Spring Statement

Stephen Hammond Excerpts

Tuesday 13th March 2018 Commons Chamber

[Mr Hammond]

I will perhaps remind the hon. Lady that the OBR’s autumn report in November was only four months ago and that in the normal course of events one would not expect, in the absence of some shock to the economy, economic forecasts to change very significantly. The front-end forecast has changed, because the outturn for 2017-18 has changed. The OBR forecast growth 0.2% lower than it turned out to be in 2017-18 and that has a knock-through effect, which has increased its growth projection for this year.

[Stephen Hammond (Wimbledon) (Con)]

Investing in our economy creates jobs and growth, and successful businesses drive that. Will my right hon. Friend tell the House how much the corporate tax take has gone up since the cut in corporation tax? Will he confirm that he will do nothing to hinder our internationally competitive corporate tax rates?

[Mr Hammond]

Yes, I can. I am happy to tell my hon. Friend that since we reduced the rate of corporate tax to 19%, the yield—the amount of tax we raise for our public services, our hospitals and schools—has gone up 54%. It is clear that being one of the most competitive tax jurisdictions in the G20 is one of the determining factors in many investment decisions coming to the UK, creating the jobs and prosperity we need for the future.

Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 27th February 2018 Commons Chamber

[Elizabeth Truss]

We are putting additional funding and support into children’s mental health services and the Department for Education has recently announced additional support for children’s mental health issues in schools.

[Stephen Hammond (Wimbledon) (Con)]

Will my right hon. Friend tell the House what assessment the Treasury has made either separately or jointly with the Department for Transport of how external initiatives on competitiveness and investment might help the rail sector and Network Rail in particular?

[Mr Philip Hammond]

Strictly, this is an issue for my right hon. Friend the Transport Secretary, and he is looking at how to improve productivity in the railway and how to ensure that every pound we invest in the railway delivers the maximum possible benefit to railway users. He will make further announcements in due course.

Budget Resolutions

Stephen Hammond Excerpts

Wednesday 22nd November 2017 Commons Chamber

[Stephen Hammond (Wimbledon) (Con)]

It is a pleasure to follow the hon. Member for Harrow West (Gareth Thomas). I certainly agree with his remarks about the role of co-operatives in financial services and other parts of our economy. In fact, he and I have spoken about that previously.

The Chancellor said that this was a Budget “fit for the future”. In many ways, all Budgets are fit for the future because it is the future that we face. Some, of course—including many delivered by the previous Chancellor—had to cure the ills and mistakes of the past. Today, some of the pressure and pain that the economy has had to take is being put right and we are seeing some benefits in a number of ways.

My right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) was right that much is spoken about intergenerational issues, and the worst intergenerational burden we can leave is to load the next generation with the debt of our generation because of our reckless spending. The Leader of the Opposition was so right when he said that it could have been so different; we could have seen a deficit denied, more money spent, more tax raised and little benefit. In reality, our constituents would have borne the brunt of all that. The Chancellor was right to point out that the OBR is independent and gives a view with the best economic forecasting available. But it is also right that all forecasting bears risks. I have only had a quick chance to look at the OBR analysis, but it brings up some interesting points.

The hon. Member for Islwyn (Chris Evans) mentioned productivity several times, and he is right that it is the central challenge for this economy. In fact, I think that the hon. Member for East Dunbartonshire (Jo Swinson) made the same point. As an economic historian of relatively modern times, I think it is fascinating to note and worth remembering that the previous Administration had to redefine productivity because it was falling so fast under their watch. The OBR makes the point—and this is a disappointment—that although productivity is picking up, it is not reaching pre-crisis levels. That is why people should particularly welcome the schemes for retraining older people contained in the detail of the Red Book, as well as the science, technology, engineering and maths skills training. I particularly welcome the retraining partnership schemes because the participation rate is one of the biggest problems highlighted by the OBR, as we have an increasingly elderly population without the skills to tackle some of the new industries that will so obviously exist. The Chancellor was right to say that much needed to be done on maths and computing if we are to meet the challenges of the future.

There is clearly an awful lot of detail in this Red Book. Chancellors often hope, when they present their Budgets, that people will pick a rabbit out of the hat that will make the headlines so that they do not look at the details. In fact, much of the good stuff is in the detail today. It is worth mentioning, for example, that today’s announcements on universal credit show that the Chancellor has been listening. He is right to say that we have to have a modern welfare system, so that work is always encouraged. One of the real experts, David Orr, the chief executive of the National Housing Federation, which represents most of the housing associations, has already stated:

“We particularly welcome the changes to Universal Credit, including the advance payments…These changes will make a direct and positive impact to the lives of housing association tenants.”

[Jamie Stone]

Whatever the rights and wrongs of universal credit, and the motives behind it, the lack of internet access in my vast and wide-reaching constituency is an immovable obstacle that cuts against the best intentions of the Government. Do the hon. Gentleman and those on the Government Front Bench recognise this massive problem?

[Stephen Hammond]

The hon. Gentleman is absolutely right. That is an infrastructure problem, however, and I hope he will have noted a number of announcements on infrastructure today, including the fact that the roll-out of broadband is being accelerated. I absolutely agree that there is a massive problem, and I am very pleased that those on the Government Front Bench are doing something about it. At constituency level, I should also like to welcome the announcement of the Naylor review and the fact that some money will be going to St George’s Mental Health Trust. That will be welcomed in Wimbledon, as will the announcement that Crossrail 2 is proceeding, although we hope that it will do so at a faster pace than the trains.

For a lot of people, the key Budget announcements relate to infrastructure. I was particularly interested in the amount of money the Government are putting into transforming cities, not only by providing local transport but by giving cities and mayors the flexibility to embrace new urban design and incorporate the new industries of the future, and by giving local councils the ability to offer discounted lending. The Government often encourage them to make this lending available to high-value infrastructure projects that will provide extra facilities for local people. It is key that that money should not be ring-fenced for particular projects and that it can be used to allow new urban design ideas to be utilised.

I have recently been a keen contributor to the Housing and Finance Institute’s papers on bringing forward sites in a way that provides not only the necessary housing but all the services that are needed to go with it. Major applications—and sometimes smaller ones—are often frustrated by a lack of provision not only of roads and rail but of electricity and water, for example. A report to which I was pleased to contribute recently landed on the Chancellor’s desk, and it has clearly made an impact. I was pleased to see today that he is establishing Homes England. That detail might have been missed by many, but I suspect that allowing the Government’s major house building and infrastructure directive to have a much wider remit will enable a number of projects to be brought forward more quickly, particularly when combined with some of the other measures in the Red Book. For example, the strategic sites fund will be very welcome, particularly when combined with the announcement on Homes England. There seems to be some grown-up connected thinking going on inside the Treasury, which I welcome. The Economic Secretary to the Treasury, my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) smiles. He is always guilty of this kind of thinking, but it is not always evident to everyone else.

Certain factors are really noticeable to anyone who has done any analysis of the housing market. It is clearly about supply, which everyone talks about, and about the big projects. However, if we look across our constituencies, there will be any number of small sites that are not being brought forward, which is why we have seen the decline of the small builder. The extension of the house building fund, the small sites fund and, probably most importantly, the loan guarantee to small builders are likely to bring forward more sites. That may well be incremental, but every site of 10, 20 or 25 homes adds up, and that is to be welcomed. On a regional level, I also welcome the fact that we have for the first time seen an acceptance that house prices are not the same everywhere in the country, and today’s stamp duty announcement will be particularly welcomed inside London.

My final point relates to the patient capital review. Some of the structures put in place in the past often did not recognise the need for an emphasis on high risk and high growth. If funds are to get advantages, they should be high growth and high risk, and today’s announcement will be a benefit, particularly if it works alongside the private sector to bring forward £7.5 billion into the industries of the future. There is much to welcome in the Budget and, unlike many Budgets, there is much in the detail, so I commend it.

Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 18th July 2017 Commons Chamber

[Elizabeth Truss]

The hon. Lady should be aware that more than half of nurses and NHS workers saw a 3% pay rise last year. She needs to check her facts.

[Stephen Hammond (Wimbledon) (Con)]

T10. Last night, I met a major financial institution. Does my hon. Friend agree that for London to retain its place as the leading financial centre we need a regulatory regime based on mutual recognition and an early-agreed transitional phase to provide certainty?

[Stephen Barclay]

My hon. Friend rightly champions that key sector which provides £71 billion of tax to fund public services. It is in the interests of the UK and the EU to avoid fragmentation because that will increase costs, and the Prime Minister has made it clear that we are ambitious, in terms of the trade deal that we reach with the EU, to come to an arrangement that delivers regulatory equivalence.

Economy and Jobs

Stephen Hammond Excerpts

Thursday 29th June 2017 Commons Chamber

[Mr Hammond]

I will make a little progress and then I will give way to some more colleagues on both sides of the House.

On this side of the House at least, we continue to believe that the most effective way to protect and support ordinary families is to ensure that they have jobs, and that is what we have done, in spades. The flaw in Labour’s tax plan is not just that it will hit those whom Labour claims to support; it is that it will not raise anything like the revenue that it is claiming. Labour says it will raise taxes by £48.6 billion without anyone earning under £80,000 paying a penny more. The Institute for Fiscal Studies—which the right hon. Member for Hayes and Harlington quoted rather selectively—has examined the credibility of that plan. It found that Labour

“certainly shouldn’t plan on their stated tax increases raising more than £40 billion in the short run, and more likely than not they would raise less than that. They would certainly raise considerably less in the longer term.”

So before we even turn to Labour’s spending plans, there is already a black hole of £8.6 billion a year and rising on the taxation side alone.

[Stephen Hammond (Wimbledon) (Con)]

Is it not even worse than that, in that the IFS said that there were £58 billion of uncosted promises in Labour’s supposedly costed manifesto?

[Mr Hammond]

My hon. Friend is exactly right, and if he bears with me, I shall continue.

That black hole of £8.6 billion a year and rising in taxation will have to be filled by raising tax on ordinary people, and that was just the manifesto. Since the Leader of the Opposition got his new suit, he has been out and about, flinging spending commitments with gusto at anyone he comes into contact with—another £9.5 billion of unfunded commitments for each year of this Parliament. Added to the hole in Labour’s tax plans, that is an additional £90 billion over the course of the Parliament that has to be raised in taxation on ordinary working families.

Let me say that again for the right hon. Member for Hayes and Harlington: £8.6 billion a year of under-recovered tax, according to the IFS, and another £9 billion-plus a year that his right hon. Friend the Leader of the Opposition added in additional unfunded commitments after the manifesto was published. In short, that is the Opposition’s approach to the type of tough decisions that have to be made every day in government about prioritising limited resources—“Should we do x or should we do y?” His answer is just yes: more everything for everyone, and all of it for free—a catastrophic recipe for economic and fiscal disaster.

--- Later in debate ---

[Stephen Hammond (Wimbledon) (Con)]

I congratulate the hon. Member for Warrington South (Faisal Rashid) on his maiden speech and his gracious tribute to his predecessor.

When I read the Queen’s Speech, I see the essence of the Government’s economic policy—to continue to improve the public finances. Government is about taking the right and the hard decisions for this country. Improving the public finances, often disingenuously called “austerity”, is not a political decision, but the key to prosperity. There is nothing intrinsically economically sound about a nation with a budget deficit of 11% spending £1 of every £4 it borrows on interest payments—money that should be spent on investing in public services and the future of this country. I therefore support the continuation of the commitment to apprenticeships and T-levels.

As we have seen the deficit fall over the past seven years, we have been able to use the money to make sure that we take the lowest paid out of tax and to create the national living wage and an environment in which 2.9 million more jobs have been created. Investment and extra taxation are coming in and being reinvested in the public sector.

The opportunity to govern is nothing unless it is used as an instrument for good. In closing the deficit—and not only through the measures in the Queen’s Speech—the Government will have the opportunity to do good. We have all stood on the doorsteps in the past few weeks during the general election, which exposed intergenerational tendencies that we have not seen in decades. The normal pact that a new generation will be wealthier than the one preceding it has broken down.

Given the Government’s sound economic policy, we now have chances to create Conservative solutions to some of the problems. We do not need to follow the snake-oil politics of the right hon. Member for Islington North (Jeremy Corbyn), but we do need to consider why it is acceptable for interest payments on student loans to be 6.1% when the market rate is something less than 1%. A Conservative solution is to say, “That’s a market distortion—let’s attack it.” Let us do that in several ways. One way is surely to allow new entrants into the student loan market, to ensure that the level of loan payment is brought down.

It is the instinct of everybody in the country to own a home or rent one in the area they choose. In the 1950s, Supermac built homes for all; in 2020, the challenge for the Prime Minister is to become “Supermay”, to ensure that this Government build a million homes in the next five years. We can do that with Conservative policies. I see the Secretary of State for Business, Energy and Industrial Strategy on the Front Bench; I hope he will continue to espouse changes to planning laws, to free things up. I hope that the public sector and private sector become involved. Let us have tenure-free building from housing associations and let them free up some of the rent provision so that they can build more.

Anyone who has read anything about the first industrial revolution will understand that it was local capital that built homes, that built industries. Let us use local institutions, the local enterprise partnerships, to fund infrastructure bonds and project bonds to build those houses and build the infrastructure this country needs so that at the next general election, as my right hon. Friend the Member for Loughborough (Nicky Morgan) said, it will be the Conservative party that offers that vision of hope and aspiration and that yet again offers the ladder of opportunity for all.

Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 28th February 2017 Commons Chamber

[Suella Fernandes (Fareham) (Con)]

8. What fiscal steps he is taking to support the development of long-term infrastructure.

[Stephen Hammond (Wimbledon) (Con)]

13. What fiscal steps he is taking to support the development of long-term infrastructure.

[The Chancellor of the Exchequer (Mr Philip Hammond)]

We recognise that the need to increase public spending on infrastructure is at the heart of our productivity agenda. That is why, at autumn statement 2016, we committed £23 billion of additional capital to fund new productivity-enhancing economic infrastructure through the national productivity investment fund. Coupled with the commitments made at spending review 2015, that means that between 2016-17 and 2020-21 central Government investment in economic infrastructure will rise by almost 60%, from £14 billion to £22 billion.

[Mr Hammond]

I think the Stubbington bypass was well worth waiting for. It will indeed support growth and development by improving access to both the M27 and the A27, allowing much needed business investment, creating new jobs, but also enabling the development of 900 new homes. Where we can get transport infrastructure investment to perform its transport function but also to help to open up land for development for new homes, that is a double hit.

[Stephen Hammond]

My right hon. Friend will be aware of the appetite for non-Government sources to provide funding for UK infrastructure. Can he confirm whether the Government are considering regional, national or project-based infrastructure bonds? Will he agree to meet me and a group of funders to discuss the attractions of such bonds?

[Mr Philip Hammond]

The most economical way for the Government to fund infrastructure investment is through conventional gilts—that is the lowest cost to the public purse. However, the Treasury backs infrastructure bonds and loans issued by the private sector through the UK guarantees scheme. At autumn statement, I announced that that scheme would be extended until at least 2026. It has played a vital role not just in underwriting and guaranteeing finance for projects, but in allowing a large number of projects to go ahead without the Government guarantee, simply by having underwritten the financing during the programme phase.

London Stock Exchange

Stephen Hammond Excerpts

Tuesday 21st February 2017 Westminster Hall

[Stephen Hammond (Wimbledon) (Con)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I am glad: your stricture will cut down my 20 minutes of waffle to three minutes of pithiness. The London Stock Exchange is one of the world’s largest diversified international market infrastructure and capital markets businesses. However—my hon. Friend the Member for Stone (Sir William Cash) made this key point—it is no longer a social institution. It is a public company like any other. Its existence and ability to trade depends on its range and quality of products. It is not a members’ club or a public body.

Since its inception as a public company, it has changed dramatically, not only in the last 12 years but in the 40 years since we joined the European Union. As we leave the European Union, we need to recognise how much it has changed. It has sought opportunities to expand, and it has brought great success to the City of London, extending the range of products and activities. One therefore needs to see the merger with Deutsche Börse as the latest in a long list of opportunities and expansions that the London Stock Exchange has taken part in.

I do not have time to rehearse or go through my hon. Friend’s concerns. He was right to make a number of them—there clearly are some concerns—but he failed to talk about any of the significant advantages. First, the merger would create a European market infrastructure company to challenge other comparable companies in the world. It is simply not right to say that the efficiency savings or cost savings would be minimal. There would be considerable efficiency savings that would reduce the trading costs for market participants and, inevitably, for end users—the pension funds we are all in—and it would reduce the costs for capital raising.

One of the great advantages of this potential merger is that the UK’s high-growth businesses—they are the backbone of this country and, as we are now all Brexiteers, they want to go out into the world and compete—need to be able to get the capital that is so critical for growth and job creation in the United Kingdom. Highly innovative, high-growth companies in the UK need that access to non-bank finance and, in particular, equity. They also need the ability to access debt and debt instruments, which is one of the major opportunities that the merger will provide to both UK-based regional powerhouses and internationally-competing UK companies. We should not underestimate that benefit.

Charter for Budget Responsibility

Stephen Hammond Excerpts

Tuesday 24th January 2017 Commons Chamber

[Mr Hammond]

My right hon. Friend, who represents one of the most productive sub-regions in the entire European Union, is of course right. There is a perfectly respectable economic argument that, as participation in the labour force increases, bringing more marginally productive workers into the labour force, that may have a depressing effect on labour productivity overall. However, the employment participation rates in Germany and in the UK are not all that different. I do not think we can explain a 30% productivity performance gap by differences in levels of participation in the economy. Indeed, there is much debate among economists about the cause of this productivity gap, and the cause of the generally poor productivity performance of developed economies over the past few years.

We chose at autumn statement 2016 to invest an additional £23 billion through a national productivity investment fund, which aims to raise productivity, support job creation, and boost real wages and living standards. Every penny we spend from this fund will be used to boost economic infrastructure, research and development, and housing. It will bring total investment in these areas to £170 billion over the next five years. It means that gross public investment will be at least 4% of GDP for the rest of this Parliament—that is higher than in any period between 1993 and the great crash.

[Stephen Hammond (Wimbledon) (Con)]

The Chancellor is right to place productivity at the centre of the economic problem, and the productivity fund will undoubtedly be helpful in infrastructure. Another challenge is to get the corporate sector back into investing. The factory of which my hon. Friend the Member for Lichfield (Michael Fabricant) spoke is a new one with new technology. Surely, one of the lessons that we can learn from his experience is that getting corporates to invest will boost productivity, and I wonder what measures the Chancellor is hoping to bring forward in that area.

[Mr Hammond]

My hon. Friend is absolutely right. Public investment in infrastructure is part of the story, as is public and private investment in skills. Increasing the stock of capital available for each worker to use is also part of improving labour productivity.

We know that business hates uncertainty, and the uncertainty that has been created by the Brexit vote has undoubtedly slowed down business investment decisions. However, the problem of productivity that we are looking at is not a short-term problem in response to the Brexit vote; it is a much longer-term challenge in the UK economy. Large companies in the UK are well capitalised, and their levels of capitalisation are similar to those of comparable businesses elsewhere. I suggest that there is a challenge over the capitalisation of smaller businesses in the UK, and that access to long-term capital in the UK is one of the challenges that we need to address. The Government undertook at autumn statement to conduct a review of the availability of patient, long-term capital for smaller businesses in the UK.

The money that I have just spoken about for public investment through the national productivity investment fund will provide the financial foundations for our industrial strategy, which was launched yesterday and builds on Britain’s strengths. Let me be clear that this charter is not consistent with Labour’s proposal to borrow at all times for anything that it terms “investment”. If any of my hon. Friends are thinking that that sounds horribly familiar, that is probably because it is essentially Gordon Brown’s old golden rule, which is the very antithesis of budget responsibility. We all know where that got us: an unsustainable boom in Government spending that took us into the great recession with the largest structural deficit in the G7. Labour’s big idea is to repeat the same mistake all over again. That is yet another demonstration that the Opposition are not willing to learn from the past and have no ideas for the future.

What I propose is different. The national productivity investment fund will be targeted at economic infrastructure projects, housing and research and development that will boost national productivity. The National Infrastructure Commission will ensure that our future infrastructure decisions are based on independent, robust analysis. We choose to invest in productivity not just because doing so can transform the growth potential of our economy, but because it contributes to addressing the social challenges that we face. Sustainable living standards, for all parts of our country and all sectors of our population, depend on our improving our productivity through better skills, opportunities to retrain, better infrastructure and better private investment. That investment is possible only because we are prepared to take tough decisions to maintain control of current spending.

As the OBR made clear last week in its fiscal sustainability report, the end of the Parliament is not the end of the challenge. That report contains some tough messages and some important early warnings. The OBR sets out clearly the significant challenges we will face as our population continues to age over the next half century. Driven by increasing life expectancy, low fertility rates and the retirement of the baby boomer bulge, our dependency ratio will go from 3.5 people of working age supporting each retiree to just 2.2 in 2066. The OBR projects that those demographic trends will lead to increased spending in age-related areas such as health, long-term care and the state pension, but that the same demographic and economic trends mean that revenues will remain broadly stable.

The OBR notes that we are not the only country facing those challenges. It also notes that the long-term figures are highly uncertain and should be seen as illustrative projections rather than precise forecasts. None the less, the potential impact on the public finances is significant.

On the assumption of no policy response—in other words, that the Government do nothing, which I promise hon. Members will not be the case—debt could rise to 234% of GDP by the end of the 50-year projection period, with two thirds of the increase since the 2015 report attributable to healthcare spending. In the rather nearer term, the report also shows that without further policy action we will not hit a surplus in the next Parliament.

That is why at autumn statement 2016 I reiterated that the tax and spending commitments for this Parliament set out in the 2015 spending review will be delivered, and we will meet our manifesto commitments to protect the budgets of priority public services. I also confirmed that the Government will review public spending priorities and other commitments for the next Parliament in the light of the evolving fiscal position at the next spending review. There will be more difficult choices to make before we have completed the job of restoring the public finances to health.

Controlling our welfare bill is a vital element of getting back to balance. At £220 billion, welfare represents a quarter of all Government spending. In the absence of an effective framework, spending on working-age benefits tripled in real terms between 1980 and 2014. By 2014, each person in work in this country was contributing, on average, £3,000 per year to the cost of working-age benefits. Action taken since 2010, including the welfare cap in the previous charter, has stabilised welfare spending, and we will maintain that stability.

The charter before the House introduces a new medium-term welfare cap, which is set to reflect the current forecast of eligible welfare spend, taking into account the policy changes made since the last Budget. The cap will apply to welfare spending in 2021-22, and performance against this cap will be formally assessed by the OBR once—in the year before that, 2020-21. In the interim, progress towards the cap will be monitored by the Government, based on the OBR’s forecasts of welfare spending. Shifting from an annual to a medium-term cap will avoid the Government having to make short-term responses to changes in the welfare forecast, while ensuring that welfare spending remains sustainable over the medium term.

Let me reiterate to the House what I have said previously: the Government will deliver the overall total of welfare savings already identified, but we have no plans to introduce further welfare savings in this Parliament beyond those already announced.

Autumn Statement

Stephen Hammond Excerpts

Wednesday 23rd November 2016 Commons Chamber

[Mr Hammond]

First, I urge the right hon. Gentleman to look at the figures in a little more detail. The £122 billion that he quotes runs over a fifth year. It includes the £23 billion of discretionary additional commitments that I have made today, as well as more than £20 billion of baseline adjustments due to previous policy changes around welfare benefits and classification changes made by the ONS. He therefore really needs to look at the figures.

On the NHS, as I have said already, there are trust deficits building up across the country. At the moment, they are manageable within the context of the NHS’s own internal cash management system, but we will of course keep a close eye on them. We take the view that the NHS has asked for financing of a specific and defined plan. We have provided that financing. We now need to challenge NHS managers who have asked for that money to deliver the outcomes that they promised. We will watch very closely and stick close by as they do.

[Stephen Hammond (Wimbledon) (Con)]

I congratulate my right hon. Friend on his first and last autumn statement. In particular, I warmly welcome the support for infrastructure. With regard to the investment for 140,000 new houses, may I ask him to consider the suggestion from the National Housing Federation that those affordable houses are built tenure-free so that they might be delivered more quickly?

[Mr Philip Hammond]

I did say in the statement—my hon. Friend might have missed it—that we will relax the restrictions on tenure that are normally attached to affordable housing grant funding so that affordable housing providers can build with the mix of tenures that is right for the particular market in which they are operating. That will allow housing to be built more quickly, and housing need to be met more quickly.

Leaving the EU: Financial Services

Stephen Hammond Excerpts

Thursday 3rd November 2016 Commons Chamber

[Stephen Hammond (Wimbledon) (Con)]

I should say at the outset that I am chairman of the all-party group on wholesale financial markets and services, and that I worked in the industry for a few years before I entered the House.

I congratulate the hon. Members for Leicester West (Liz Kendall) and for Nottingham East (Chris Leslie) on securing this incredibly important debate. We are concentrating on an industry in which we have the greatest comparative advantage. It is important for the economy not just because it means that we can help public services, but because, as the hon. Lady pointed out, it is the lifeblood of many other industries. She has set out the facts about how many people it employs. It is the largest taxpaying sector and the largest exporting sector.

The sector is also the one with the largest trade surplus with the European Union. It is absolutely clear that one reason for that is that we have had access to and membership of the single market. London was always a financial centre, but membership of the single market has allowed it to become the undoubted capital for financial services not just in Europe, but arguably in the world. We have had a common set of regulations, we have broken down barriers, we have attracted huge investments, and global operations have moved to Britain. Leaving the single market or losing access to it would be calamitous for the financial services sector.

Some colleagues have argued that immigration was a key reason why we voted to leave the EU on 23 June, and that freedom of movement must therefore be at the forefront of our thoughts. I have heard colleagues argue that we should say to the EU 27, “Trade on these terms or we will leave on WTO terms.” Such an outcome would make access to the single market impossible. That would be hopeless for financial services, because we are already seeing, in both analysis and actuality, the impact of what has happened. The hon. Member for Streatham (Mr Umunna), who is no longer in the Chamber, mentioned euro clearing. We have already seen euro clearing for currency dealing leaving London, and euro clearing for securities would leave as well. As the hon. Member for Leicester West pointed out, many institutions are drawing up contingency plans for that.

Last night, I attended a meeting of the National Institute of Economic and Social Research. Its most recent analysis shows that if we leave the EU on just WTO terms, which exclude most financial services, London would lose 60% of financial services business with the EU. I do not think that anyone, whatever their view, would regard that as anything other than a calamitous result.

The hon. Lady was right to concentrate on passporting. Passporting is necessary. It is not just a case of putting up a brass plaque on a door somewhere else in Europe; since the change in financial regulations, there is much more to it than that. It would be much more difficult to establish trade functions across Europe if we gave up passporting. The Chancellor told the Treasury Committee two weeks ago that he accepted the importance of passporting, and I hope the Economic Secretary will assure us that the Government recognise that.

Passporting is not only important for the banking industry. The Association of British Insurers put out a brief this week—I also met its representatives this week—about the ability of businesses throughout the UK to carry out insurance business across the world, and how they will be unable to do that if we lose passporting.

[Sir William Cash (Stone) (Con)]

I am sure my hon. Friend is aware that there is not a single market in insurance, and that 87% of all insurers operate through subsidiaries in the EU, rather than in branches dependent on passporting?

[Stephen Hammond]

My hon. Friend would be right to claim that about asset management, but I think he is confusing the two industries. The London Market Group said this week that although the number is not as high as that for banking, the amount of business done in the EU is substantially higher than the number my hon. Friend cites. I am happy to ask the LMG to come and discuss that with him.

If the Government are prepared to be rational, a solution can be negotiated, and that is what many people will want to get out of this debate. We might be able to have cross-industry work visas that would involve some limit on access—that would fulfil the requirement of those who want to control freedom of movement—but would also allow us some access to the single market.

As the hon. Member for Leicester West pointed out, an equivalence regime would need to be established, but such regimes are fraught with difficulty. The issue is whether we could establish a bilateral equivalence regime similar to what we have with America. A regime dominated by the European Court of Justice would not be satisfactory for the financial services industry and would wind back our prospects substantially. I would have liked to have said more about that, but I will heed the strictures of the Chair.

It is absolutely clear that the Government must give some guidance on transitional arrangements. The industry cannot wait for the end of the article 50 process. This is a bridge: the Government might not be able to set out exactly where we are going, but they must show that they understand the importance of financial services to this country and our position globally by giving the sector some certainty that after the article 50 period—it is unlikely we will be able to do a deal within two years—they will have transitional arrangements in place. That would mean that wherever we end up, the financial services sector can start its journey over the bridge.

I have no doubt that the Prime Minister and the Economic Secretary understand the importance of this industry to our country. I also have no doubt that we can negotiate a hybrid deal through which we can retain jobs and maintain London as Europe’s financial centre.