lincoln) (Con)
Q8. what steps he is taking to secure economic recovery.
The Economic Secretary to the Treasury (Sajid Javid)
The Government’s strategy of deficit reduction, monetary activism and supply-side reform is designed to protect the economy and to lay the foundations for stronger, more balanced growth. There are encouraging signs that the economy is healing. The deficit is down by a third, GDP is growing and the private sector is creating jobs at a near-record rate.
Karl MᶜCartney
I commend the Government’s efforts to reduce the budget deficit. The Opposition are yet again advocating more spending to achieve economic salvation, but such expenditure in the past has left us with a current national debt of close to £1.2 trillion. Does my hon. Friend agree that the British public, and certainly my constituents in Lincoln, will not trust the Labour party with the nation’s finances as long as it continues to hold on to such reckless ideas and to a shadow chancellor who continues to peddle them?
Sajid Javid
I could not have put it better myself; I agree 100 per cent. with my hon. Friend. The economy is healing after suffering the deepest post-war recession this country has seen, which destroyed the hopes of many working families up and down the country. The deficit is down by a third, which has brought confidence and helped create jobs at a record rate: 1.25 million created in three years.
Mr Speaker
Order. I do apologise to the hon. Lady, but we must press on. There is a lot to get through. We need short questions and brief answers.
Sajid Javid
In the last decade of the previous Government, youth unemployment rocketed by more than 70%, so the hon. Lady is in no position to lecture this Government on jobs. In three years, 1.25 million private sector jobs have been created, more people are now employed in the private sector than at any other time in our history and we had a faster rate of job growth last year than the rest of the G7.
George Freeman (Mid Norfolk) (Con)
I congratulate the Government on having created six private sector jobs for every public sector job loss. Has the Minister seen the latest news from the CBI, which this week shows trend growth for this year running at 1.8%, and has he seen this quote from the CBI’s director of economics:
“We continue to expect UK economic growth to strengthen and become more broad-based over this year and next”?
Sajid Javid
I have seen the report to which my hon. Friend refers. I have also seen similar reports—for example, from the National Institute of Economic and Social Research—which also show encouraging signs. Together, all those reports show that this Government’s policies are working.
Mr Russell Brown (Dumfries and Galloway) (Lab)
In reply to a question I tabled, which eventually ended up with the Cabinet Office, I was informed that between June 2010 and September 2012, 741,000 private sector jobs were created. Can the Minister explain the discrepancy between that figure and the fanciful figures of 1 million, and now 1.25 million, private sector jobs that he and his colleagues use?
Sajid Javid
The numbers I tend to look at are those provided by the Office for National Statistics. Those numbers show not that 1.25 million jobs were created in the private sector since the end of the first quarter of 2010, but that 1.31 million jobs were created. If we allowed for transfers from the further education sector, which we do not, the figure would be 1.5 million jobs.
Andrew Stunell (Hazel Grove) (LD)
Q9. What plans the Government have to use the UK’s presidency of the G8 to tackle corporate tax evasion.
Ian Austin (Dudley North) (Lab)
Q16. What recent assessment he has made of the extent to which the rate of increase of average earnings has kept up with the rate of consumer price inflation.
The Economic Secretary to the Treasury (Sajid Javid)
The best way to deal with today’s cost-of-living challenges is to have paid employment. In the UK, the number of people employed has risen by 2.1% compared to a year ago—a faster rate of growth than those of our major competitors, including the US, France, Germany, Japan and the euro area as a whole.
Ian Austin
Instead of being complacent, the Minister should look at what the Office for Budget Responsibility says, which is that real wages will be lower in 2015 than when this Government came to power. A survey in Dudley shows that nine out of 10 families do not think they will be better off next year than this year, that eight out of 10 spent less at Christmas, and that a similar number have stopped saving. Can the Minister tell me why his Government are cutting taxes for millionaires instead of helping hard-pressed families in places such as Dudley?
Sajid Javid
I think that the hon. Gentleman joined the House in 2005, and he is probably scarred by his experience during his first term in government, when he saw unemployment in his constituency rise substantially, with youth unemployment going up by more than 100%. He will know that paid work is the best way to raise earnings. As I said earlier, this Government have helped to create 1.25 million jobs over the last three years—more jobs in the private sector than at any other time in our history. He referred to tax cuts; the tax cuts that have come through the personal allowance are for the lowest paid.
Mike Freer (Finchley and Golders Green) (Con)
T1. If he will make a statement on his departmental responsibilities.
Damian Hinds (East Hampshire) (Con)
T4. In the light of the Government’s commitment to helping families to save for their futures, can the Minister tell us when we will see the details of the consultation on the measure announced in the Budget to allow the transfer of savings from child trust funds to junior individual savings accounts?
The Economic Secretary to the Treasury (Sajid Javid)
My hon. Friend has raised an important issue. The details of the consultation will be published today, and the consultation will close on 6 August. It will deal with the question of whether transfers should be allowed, and if so on what basis. The Government propose that voluntary transfers should be allowed if requested by the registered contact for an account.
Diana Johnson (Kingston upon Hull North) (Lab)
T8. On 25 June last year, the Secretary of State for Environment, Food and Rural Affairs told me that a new agreement was to be reached on flood insurance. I understand that the Chief Secretary, who has been heading up the negotiations, has blocked this deal. As the statement of principles is due to come to an end next month, can he tell me what assessment has been made of the effect on the housing market of hundreds of thousands of householders in this country not being able to get house insurance?
Sajid Javid
The hon. Lady raises an important issue; it is important that affordable insurance is available to people on whom flooding could have an impact. That is why this Government, led by DEFRA, are engaged in intensive negotiations with the Association of British Insurers. In Thursday’s DEFRA questions, she will have an opportunity to put this question to DEFRA Ministers.
Greg Mulholland (Leeds North West) (LD)
The latest dismal figures from the giant pub company Enterprise Inns show the disaster that the leased pub company model has been for the British economy. The boss paid himself nearly £1 million last year, while his tenants are struggling to make a living and are subsidised by the taxpayer, through tax credits, to the tune of millions of pounds. Will my hon. Friend conduct a Treasury study into just how many millions the taxpayer provides to subsidise this immoral business model?
Sajid Javid
My hon. Friend cares deeply and passionately about the pub industry, and has done great work to help, including welcoming this Government’s decision to cut beer duty for the first time in decades. He makes an important point. He will know that Ministers in the Department for Business, Innovation and Skills are looking at this issue, and I will bring it further to their attention.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
T9. The Chief Secretary was absolutely right on the question of the EU referendum Bill. He cannot speak for the Conservative party, but will he ensure that his party leader once again exercises his European veto and ensures that any such Bill does not come forward as a Government Bill and does not have Government backing?
Child Trust Funds
Sajid Javid Excerpts(10 years, 12 months ago)
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The Economic Secretary to the Treasury (Sajid Javid)
The Government have today launched a consultation on whether they should permit the transfer of savings held in child trust funds to junior ISAs, and, if so, on what basis. The Government propose that voluntary transfers from child trust funds to junior ISAs should be allowed if requested by the registered contact for an account, usually the parent or guardian.
The purpose of the consultation, which runs until 6 August, is to obtain further evidence on potential costs, benefits and other impacts of the Government’s proposal, as well as asking for opinions on any alternative proposals, before deciding whether to proceed with any changes.
I will deposit copies of the consultation document in the Libraries of both Houses.
Equitable Life Payment Scheme
Sajid Javid Excerpts(10 years, 12 months ago)
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The Economic Secretary to the Treasury (Sajid Javid)
As of 30 April 2013 the scheme has made payments totalling £604 million and has informed 85% of eligible individual policyholders the value of any payment due. The scheme has also published a further progress report, which can be found at:
http://equitablelifepaymentscheme.independent.gov.uk/
The scheme has now contacted all the eligible individual policyholders it can trace. Any holders of an individual non with-profits annuity or with-profits annuity who have not been contacted by the scheme should call the scheme on 0300 0200 150 to confirm the eligibility of their policy and be advised of the next steps they should take.
The scheme has also started making payments to those who bought their Equitable Life policy through a company pension scheme, with circa 65,000 payments already made to this group. These payments will continue over the coming months.
The scheme has also confirmed that the estates of some 8,000 deceased policyholders have been paid and the process of identifying, tracing and contacting the estates of deceased policyholders continues.
The Government are committed to drawing a line under the Equitable Life issue and the scheme remains on track to close as planned in 2014. The scheme will begin the process of closing down and shutting to new claims later this year. In advance of that the scheme will place adverts in national newspapers to encourage those that are due a payment and have not received it to come forward.
Banks and Banking
Sajid Javid Excerpts(11 years ago)
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The Economic Secretary to the Treasury (Sajid Javid)
I beg to move,
That the draft Cash Ratio Deposits (Value Bands and Ratios) Order 2013, which was laid before this House on 26 March, be approved.
The draft order makes changes to the cash ratio deposits scheme, which is how the Bank of England funds its monetary policy and financial stability functions, which in turn benefit sterling deposit takers. Under the Bank of England Act 1998, banks and building societies of a certain size are required to place a proportion of their eligible deposits in a non-interest-bearing account in the Bank of England, which then invests these deposits in interest-bearing assets—specifically gilts—and the return it makes funds its monetary policy and financial stability functions, which benefit the whole of the banking sector, as well as the wider public.
The Government continue to believe that the cash ratio deposit scheme is the right way to fund the Bank’s important policy work. The operation of the scheme means that the Bank’s income is subject to two drivers: first, the gilt rate, and secondly the size of deposits eligible for the scheme, which is largely driven by the performance of the banking sector as a whole. Over the last five-year period, both these drivers have been lower than expected, which has caused a shortfall in the Bank’s funding. The Government are seeking to address this shortfall by recalibrating the parameters of the cash ratio deposit scheme to current economic conditions.More specifically, the order increases the proportion of deposits that eligible financial institutions are required to deposit at the Bank from 0.11% to 0.18% and increases the total amount of deposits that they have to hold to be eligible for the scheme from £500 million to £600 million. Alongside the Bank’s efficiency savings, these changes aim to ensure that its income covers the costs of its policy functions over the next five-year period.
The Bank is also playing its own part. It is committed to bearing down on costs. In particular, it will seek efficiency savings by establishing a shared corporate services model with the Prudential Regulation Authority. The Bank’s budget for the next five-year period takes these savings into account. The Bank also has opportunities to make further efficiency savings. These potential savings have not yet been incorporated into the Bank’s budget, so are likely to reduce the Bank’s running costs even further over the next five-year period. The Treasury will review the Bank’s progress in achieving these savings once the shared corporate services model with the PRA has been established. As part of the review, the Treasury will consider whether there are implications for the Bank’s funding requirements, and in turn for the cash ratio scheme.
Alongside that, and to ensure that the Bank’s important monetary policy and financial stability work continue to be fully funded, the Government have consulted on the changes to the parameters of the cash ratio scheme. It is these changes that are before us today. They are expected to increase the Bank’s income over the next five years to ensure that it is more closely aligned to the Bank’s costs. The amount that most institutions are required to deposit at the Bank under the scheme is small. In December 2012, 86% of deposits were made by just 20 institutions, with eight each contributing more than £50 million. The large majority of contributions are clearly from larger banks and building societies. Under the new parameters, some financial institutions will need to hold higher deposits with the Bank, but again it will be the larger banks and building societies that are most affected. In fact, 14 smaller institutions—mostly building societies—will be removed from the scheme altogether.
The Bank of England Act 1998 sets out that the cash ratio deposit rate can be changed only once every six months. The deadline for changing the rate for the next six months is 3 June 2013. If the agreement is not implemented by this date, the shortfall in the Bank of England’s funding will continue, which will be a further detriment to the dividend that the Bank pays to the Exchequer. The change is a sensible one that ensures that the Bank’s important monetary and financial stability functions are fully funded. The Bank of England is playing its part by making efficiencies in its operating costs, and this change ensures that banks and building societies that benefit from the Bank’s policy functions play their part. For that reason, I commend the measure to the House.
Sajid Javid
I thank the hon. Gentleman for his support for the order. He asked some good questions, which I will attempt to answer.
First, he referred to the use of the increased revenue by the Bank of England and to increasing costs of the Bank. There are three main points. First, the Bank is playing its part in making efficiencies by sharing corporate services with the Prudential Regulation Authority, which is a demonstration that the Government expect the Bank not just to ask for more revenue to cover its costs but to try to find better ways of generating value for money.
Secondly, in real terms—even after this change—the budget of the Bank of England will be around the same as what it was in 2000-01, so it has not seen a large increase in spending when compared with many Government Departments. The Bank is taking on new responsibilities and its functions have changed over the last decade or so. It is trying to accomplish all that with a budget, through the cash deposit ratio scheme, similar in real terms to what it was in 2000-01.
Thirdly, as the hon. Gentleman recognised, the Bank of England’s responsibilities have changed, especially since the financial crisis. The Bank has had to run numerous schemes and to do a lot more work in terms of financial stability, including new schemes such as the funding for lending scheme and others. I hope that he recognises—I think he does—that the Bank of England needs to cover the costs of these additional schemes.
In terms of the deposits that are affected, we estimate—this is an estimate from December 2012; the estimates will be updated, and I hope the hon. Gentleman appreciates that it is not easy to have the exact number—that about 86% of all sterling deposits in the UK are eligible. That is made up of about 20 institutions, eight of which contribute more than £50 million; the largest banks, naturally, make the biggest contribution.
The hon. Gentleman talked about some institutions being exempt; it was not quite that. As we have raised the bar—the eligibility requirement in the order—from £500 million to £600 million, some smaller deposit-making institutions will now be excluded from the scheme. Rather than being exempt, they are, technically, excluded from the scheme if their deposits are less than £600 million. My understanding is that almost all those 14 smaller institutions are smaller local building societies, which I think is welcome, as it reduces a cost—albeit a small one —for smaller institutions that support local communities.
The hon. Gentleman asked whether we had made any assessment of the economic impact. The Treasury has not done so specifically, because even once the change is taken into account, our view is that there would be a negligible impact as the Bank will not receive a significant increase in revenue from these operations. As he will know, many of the banks concerned would in any case have deposits with the Bank of England beyond the scheme, as part of their capital reserves, so there is no reason to think that the change would make a big difference to their reserve management programmes or would therefore necessarily have an impact on their lending programmes.
With that, I hope I have satisfactorily responded to the hon. Gentleman’s questions, and I again welcome his support for the order.
Question put and agreed to.
UK Guarantee Scheme
Sajid Javid Excerpts(11 years ago)
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The Economic Secretary to the Treasury (Sajid Javid)
UK Guarantees was announced in July 2012 with enabling legislation, the Infrastructure (Financial Assistance) Act 2012, receiving Royal Assent on 31 October 2012.
The Government are confirming that they have approved a guarantee for up to £75 million to Drax Finance Ltd for the partial conversion of a coal-fired power station to biomass.
UK Guarantees was launched in response to constraints in the long-term debt markets by providing a sovereign-backed guarantee to help infrastructure projects raise debt finance. In exchange for a guarantee a fee will be charged to the borrower, determined by the nature of the guarantee and the risks inherent in the project. Guarantees for up to £40 billion in aggregate can be offered under the initiative.
The Government will report to Parliament on the financial assistance given in line with the requirements set out in the Infrastructure (Financial Assistance) Act 2012.
Cash Ratio Deposit Scheme
Sajid Javid Excerpts(11 years ago)
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The Economic Secretary to the Treasury (Sajid Javid)
The Treasury has today published a summary of consultation responses in relation to the review of the cash ratio deposit scheme, copies of which are available on the HMT website and have been deposited in the Libraries of both Houses.