Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 4th November 2014 Commons Chamber

[Mr Gauke]

No; we have brought forward 40 measures to reduce tax avoidance, reduced the tax gap as a proportion of tax receipts, and increased by £7 billion the yield brought in by HMRC. The truth is that it is this Government who have acted in this area, and the record of the previous Government does not bear comparison.

[Stephen Hammond (Wimbledon) (Con)]

5. What progress he has made on his fiscal consolidation plans.

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

The Government inherited the largest deficit since the second world war. Since then, we have made substantial progress in reducing the deficit. By the end of last year, borrowing had fallen by more than a third. The Government’s consolidation plans have been central to the reduction in the deficit. Indeed, by the end of last year, we had implemented 70% of the £126 billion of fiscal consolidation planned for the end of 2015-16.

[Stephen Hammond]

Does the Chief Secretary to the Treasury agree that if we have a credible plan to reduce the deficit, we can credibly plan to protect spending on the NHS and cut taxes? As the Labour party’s announced fiscal rules would allow for an extra £166 billion-worth of borrowing over the next Parliament, there can be no credibility in its deficit plan and in its plan for this country’s economy.

[Danny Alexander]

I agree with my hon. Friend that Labour’s plans would put at serious risk the jobs and stability that this coalition Government have secured. There is a lesson in what he says for all parties in this House, because economic credibility is hard to win and easy to throw away. Any party that does not put forward a plan to sort out the economy or offers unfunded tax cuts to the British people will put its credibility at serious risk.

Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 2nd September 2014 Commons Chamber

[Mr Gauke]

My memory is that the Labour party did not support the OBR all the way. There is a debate to be had about the future of the organisation, but we do believe that, in its infancy, an organisation of this sort needs to be secure. That argument was used by the Labour party when the relevant Bill was passed in the House of Lords.

[Stephen Hammond (Wimbledon) (Con)]

Does my hon. Friend agree that, rather than trying to untangle the mess of the current spending plans, the OBR’s time might be better used looking at the spending plans of the Labour party when it was in government so that the public have a verified and independent record of the mess it left before the next general election?

[Mr Gauke]

I am grateful to my hon. Friend for that suggestion, but I think the record is fairly clear whether the OBR looks at it or not. The previous Government left our public finances in a desperate mess and we are continuing to recover from that mess.

Bank of England (Appointment of Governor) Bill

Stephen Hammond Excerpts

Friday 6th July 2012 Commons Chamber

[John McDonnell]

If there was a way of moving forward by that process, I would use it, but the problem is that we have now debated this matter in the Financial Services Bill, both in this House and the other place, and the Government have refused to accept the Treasury Committee’s recommendation. I hope that once I have sent this message today, the Government will shift their position and use whatever device is possible—either an amendment to the Financial Services Bill, the route the hon. Gentleman suggests, other routes that the Chair of the Treasury Committee has suggested exploring or the acceptance of this Bill.

At the time of the Treasury Committee’s recommendation and the debates on the amendments here and in the other place, the Government set their face against the proposal. I shall deal with the five basic objections and arguments that Treasury Ministers have put forward. First, there is the argument made by the Chancellor to the Committee that the Governor must be independent. He said:

“I think it is proper that the Government of the day chooses the Bank Governor, is held accountable for that choice, but also that the Governor is given some protection, some independence, so it is quite difficult, to put it mildly, or extremely difficult, to get rid of them.”

Ironically, the Committee fully agreed that the Governor should be independent and that this independence should be protected, but concluded that the best way of securing that independence was to ensure that the appointment was not solely in the hands of the Executive or one single politician. It further concluded that dismissal should also be determined more widely. Logically, then, the Governor is more likely to be seen as a creature of the Executive if he or she is solely appointed by the Executive. Making appointments and dismissals subject to the Committee’s approval must logically increase a post’s independence from Government and free the appointee from any charge of being a political appointee.

The second issue, which the Minister raised, was potential politicisation.

[Stephen Hammond (Wimbledon) (Con)]

The hon. Gentleman is making the point that the Bill would make the Governor more independent of the Executive. However, one of the things that I am sure several of my hon. Friends will be exploring in their speeches is that it may, in fact, interfere with his independence from the Treasury Committee.

[John McDonnell]

It is a matter of striking a balance and, at the moment, the Governor’s independence is undermined by association with appointment by one Minister and the Executive. My Bill would spread the burden of accountability and responsibility for the appointment.

On the issue of politicisation, the argument was that the Committee veto would politicise the post of the Governor. However, spreading the decision, to include all parties in determining the appointment, would avoid the charge that the person had been appointed by one party or one coalition grouping and was therefore a party political appointee. The charge of politicisation also neglects to acknowledge that our Select Committees have, over decades, developed a good culture of cross-party working. Where there have been disputes over a ministerial appointment in the past, they have not been on political lines. There have been only two rejections of a Minister’s recommendation, and they were cross-party rejections. Having to secure the approval of the Treasury Committee would override any charge of a single-party or party political fix.

--- Later in debate ---

[Stephen Hammond]

(Wimbledon) (Con): I commend the hon. Member for Hayes and Harlington (John McDonnell) for the way he has introduced his Bill. He has made some thought-provoking remarks, but I would gently say to him that I am sure that Members on both sides of the House have been asked whether they would like to make a contribution today. I have cancelled a lot of things in my constituency to be here today, and I am now being called puerile and unprincipled, yet had I been speaking from the Opposition Benches or supporting his Bill from the Government Benches, I would now be principled and upstanding. Let me gently say to him that that is not entirely fair.

[John McDonnell]

The hon. Gentleman has never engaged in filibustering that I have been aware of, but he knows that last year it occurred on several occasions, and was publicly and roundly condemned for bringing the House into disrepute.

[Stephen Hammond]

I am grateful to the hon. Gentleman.

The Bill is supported by large numbers of Members from both sides of the House, including many right hon. and hon. Friends whose judgment and intellect I respect and admire. However, let me start by setting out the four points on which there are internal contradictions in the hon. Gentleman’s argument or where there are reasons to oppose the Bill. First, the role is unique, and its extension increases that uniqueness. Secondly, the Government are already putting safeguards in place through the Financial Services Bill. Thirdly, despite what the hon. Gentleman has argued, a lot of people would accept that what he proposes is a fairly major constitutional change. Moreover, an underlying point he made is that this Bill somehow fits with the principle “for the people, by the people” so that anything other than that would be unacceptable.

I recently participated in a transport debate and gave what I thought was a fairly good detailed speech; indeed, one or two people were kind enough to say it was useful. I was pleased to note that my hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) who was the duty Whip at the time, said something like, “That was one of the dullest speeches I have ever heard; more time limits, please”! I hope the Whips will find my speech today to be equally dull; perhaps there is a case for time limits in debates such as this.

It might bring a little colour to the debate as well as a sense of purpose if we look at one or two of the Governors of the Bank of England over the last century who have been extremely powerful figures on the economy and powerful figures in respect of their independence from Government. We could reflect on how their appointments were made. Montagu Norman, for example, the Governor of the Bank of England from 1920 to 1944 was described by many as more of a bohemian artist than a banker. He liked to wear Sherlock Holmes-type clothing, was prone to nervous breakdown, regarded politicians as asses and openly said so. I just wonder what the Treasury Select Committee might have said to him when he was appointed.

[Jacob Rees-Mogg (North East Somerset) (Con)]

When Montagu Norman was Governor of the Bank of England it was a private company, so I do not think it would have been right, prior to nationalisation, for a Select Committee to have had any involvement in the appointment.

[Stephen Hammond]

Indeed. We could have a long discourse about the fact that Montagu Norman was the initiator of sound monetary policy, but in view of the strictures set out by the hon. Member for Hayes and Harlington, I shall not go down that course today.

It might be worth referring to two more modern Governors. Lord Kingsdown, who was Robin Leigh-Pemberton at the time he was Governor, was in some ways a classic figure. He had been a lawyer for many years and had no banking experience. He was appointed chairman of Nat West bank and was then invited to become Governor of the Bank of England. I am sure we could envisage the Treasury Committee saying, “But you are a lawyer, and we want a banker or someone with financial services experience”. The current Governor’s predecessor, Baron George, went from Cambridge to the Bank of England and never left it. Again, can we not hear the Treasury Committee saying, “But you are an insider in the Bank of England. You have no experience anywhere else. How on earth”—

[Jeremy Corbyn (Islington North) (Lab)]

So this is a filibuster.

[Stephen Hammond]

Let me finish the point. The Treasury Committee might have said, “How on earth can you as an insider bring insight into the rest of the system?”

[Mike Freer]

My hon. Friend makes a valid point about the Governor being likely to come from the world of banking. Given the close integration of all our major UK banks and the Treasury, how could we possibly find an independent banker?

[Stephen Hammond]

In this case, it would be for the judgment of the Treasury Committee or the Government. Someone with some financial experience might well be helpful in the current world.

This is not a filibuster, because this is exactly the point at which I am going to leave the history of the Governors of the Bank of England, merely making the point that the Treasury Committee might have rejected some of the candidates who have been appointed, even though they have been among the most excellent Governors of the Bank of England.

[Brandon Lewis (Great Yarmouth) (Con)]

Under the current system, with a Select Committee able to provide a view, if not exercise a veto, is it not the case that any concerns could be made very public and very clear to the Government? That can already happen in the present system.

[Stephen Hammond]

I can only concur.

The Financial Services Bill, now in the other place, is designed to redress the inadequacies of the current regulatory regime. As the hon. Member for Hayes and Harlington noted, the new proposals view the Bank of England as absolutely at the heart of the regulatory system. It will now be charged, which it was not previously, with the protection and enhancement of the UK’s financial system. I do not need to rehearse in detail the fact that the Bank of England is therefore charged with looking at the working of the Financial Policy Committee and, underneath it, the Prudential Regulatory Authority and the Financial Conduct Authority.

[Mr Hoban]

To clarify, let me point out that the Financial Conduct Authority is not part of the Bank of England; it is an independent body. Failure to understand that is a mistake that the hon. Member for Nottingham East (Chris Leslie) regularly made in Committee, and I would not want my hon. Friend to make the same mistake.

[Stephen Hammond]

The Minister is technically correct, but I think he would agree that there is a line, dotted or otherwise, between what the Financial Policy Committee and the Financial Conduct Authority would do and their respective impacts.

[Mr Hoban]

My hon. Friend is correct, but I would not want to say that that makes the Financial Conduct Authority a part of the Bank of England. It will have an independent board. Martin Wheatley, the chief executive designate, has been appointed and is leading the review of LIBOR. The FCA is very much an independent body. Engagement with the Financial Policy Committee is relevant only when the FPC identifies a threat to financial stability that requires some action from the FCA. The circumstances in which the Prudential Regulatory Authority can veto acts of the FCA are limited. It is very clear in this approach that the FCA is not part of the Bank of England family.

[Stephen Hammond]

I bow, of course, to my hon. Friend’s greater knowledge of this matter. My key point was that the Bank of England and its family, cousins and outside friends will now have a much greater role at the centre of the regulation of our financial system and, indeed, of our overall economy.

It is in some ways understandable that the immediate drive of the Bill before us is to increase the powers of parliamentary accountability, but I think there is some confusion between accountability and independence. Parliament will gain further powers of control, scrutiny and accountability under the Financial Services Bill. The exact powers are clearly defined, with reference made to the new financial stability objective, to the position of the deputy governor and the Financial Policy Committee, to the Governor’s appointment for eight years and to the fact that the Treasury Committee and, indeed, Parliament can hold the Bank of England to account. That being so, it is not necessarily the case that giving the Treasury Committee the power of veto over the appointment of the Governor would enhance that accountability, although it might impede the Governor’s independence. It is right for Parliament to have greater accountability and greater scrutiny, but we need to be clear that the Governor, who is at the centre of the operation of macro-economic policy and macro-financial and prudential control, must be independent.

The Bill before us contains not only a power of veto but a power of appointment, which could be seen as a step backwards in the whole argument about independent policy making. The Bank of England Act 1998 took a momentous step forward in respect of the independence of the Bank and the Governor by giving the power of decision over interest rates to the Monetary Policy Committee. That was, and will remain, the historic achievement of the Labour Government. It followed from and was a continuation of what the previous Governor had introduced, in tandem with the then Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), with the publication of the minutes of the interest rate-setting committee.

[Jacob Rees-Mogg]

Does my hon. Friend believe that the conduct of monetary policy from 1998 to 2008 was any better than it was when the Bank of England was not independent and when previous Conservative Governments from 1979 onwards were interfering in monetary policy very considerably?

[Stephen Hammond]

Again, my hon. Friend presents me with a tempting line of debate. It is reasonable to suggest that the period between May 1993 and May 1997 will be regarded as one of the golden eras of the operation of monetary policy. It was the period that drove the first 12 quarters of growth before 1997, and it was the period during which my right hon. and learned Friend the Member for Rushcliffe and Baron George—who, as I said earlier, might not even have been appointed by a Treasury Committee—operated monetary policy. I am sure that my hon. Friend and I could enjoy a happy morning discussing monetary policy, but, as I have said, I will not go down that line.

The protections and requirements introduced by the Financial Services Bill seem to me to be exactly the same as those introduced by the Bank of England in terms of independence. What concerns me is that if the Treasury Committee can hold the Bank responsible for its actions in the past as well as its immediate decisions, it does not necessarily need a power of veto over the Governor’s appointment. It has the power of accountability and of scrutiny.

[Matthew Hancock (West Suffolk) (Con)]

My hon. Friend has just made the interesting claim that the Treasury Committee would not have approved the appointment of the late Baron George, one of the great former Governors. What evidence has he to back up that claim?

[Stephen Hammond]

My contention was not that he would not have been appointed, but that he might not have been, simply because he had been a Bank of England insider all his life and had no experience of other parts of the financial system, or indeed of the economy. I am merely suggesting that if we empower the Committee to appoint the Governor, it may not take account of a number of the salient factors that the Chancellor can consider. It may take a narrower view.

The hon. Member for North Ayrshire and Arran (Katy Clark), who has now left the Chamber, made an interesting point about a split along political lines. In the case of Lord George, Committee members on both sides of the political divide might have taken the view, as a caucus, that a Bank of England insider would be entirely inappropriate as a Governor. I am not saying that he would not have been appointed; and my earlier remarks were not a filibuster, but a deliberate attempt to show that the appointments of some of the greatest Governors might have been called into question.

The Financial Services Bill rightly confers increased powers of scrutiny, but I do not understand how this Bill would safeguard independence, and I did not hear the hon. Member for Hayes and Harlington explain that this morning. When he kindly allowed me to intervene earlier, I suggested that it would safeguard the independence of the Governor from the Government, but did not necessarily take account of his independence from Parliament. I think he should bear in mind the possibility that the independence of both the appointee and the institution itself would be undermined if the Treasury Committee were given the power of veto.

[Brandon Lewis]

Could it not be argued that if the Committee had such a direct power of appointment and veto, that in itself could bring into question its ability properly to scrutinise an independent Governor for whose appointment it was responsible in the first place?

[Stephen Hammond]

That is an interesting and valid point, and one that I had not intended to make myself. I look forward to hearing my hon. Friend’s views in more detail.

[Joseph Johnson (Orpington) (Con)]

Having spoken to my hon. Friend the Member for Chichester (Mr Tyrie), the Chairman of the Treasury Committee, in a private capacity, I think that he would be content for the Committee not to have a statutory veto, but merely to be consulted and to have an advisory role in the Governor’s appointment. I think it important for his private views also to be reflected in the debate.

[Stephen Hammond]

I am grateful for the opportunity to hear the private views of my hon. Friend the Member for Chichester (Mr Tyrie), but as he is not present to justify them, it would be wrong for me to comment on them. I will say, however, that if those are indeed his private views, I am surprised that he supports this Bill. The Committee is already able to attend pre-commencement hearings with appointees to the Monetary Policy Committee and will be able to do the same in future with appointees to the Financial Policy Committee. Obviously that could potentially involve agreement with the Government.

Let me return to the issue of the independence of both the person and the institution of the Governor of the Bank of England from the Treasury Committee.

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

Will the hon. Gentleman give way?

--- Later in debate ---

[Stephen Hammond]

Does the hon. Gentleman want to make a point about the issue of independence?

[Mr Love]

I apologise for intervening at this point, but having just spoken to the Chairman of the Treasury Committee, I think that he would want his attitude to be exemplified as a belief that the Committee should have a role in the Governor’s appointment. What he seeks, as does the hon. Member for Hayes and Harlington (John McDonnell), is a signal from the Government that they would be receptive to that idea.

[Stephen Hammond]

As I am not in the position of my hon. Friend the Financial Secretary—nor could I ever have the talent or ability to be so—that is not in my gift. We shall have to wait and see whether my hon. Friend chooses to make such a move later in the debate.

It seems to me that there are three crucial points to be made about the independence of the institution of the Governor of the Bank of England. Let me begin by saying that if the Governor were indeed appointed by the Treasury Committee, which would have the right of veto, the institution could be perceived to be tainted if the appointment reflected the politics or the political make-up of the Committee. That point was addressed by the hon. Member for North Ayrshire and Arran. The hon. Member for Hayes and Harlington said that it was not relevant in the United Kingdom, citing the report from the Institute for Government, but anyone with even a cursory knowledge of American politics knows that appointment by committee in the American House is supremely political, and therefore potentially damaging to the role of institutions in that country. I shall make the same point shortly about the role of the individual, as opposed to the institution.

As my hon. Friend the Member for Great Yarmouth (Brandon Lewis) pointed out, there is a question mark over the ability of the Treasury Committee to scrutinise the Governor, but there is also the possibility that the Governor, or the institution, might be perceived as being subservient in will to the Committee. There might come a time when there would be an impasse between the will of the Executive and that of the Committee, and that in itself could undermine the institution.

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

Surely exactly the same argument would apply if the appointment continued to be made by the Executive. Surely what matters is that Parliament—through the Treasury Committee—has the final say.

[Stephen Hammond]

I agree that Parliament must have the ability to scrutinise and that the body must be accountable, but I want the Governor to be independent as well. I am presenting some of the arguments that must be considered, or countered, if the Governor is to be independent in his operations. It is also true that the circumstance that I have just described would not arise if the Executive continued to make the appointment, because if the Treasury Committee did not have the power of veto, there could not be an impasse between the Committee and the Executive. However, my hon. Friend was probably referring to a point I made earlier.

[Mr Love]

The confirmatory hearings currently held by the Treasury Committee employ the criteria of competence and personal independence. Does the hon. Gentleman accept that the existence of a framework within which decisions must be made by Select Committees, minimises—although it does not exclude—the chance of political interference?

[Stephen Hammond]

It might and it could. I accept that point. But equally it might and it might not, and it could and it could not. That is the point I am trying to make.

The hon. Gentleman’s intervention leads me into the next part of my argument. My hon. Friend the Member for Orpington (Joseph Johnson) says the Treasury Committee Chairman wants to see some flexibility. There is already some flexibility in the system. The Committee has pre-commencement hearings for members of the Bank’s policy committees, which include both the Governors and deputy governors. The pre-commencement hearing is a process that allows parliamentary engagement, parliamentary scrutiny of appointments and parliamentary comment on appointments, but does not allow parliamentary veto. That is an evolving process that the Government have put in place and continue to support. It is, for a variety of reasons, the right mechanism.

Turning to the question of independence, there is a real risk in respect of the credibility of the individual concerned. While I am sure that all candidates will be of the highest ability and there will be no possible suggestion in the fourth estate or anywhere else that the successful candidate had been chosen on the basis of some odd criteria or that he was the only candidate the Treasury Committee would pass, others less generous than I might think that. That would lead to a credibility gap. It is also therefore clear that the person being appointed might be open to the charge that they were being appointed for their politics, not their economics. The Governor of the Bank of England must be free of the charge of being a political candidate.

[Mr Brady]

I know my hon. Friend is keen to move to a conclusion, so I apologise for delaying him, but I am concerned that he appears to be setting a very low standard of expectation for a Committee of this House that is elected by this House. In electing the Chairman and members of the Treasury Committee, we should choose people we have confidence in to make such decisions. If we do not have that confidence, we should remove them and elect different Members.

[Stephen Hammond]

The chairman of the 1922 committee is right on one thing and wrong on the other. It is very rare that I get to speak without a time limit, so I was not necessarily intending to conclude now—although I will, of course, do so very soon. As my hon. Friend will have noted from my argument, I was not trying to impugn the Treasury Committee or its candidate. I was merely pointing out that sometimes the outside observers of this House do not share the same faith in our institutions and decisions as we do. I was raising the possibility that a newspaper might impugn the reputation of a candidate by saying he is the only available candidate because he was the only one passed by the Treasury Committee. That would create a credibility gap in respect of that candidate, not only in the operation of financial regulation, but, more importantly, in the crucial international negotiations he will have to conduct on behalf of our country.

[Kwasi Kwarteng (Spelthorne) (Con)]

Is there not a danger that this whole process will create a media circus of the kind we see in the United States, and undermine the man or woman appointed as Governor before they even take up their position?

[Stephen Hammond]

My hon. Friend is absolutely right, and that is one of my concerns. I have tried to lay out some arguments suggesting that giving a veto to the Treasury Committee does not necessarily enhance the independence of the position of Governor.

Moving on now to my concluding remarks—my hon. Friend the Member for Altrincham and Sale West (Mr Brady), the chairman of the 1922 committee, will be pleased to hear that—I just want to bring the hon. Member for Hayes and Harlington back to his contention that this would not be a major change to our constitution. The Bill would put in place a legislative requirement for the Treasury Committee to have a veto over this appointment. The hon. Gentleman talked about the evolution of this role, but if he truly believed that, why does the Bill not seek to give Select Committees the power to veto all appointments—for there might be a number of Members of this House who would like to have parliamentary control of the appointment of the governor of the BBC, or the chief executive of Network Rail, or, closer to our hearts, the chief executive of the Independent Parliamentary Standards Authority? The hon. Gentleman said that private Members’ Bills give Members an opportunity to suggest changes to the Government. He might have had even wider support than he already has if he had introduced a Bill giving Select Committees the power of veto over appointments, so we could have had that more general discussion. To give that power of veto over this one appointment gives rise to considerable concerns, however, and it would create a major change in the constitutional position.

[John McDonnell]

I think that is the ideal argument for giving the Bill a Second Reading, so it can be amended appropriately.

[Stephen Hammond]

The hon. Gentleman and I disagree on that. I think it is the ideal reason why we should not give this Bill a Second Reading. We should be giving a Second Reading to the principle. We should be discussing the principle, not this specific case.

In my short speech this morning, I have tried to draw out a few reasons why it is absolutely right for there to be increased accountability and parliamentary scrutiny of the operation of the Bank of England and of its Governor. Although the Bill might appear to guarantee the independence of the Governor, it does not necessarily do so, and it would create a major extension of the constitutional position of Select Committees. Therefore, I hope Members will decline to give it a Second Reading.

--- Later in debate ---

[Stephen Hammond]

Will the hon. Gentleman give way?

[Chris Leslie]

On the Cliff Richard point, yes I will.

[Stephen Hammond]

Only last year I was a backing singer for Cliff Richard at the opening of the Wimbledon fair.

[Chris Leslie]

I am glad I was not there.

The Bank of England was established in about 1694, and we obviously must not rush these reforms. I commend my hon. Friend the Member for Hayes and Harlington (John McDonnell) for introducing this sensible proposition. If, as I hope, the Bill moves into Committee, we can refine some of the details of the accountability mechanisms. The Opposition are of the opinion that there is a need for stronger parliamentary accountability in respect of the appointment of the Governor. That ought to be done by the House of Commons as a whole, on the recommendation and advice of the Treasury Committee, rather than simply be delegated to the Treasury Committee to decide.

The arguments have already been enunciated. It is important that pre-confirmation hearings take place, that recommendations can be made by the Treasury Committee, and that then Parliament as a whole can decide. That would be the best way to proceed.

I do not want to speak for long because I want my hon. Friend to have the chance to secure his Bill’s Second Reading and to pass it on to Committee, where we can talk about these details. The Government’s proposals will vest the Bank of England with significant and radical new powers, particularly over what is known as macro-prudential policy making, through the new Financial Policy Committee and the Prudential Regulatory Authority. The Minister rather coyly suggests that the Financial Conduct Authority does not have a dotted line to the accountability process within the Bank. We all know that this is not just about a powerful bank, but about the immensely powerful Governor of the Bank of England. Some have described that person as a superhuman individual and the appointment will clearly be of major national significance to our economy and to the finances of our constituents and businesses up and down the country.

We debated the question of improving internal checks and balances for the Governor of the Bank of England when we considered the Financial Services Bill. The Opposition said at the time that the court of the Bank of England needed radical improvement and that its role should be more supervisory. That recommendation came from the Treasury Committee, yet there was resistance from the Government. It is now not unreasonable to want to improve and enhance the external checks and balances on the Bank of England and I do not think that would in any way compromise the independence of the operational monetary policy decisions over interest rates. I do not think that those things are at all incompatible.

It would have been nice if the Financial Services Bill could have been amended in the Lords in such a way, but the Government resisted that. We need to ask why they are so frightened of giving Parliament—in which, by the way, they have a majority—the opportunity to have that debate on pre-confirmation hearings and given to give the Treasury Committee the power to make a recommendation that the House of Commons could make on its own.

It is important to note that other central banks in other jurisdictions have similar arrangements. In the United States, for example, Congress has oversight over the appointments.

--- Later in debate ---

[Stephen Hammond]

I am interested to follow this line of reasoning. My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) said that a vote on the Floor of the House of Commons, or perhaps the Government, could overturn a Treasury Committee decision and, if necessary, get rid of the Committee. However, the problem is that Committee members are no longer appointed by Whips but elected, and there is no guarantee that a newly elected Committee would not also choose to be in conflict with the Government.

[Matthew Hancock]

Of course. The Government must command support for their programme from a majority of the House of Commons, but the Treasury Committee is voted for by Back Benchers, and as the two electorates are different we would not necessarily get the same result from both. The argument put forward by my hon. Friend the Member for North East Somerset—most of Somerset—(Jacob Rees-Mogg) is an argument for deadlock because it could lead to the Treasury Committee pushing one point of view and—because it is elected by a different electorate from those who support a Government—ending up with a contravening view being expressed on the Floor of the House. That is because the Bill would apply to the Treasury Select Committee or its successor body should its name be changed or its powers be passed to somebody else.

--- Later in debate ---

[Matthew Hancock]

Absolutely, and the Minister will be delighted to hear that he has anticipated the next section of my speech.

The nine years war, which the Bank of England was set up to finance, was the first example of successful co-operation on a strategy between the Governor and the Government of the day. The first Governor was a man called Sir John Houblon—his face appears on a modern £50 bank note, so hon. Members will know him well. Like many of his successors, Sir John dealt with the City but was not part of it. He was a grocer by trade and rose through the East India company—he was a business man who came to the City to oversee the Bank. At that time, the Governor, deputy governors and directors of the Bank were voted for by private shareholders, who had to have a £500 shareholding—a huge amount in those days. The Governor had to have a £4,000 shareholding.

We can only speculate who would get the job now if the late 17th century equivalent of the Treasury Committee had a veto over candidates. The House of Commons was, back in the day, notoriously corrupt and vice-ridden, unlike today. By way of illustration, the prospective parliamentary candidate for a by-election in Bath laid on a meal before polling day. There were 32 voters, but the meal consisted of two boiled haunches, two chines of mutton, four geese, four pigs, 12 turkeys, plain chickens, rabbits, an abundance of claret and sherry, and—my favourite—two venison pasties. A ball to persuade the voters’ wives followed. Glasses were broken and windows shattered at the end of it.

The modern system of corporate governance is similar to chief executive officers having skin in the game in financial organisations. As my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) pointed out, when the Bank was given operational independence in 1997, it was returning to the independence it had enjoyed for 200-odd years until it was nationalised in 1946.

There are examples of when the Bank and the Government have agreed broadly on strategy and prosecuted it effectively, but there are also historical examples of how things can go wrong. The Bank was founded before the first Governor took office by an initial loan made by a Scottish banker called William Paterson. Founding the Bank was not Paterson’s only contribution to economic history; he was also the main instigator of the infamous Darien scheme, which involved a Scottish colony in Panama that was supposed to replicate the success of the English colonies in north America. With a monopoly company facilitating trade between the new and old worlds, the Scottish public went wild for the scheme and invested a quarter of the country’s gross domestic product in the embryonic New Caledonia. Of course, the reason the Panama canal is not called the firth of the Pacific is that the colony was a disaster—thanks to poor leadership, endemic diseases and weak demand for Panamanian goods—bankrupted Scotland and led, indirectly, to the Act of Union in 1707. Although William Paterson was not the last Scot to drive a country to the brink of financial ruin, he might have been the first.

I shall cite another example of the Bank and the Government having separate strategies that shows why the Bill would be a mistake. In 1716, a man named John Law, another Scottish gambler-turned-economist, managed to persuade the Government of France that, having defaulted on their debts four times between 1648 and 1715, they could create a scheme to end the national debt by enabling them to take control of the money supply and replace gold and silver, whose price was ruled by the markets, with something that he said would be more stable. He suggested creating a central bank in France along the lines of the Bank of England. In return for the deposits on gold and silver, there would be paper money deposited in a state-owned scheme that would turn it into something more valuable. This proved irresistible to the French people.

[Stephen Hammond]

On the subject of gold and silver and the gold standard, there is a much more modern example of where the Governor and the Government split over policy—post-first world war and into the 1930s, when Montagu Norman disagreed with the Labour Government about returning to the gold standard. We know the catastrophe that followed then.

[Matthew Hancock]

In that example, there was one person who understood the implications of returning to the gold standard and whose views were more consistent with the Labour Government’s. John Maynard Keynes argued vociferously for the strategy that many in the Government wanted to pursue but which he could not persuade the rest of the Bank to pursue, which was that they had to stimulate the economy in times of economic weakness and that there would not be an automatic return to growth. That is an argument with which I strongly agree. It is important to ensure an effective stimulus when the economy is weak. The most effective such stimulus today is monetary policy.

That brings us directly to the strategy now. The Bank and the Government broadly agree on the economic strategy of tight and responsible fiscal policy and loose monetary policy in order to deliver economic growth that is sustainable and not based simply on building up more debt. However, immediately before the 2010 general election, when I entered the House, it appeared that the Bank did not agree with the then Government’s strategy. This was destabilising. I used the example from 1716 to show that there is a long history of problems when there is disagreement on strategy, but it is by no means a problem that went away after 1716—it was with us right up until 2010, although fortunately it is not the case right now.

--- Later in debate ---

[Matthew Hancock]

I am merely saying that Mr Patrick Diamond was a good candidate for that role. I am particularly concerned about the tit for tat political retaliation, which we do not want to bring into this system.

In Japan, in March 2008, the opposition party had a majority of seats in the upper house—this ties closely with the debate that we will be having in this very Chamber on Monday and Tuesday next week—and it rejected proposals by the Government to appoint a former Finance Minister as the Bank of Japan governor. That led to a 20-day period, at the height of the financial crisis, when Japan had no Governor of the central bank. It subsequently took two years to fill all the vacancies on the Bank of Japan policy board. That is evidence of what happens when there is a parliamentary veto. The argument that that would lead to more effective policy making has been roundly dismissed, but the argument that it would bring risks into policy making, and the risk of having no Governor at all, is strengthened by evidence in the US and Japan, the two biggest economies that have a similar process.

[Stephen Hammond]

There is one final risk, which is that after the veto, the candidate who is then in place is seen as the second choice by the markets, and that is a great risk to the economic future of the country.

[Matthew Hancock]

I certainly agree. The private consultation, for instance, would be a far better process to ensure that there is consensus and the strength of a broad agreement behind the incumbent, who has to rise above party politics once appointed.

There have been some great central banking success stories over even the last decade. The Reserve Bank of Australia has an appointments process similar to that of the UK, yet no Australian bank needed a bail-out—so far—or suffered a downgrade, and Australia avoided recession. The Governor of the Bank of Canada is nominated by independent directors of the bank and confirmed by the Government. During the global recession, Canada’s GDP declined by 3.4%, compared with 4% in the US and more here. Not a single Canadian bank failed or required an emergency capital injection from the Government. Today, employment and economic activity in Canada are back at their pre-crisis levels, whereas here they languish below those levels because of the depth of difficulties that we got into when a Government did not listen to the Governor of the Bank of England. In addition the Bank of Canada had regulatory control over their banks, as proposed in the new Financial Services Bill.

This Bill is no magic bullet. It brings in risks without rewards, it is of a deeply constitutional nature, it deserves all the scrutiny that it is getting, and I oppose it.

Jobs and Growth

Stephen Hammond Excerpts

Thursday 17th May 2012 Commons Chamber

[Ed Balls]

I am sure that the hon. Lady and I can agree on one thing. There has been a 130% rise in long-term youth unemployment—unemployment lasting more than six months—in her constituency over the last year. [Interruption.] It is up by 129% in her constituency, and that is really worrying. Constituencies of Members on both sides of the House saw the damage done by long-term youth unemployment in the 1980s, and we should act to prevent a repeat of that rather than being complacent.

[Stephen Hammond (Wimbledon) (Con)]

Twice so far in his speech, the right hon. Gentleman has said that the problems in the UK are nothing to do with the eurozone. Will he therefore disown the remarks of the shadow Chief Secretary, the hon. Member for Leeds West (Rachel Reeves), who said last week that the eurozone was having a major impact on British businesses and British families?

[Hon. Members]

“Yes? Yes?”

Amendment of the Law

Stephen Hammond Excerpts

Thursday 22nd March 2012 Commons Chamber

[Ed Balls]

The same old Tories who thought in 1988 that it was right to cut the top rate of tax for the richest people in our country and who now think that having a second Lawsonian Budget is a good idea. It is important to remember that after hubris comes nemesis. It did not take long for Nigel Lawson to find out the error of his ways.

We set two tests for this Budget. First, does it kick-start the recovery and boost growth and jobs? Secondly, is it fair? The Chancellor has failed them decisively. On growth and jobs, I remind the House what the Chancellor said a year ago in his Budget speech:

“we will create jobs and support families. We have put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]

Since then, our economy has ground to a halt and thousands of people have lost their jobs.

I remind the Chancellor of what he said in August, when Parliament was recalled:

“Those who spent the whole of the past year telling us to follow the American example…need to answer this simple question: why has the US economy grown more slowly than the UK economy”?—[Official Report, 11 August 2011; Vol. 531, c. 1108.]

What has happened since? Spurred on by the Obama stimulus, the US economy has been growing and unemployment falling. Here in Britain, our economy has flatlined and unemployment has been rising month after month. It does not look much of a safe haven to me.

What did we get in the Budget? We got a gaping hole when we so badly needed action to kick-start the recovery—Labour’s five-point plan for jobs and growth. We will not get the deficit down unless we have a plan for jobs and growth to get our economy moving and get people off the dole. When we needed a vision for the future, a modern industrial policy, what did we get? Roads privatisation and a credit-easing scheme that even the Office for Budget Responsibility says is not large enough to have any material impact.

Just look at the verdict from the OBR. The Chancellor claims it was a Budget for growth. But the OBR has downgraded its forecast for growth next year. What did it say about the ragbag of measures he announced? It said:

“We have made no other material adjustments to the economy forecast as a result of Budget 2012 policy announcements.”

It will have no impact as a growth plan.

The Chancellor claimed that it was a Budget for jobs, but not only does the OBR expect to see unemployment rising, it has increased its forecast for unemployment compared to November by 100,000—100,000 more people out of work at the end of the forecast period. As for the budget deficit, the OBR forecast confirms that the Chancellor is now set to borrow £150 billion more in this Parliament compared to his forecast at the time of the spending review. So much for “expansionary fiscal contraction”. To put it politely, that is oxymoronic. In plain language, it is just moronic.

On fairness, the Chancellor has failed too. Twenty-four hours after the Chancellor rose in the House, the full reality of the Budget is sinking in. At a time when fuel and food bills are going up for families on middle and low incomes, the Chancellor has added to them all. Whatever he says about the personal tax allowance, a family with children earning £20,000 will lose £253 a year from April. Nearly 4.5 million pensioners—[Interruption.] I am sorry for the stammer. Nearly 4.5 million pensioners who pay income tax will lose an average of £83 next April, and people turning 65 next year will lose up to £322.

At the very same time, the Budget gave a tax cut to the richest people in our country. The money could have been used to cut fuel duty or reverse perverse cuts to tax credits. It could have been used to put police officers on the beat. Instead, the Chancellor chose to cut taxes for the 300,000 top rate taxpayers.

[Stephen Hammond (Wimbledon) (Con)]

I must have missed it, but for the sake of clarity does the shadow Chancellor intend to put the top rate of tax back up to 50%?

[Ed Balls]

I am just coming to the issue of the top rate of tax. The Chancellor tries to claim that the top rate of tax does not raise any money, and that he is raising in stamp duty and tax avoidance five times the cost of cutting the top rate of tax. But his own HMRC report makes the true position clear, in table A2 on page 51. It says that next year he will give £3.01 billion in tax cuts to existing and legitimate top rate taxpayers, paid more than £150,000. That is a fact. That is six times more in tax cuts to the richest than he is raising in the stamp duty and tax avoidance measures. He is gambling that this will then bring in £2.9 billion in new tax revenues from people currently not paying tax, without any hard evidence to justify that claim—an estimate that the OBR says in the Budget documentation is “highly uncertain” and could lead to a much higher cost.

The head of the OBR said last night:

“This is a judgement based on not even a full year’s data based in terms of how people have responded to the 50p rate, in particular in terms of those self assessment tax-payers.

The costing of these sorts of changes is by no means unarguable”.

Just a few weeks ago, the Institute for Fiscal Studies said:

“If the future of the 50p rate is to be determined on the basis of evidence...then Budget 2012 will be too soon to form a robust judgement.”

Another expert has said on these matters:

“Some believe that if taxes on the wealthy are cut, new revenue will miraculously appear. I think their reasoning is this—all those British billionaires who demonstrate their patriotism by hiding from the taxman in Monaco or some Caribbean bolt-hole will rush back to pay more tax but at a lower rate. Pull the other one.”

That was the Business Secretary speaking to the Liberal Democrat conference last September. Pull the other one indeed. A £3 billion tax cut giving £10,000 each to 300,000 taxpayers and we are supposed to believe that all these people in tax havens are suddenly going to say, “I want to pay more tax.” Let me say to the Chancellor, “Pull the other one, it’s got bells on.”

Pay and Consultants (Public Sector)

Stephen Hammond Excerpts

Tuesday 13th March 2012 Westminster Hall

[Mr Andy Slaughter (Hammersmith) (Lab)]

It is a great pleasure to be here, Mr Howarth, with so many hon. Friends and hon. Members, for what I hope will be an interesting, if somewhat controversial, debate. It is a pleasure to serve under your chairmanship. I look forward to the Minister’s response to some of my specific points, and to the comments of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson).

To be clear about the topic, I intend to cover three closely related issues, which I believe raise the question of financial, moral and, in some cases, legal abuses in the employment practices of public sector organisations. Those issues are absolute levels of remuneration; the use of consultants—sometimes called interims—and agency and other alternatives to employed staff; and the avoidance and sometimes evasion of tax by the improper classification of employees as consultants. All three often occur together, although not always, and there are often other related abuses. I shall give examples of how that works and use one egregious example from my local authority that has wider implications.

Such practices would be offensive at any time, but when the country is in recession, when many, if not all, workers in the public sector at a lower level are facing pay freezes and when there are hundreds of thousands of redundancies, it is particularly offensive that what I can only describe as a new elite in the public sector appears to be immune to the worries, fears and constraints of ordinary working life and, in some respects, seems to be more comparable with those at the top of the banking or other private sector industries. The difference is, of course, that everyone thinks of bankers—outside the Royal Bank of Scotland, perhaps—as being in the private sector and responsible to shareholders. The people whom I am concerned about are responsible to us, the taxpayers or council tax payers.

The issue is not only controversial, but very topical. The Daily Telegraph has an article today headed “Council chief executives enjoy pay rises as services are cut”. It reports:

“Town hall chief executives have seen their pay packets rise by as much as £17,000 while cutting front-line services, including libraries, care for the elderly and bin collections.”

It goes on to point out that the average council chief executive is still paid more than the Prime Minister, with one in 20 earning more than £200,000 last year. At a time of pay freezes in the public sector, the average relevant salaries in local authorities were £143,995 last year, with total pay packages averaging £146,957.

[Stephen Hammond (Wimbledon) (Con)]

The hon. Gentleman may be right to point out that the average salary in that category last year was £143,000 and that the average remuneration was £146,000; but does he accept that before 2010, or before the Government took action in 2011, the average was something like £221,000? There has been a significant drop under the Government’s procurement rules.

[Mr Slaughter]

I cannot say that I will keep away entirely from party politics in what will be quite a long speech, but I will try to make a point with which I hope all hon. Members agree. The hon. Members whom I shall refer to come from both sides of the House. I take the hon. Gentleman’s point but would rather that he addressed his comments, and that the Cabinet and other Ministers would address themselves, to the current abuses, rather than playing some sort of tit-for-tat game.

--- Later in debate ---

[Mr Slaughter]

There is a definition of consultants that I will give—it is not the PCS definition, which I think is plagiarised anyway:

“People who borrow your watch, tell you what time it is and then walk off with it.”

The definition that I will use is:

“People who do a specific task, which is needed, usually for a short period of time, and which is a particular piece of expertise that is being bought in.”

What we are talking about this morning is—in very many cases—absolutely not that, and I will now give the hon. Gentleman an example. I hope that it is not a typical example, but it is certainly a very shocking example.

I will give way once more.

[Stephen Hammond]

The hon. Gentleman is being very kind in giving way. Just before he moves on from this issue, I want to ask him a question. He has talked about the £43 million spent by the MOJ on consultants. Can he tell the House exactly what that £43 million was for, and can he say whether there was a public sector evaluation of the cost if the work for which that money was paid had been carried out in-house? I think an answer to that question would aid the debate.

[Mr Slaughter]

I think answering that question would take us off on a siding, albeit an interesting siding, and I am not sure that the hon. Gentleman really wanted to come to Westminster Hall today to defend that spending by the MOJ. If he does, he is very brave, but there it is.

[Stephen Hammond]

I just want to know what it is.

[Mr Slaughter]

Of course, the MOJ pales into insignificance beside the Ministry of Defence and what are euphemistically—well, perhaps appropriately—known as FATS, which are framework agreements for technical support, and beside the hundreds of millions of pounds that have been spent through that route. The Department for Work and Pensions is another major offender. According to the PCS, “business consultancy services” cost the DWP £18.2 million in 2010-11. At a time when the Government could not find the money for the future jobs fund, that seems to be wrong. I could give a lot more examples in relation to Government Departments.

--- Later in debate ---

[Stephen Hammond (Wimbledon) (Con)]

Thank you, Mr Howarth. For the record, I am Stephen Hammond—Philip is the tall, good-looking one. I listened carefully to your strictures and have therefore ditched my section on people seeking to re-enter public life and avoid tax. At the outset, I remind hon. Members of and guide them to my declared interest in the Register of Members’ Financial Interests.

I have listened carefully to the debate. I only wish that I had known my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) sooner, as I could have followed Kawczynski’s law when I was in the private sector, but I singly failed to do so. I also listened to the fascinating opening speech of the hon. Member for Hammersmith (Mr Slaughter). He chided us on party politics, but I say gently that it might have been helpful if some of the examples had not been exclusively from Hammersmith and Fulham. On that basis, we might take his comments as a party political contribution.

I shall raise three points in my remarks. First, I shall discuss the concept of value for money. I shall then talk briefly about excessive pay and contractors. Many of us feel that one of the big areas where problems arose with value for money in relation to outside firms being used in the provision of public services was with the private finance initiatives that were set up. The public sector should be the enabler. Sometimes, it will also be the facilitator, but it does not need to be so. The real scandal of excessive pay and excessive failure to manage arrangements was in the unitary payment scheme set up under PFI. That unitary payment allowed the capital and the current payment to be collided for the deliberate obfuscation of what was being paid in current payments. That was a real scandal, and value for money was impossible to assess.

On excessive public pay, the hon. Member for Hammersmith is absolutely right: payment should be in line with performance. As reflected by the view of the vast majority of the public, the scandal has been that, at the time of entering austerity, a number of people in the public sector were getting paid well beyond their perceived performance. Although I was chided for using this example, it is absolutely true that, since the Government have come to office, there has been downward pressure on the overall pay in local government. Again, I give the example that, before 2010, £221,000 was the average salary for chief executives. It is now £143,000, which may well still be too high in terms of what is being delivered. None the less, there has been downward pressure. The TaxPayers Alliance “Town Hall Rich List” is a good touchstone for us all, but one should not forget to put the matter into context. Under the previous Administration, we had to revise the definition of public sector productivity twice, because pay increased without a commensurate increase in performance.

I want to put some balance into the debate because if we are not careful, we will end up saying that all contractors and freelancers are bad value and try to evade tax. That is simply not true. The skills that some of those people provide contribute a huge amount to not only the economy, but the public sector. That is clear. The public sector needs all sorts of skills in addition to the work that dedicated, hard-working public servants and public sector workers provide. Some 1.6 million people in the UK work as freelancers. The idea that all those people are tax dodgers is simple nonsense. Oxford Economics has made the point that, in 2009, the overall benefit to the economy was around £21 billion.

I want to touch briefly on the review that the Chief Secretary to the Treasury has set up. That review started because of the Ed Lester case and the fact he was given special concessions. However, the idea that all those concessions apply to every individual who is a freelancer in the public sector is simply wrong. We should not forget—I say this to the Minister, as I hope she will address this point—that the reason why a number of freelancers put themselves into limited companies is that the Government procure through agencies rather than directly. Those agencies require that the contract goes to a limited company. The Government need to address that in their review.

I want to allow my hon. Friend the Member for Hexham (Guy Opperman) time to speak, but I should like to say that, although I support what the Chief Secretary is saying, I hope that the Treasury will ensure that the review focuses on value for money. That is the key. The danger is that contracts will be delayed and taken away and that it will become a witch hunt, rather than a proper review of value. I hope that the Minister can reassure us that that is what will finally happen.

I did not catch exactly what the hon. Member for Ealing North (Stephen Pound) said, but he mentioned IR35. The Government rightly set up a review of IR35, but I say to the Minister that there is real concern that HMRC’s fairly simple business tests, which would have allowed a relatively clear definition of someone who is a freelancer or someone who is working full time, are going astray. I therefore urge the Treasury to get back involved in that debate to ensure that the tests are clear, because IR35 could be a good way to ensure that certain people working in the public sector are true freelancers and contractors, not people who should be on the full-time books of the public sector.

Autumn Statement

Stephen Hammond Excerpts

Tuesday 29th November 2011 Commons Chamber

[Stephen Hammond (Wimbledon) (Con)]

I warmly welcome my right hon. Friend’s statement, the many measures in it and, in particular, the reaffirmation of his commitment to ensuring that we overcome Labour’s debt storm. Many hard-working families in my constituency who aspire to buy their own homes will be pleased with today’s measures to ease the housing market. Will he confirm how many people nationally he expects the mortgage indemnity scheme to help, when it might start and how many jobs it is likely to create?

[Mr Osborne]

From memory, I think it is going to help 100,000 people, and that is a real boost. With the other housing measures we are taking, including the support for stalled sites—the £400 million package we are providing—we hope that that is going to create several hundred thousand jobs in the construction industry over the period going forward. The 50% right-to-buy discount we are introducing revives one of the most effective social policies of the past few decades—one that the Labour leader recently had to admit had worked and that the Labour party was wrong to oppose. A crucial additional element is that we are going to use the money to build social housing, which is why I think it is a policy appropriate to the modern age.

Northern Rock

Stephen Hammond Excerpts

Monday 21st November 2011 Commons Chamber

[Mr Hoban]

As I have already made very clear, Virgin Money is paying £747 million to the taxpayer, and other proceeds of sale will come our way. Our view is that this is far and away the best deal on the table. It is the best deal when it comes to value for money for the taxpayer, it is the best deal for consumers and the best deal for the north-east. I am sorry that the hon. Gentleman has not sought to welcome this opportunity to give the people of the north-east and those who work at Northern Rock some new hope for their future.

[Stephen Hammond (Wimbledon) (Con)]

I thank my hon. Friend for his statement. If I understand it, the deal done by the Labour party that forced Northern Rock to be sold before 2013 put a deadline in place, and if losses were being made, the book value was more likely to fall. May I urge my hon. Friend to stick to his guns, as this is a good deal for taxpayers? I remind him that the Labour party’s timing meant that gold was sold at the bottom of the market.

[Mr Hoban]

My hon. Friend makes a good point. I am not sure I would ever want to turn to those on the Opposition Benches for advice on when to sell assets.

Eurozone Crisis

Stephen Hammond Excerpts

Tuesday 15th November 2011 Westminster Hall

[Stephen Hammond (Wimbledon) (Con)]

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing this debate. Like him, I spent some years in the City of London, in various institutions. I want to address three things. First, I want to look at the theoretical construction of the euro as it was set up. My hon. Friend talked about the various eurozone summits and why they failed to find a solution. The reality, of course, is that a theoretically implausible project means that any eurozone solution will not be practical. I also want to talk about some of the reactions, and conditions the International Monetary Fund might want to attach to its bail-out, and our interest in it.

The single market was much welcomed in terms of the encouragement of free trade, which then drove some people to the aspiration for a single currency. It was clear that those countries that were going to join would lose the basic levers of economic policy, namely taxation—that is, fiscal policy—as well as interest rates, exchange rates, protectionism and, indeed, unemployment. It was also clear to any undergraduate, or even A-level economist, that the reality was that a fudge might be possible in good times, but not in a recession. The opponents of that view pointed to optimal currency area theory, which showed that the transaction costs would be lessened and that everything would, therefore, be fine. In practical terms, however, we have seen a theoretical misconstruct. The euro was a misconstruct because it failed to recognise exactly what that theory says: for optimal currency area theory to work, the economies have to be homogeneous in nature or flexible in their arrangements, so that they can move to homogeneity, or a currency union needs to be established alongside a fiscal union at the same time; otherwise, the overwhelming point is that whatever is set up in terms of a single currency will fail.

On the economies that were in the eurozone when it began—the wealth of Germany, the emergence of Ireland and the agrarian underdevelopment of Portugal— surely the appropriate description is diverse rather than homogeneous. Moreover, if we look at the policy formulation since the currency has been in existence, we see that there has been no flexibility that would allow movement to a homogeneous economy. Unless we recognise that the project is flawed in theory and do something about the theoretical basis, we will never find a practical solution. It is not surprising that we have had 15 eurozone summits that have provided no solution whatever.

The absurd reactions of Europe’s senior eurocrats are also of extreme concern. They are preventing any serious discussion of a resolution. The basic premise at the moment is, “The euro must be saved, the euro must be saved, the euro must be saved.” Only last week, President Barroso said yet again that the euro should be the norm for Europe. He even denied the UK’s permanent right to opt out. The President of the European Council, Mr Rompuy, also made an extraordinary remark over the weekend when he suggested that, if the eurozone’s integrity was not preserved, the functionality of the internal market could not be taken for granted. That is an absurd proposition. First, we need only look at the history of how the single market functioned before the euro came into being. Secondly, a single market does not need a single currency, but I will not bother to go into the theoretical construct for that.

[Mr Cash]

Does my hon. Friend remember Madame Lagarde saying on 17 December 2010, when she was Finance Minister for France, that they broke all the rules because they wanted to save the euro at all costs? The rules have been broken, and that relates to the stability and growth pact and every single aspect of this.

[Stephen Hammond]

My hon. Friend is right, and my hon. Friend the Member for Basildon and Billericay made exactly that point. I will not go on, but it seems simply ridiculous. If the eurocrats of Europe think that saving the euro is more important than working out the solution to the economic crisis, progress will be, at best, tortuous.

From a UK perspective we must be interested. The idea that we are not interested in what the IMF bail-out is—or, indeed, in the fact there is a eurozone crisis—is clearly wrong. The impact on the UK is extraordinary. We trade with the eurozone, and therefore have a significant interest. My hon. Friend the Member for Cities of London and Westminster (Mark Field) referred to the possibility of a default of Greek banks. It may or may not be true that we have little or no exposure to Greek banks—I think it is broadly true—but we have great exposure to banks that lend to Greece within the eurozone. That contraction of balance sheets will affect lending to small and medium-sized enterprises in the UK. Therefore, we must have that interest.

A basic and necessary precondition of what the IMF must say to the leaders of Europe is that they must recognise their wider international responsibilities. My hon. Friend also made the point about the Germans effectively wanting to control the eurozone, but not being prepared to accept the economic leadership that that implies by allowing the ECB to attempt to solve the liquidity crisis. We should extend money to the IMF, but I am realistic in accepting that, overall, that means the IMF would extend extra money to the eurozone. Any money that the IMF extends to the eurozone should be met with the precondition that the ECB becomes entirely independent and able to print money for the eurozone, or else it is bound to fail.

The IMF also needs, and almost certainly will accept, a necessary theoretical construction that provides a solution. The most likely solution is that we see a number of countries leave the eurozone—leave the euro—and some perhaps form a tighter unit. That being so, the IMF must stand up and say that it is prepared to fund the cost of dislocation for those leaving the eurozone, so that they have a chance to devalue, make the necessary adjustment to living standards and the necessary lowering of labour costs to allow a competitive solution.

[Mr Carswell]

Is my hon. Friend saying that he wants the IMF to fund the cost of eurozone members’ dislocation from the euro?

[Stephen Hammond]

I am saying that I accept that the IMF will make a bail-out to the eurozone. On that basis, one of the best solutions for the eurozone is for a number of countries to be allowed to leave the euro. The IMF will therefore need to fund the cost of the dislocation of those countries leaving the euro to give them any hope, attendant with their devaluation, of an economically sustainable future.

[Mark Reckless]

Will my hon. Friend give way?

[Stephen Hammond]

I notice that I have gone on rather longer than my five and a half minutes. I had a number of other points, but thank you for the opportunity to speak this morning, Mr Caton.

--- Later in debate ---

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

I was interested to hear the comments of the hon. Member for Stroud (Neil Carmichael). I have learnt a lot, including Gerald Ford’s attitude to New York city and the history of the Ugandan shilling. At one point in the debate, I was almost feeling sorry for the Minister, given the heat that he is falling under and that he is simply following orders—it is not entirely his fault—but in the short time available, he needs to explain not only the answers to the questions asked, in particular by the hon. Member for Basildon and Billericay (Mr Baron), who gave a thorough and refreshing contribution, but an area of policy that has not been touched on as much as it should have been and that is central to the debate, which is growth. How will we rejuvenate growth, not only in the UK but throughout the eurozone, as a way to solve the crisis?

The Office for Budget Responsibility continues its relentless drive to downgrade economic prospects, and the European Commission has forecast a massive change in our fortunes. Last year, gross domestic product growth was supposed to be 2.2% in 2011, but a couple of weeks ago, that prediction was downgraded to only 0.7%. We are now forecast to have the slowest growth in Europe, with only Greece, Italy, Portugal and Cyprus growing more slowly in 2011. The Office for National Statistics, however, shows that exports to the euro area were rising by 17.3% in the third quarter, so the eurozone alone cannot be an excuse for the UK’s lack of growth.

Given the fragility of our economy and our vulnerability, I accept that prolonged uncertainty in the eurozone could worsen our position, but it would be disingenuous of the Treasury to suggest that our woes are caused by the eurozone situation. I would be worried if it genuinely thought that to be the case.

[Stephen Hammond]

Will the hon. Gentleman give way?

[Chris Leslie]

Not in the short time that I have available. I prefer to hear the Minister and to deal with particular issues, some of them raised by a number of hon. Members. For example, the hon. Member for Cities of London and Westminster (Mark Field) discussed bond yields and the dangers of the Government giving the impression that we are a safe haven relative to the rest of the world. I am worried about the complacency shown by the Government. Bond yields are as much a function of our relative independence from the euro and the flexibility of having our own central bank. The director of the National Institute of Economic and Social Research, Jonathan Portes, made it clear recently that our gilt yields declining to an all-time low was partly a result of the economy’s weakness, because safe-haven flows are typically accompanied by a rise in the value of the pound or rising stock prices. He could not have been more concise or clear:

“The reason people are marking down gilt yields is because the economy is weak”.

We should not see that entirely as the be-all and end-all of economic policy. The hon. Gentleman is right that we should see it not merely as a safe-haven function, but as a bubble that may burst at any point.

What should the Government be doing? The crisis is far from over, even though the markets have calmed somewhat this week. My right hon. Friend the Leader of the Opposition rightly pointed out that the European summit—the G20 summit—finished prematurely, without adequately solving the difficulties with the EFSF and the permanent bail-out arrangements, and that a further European summit might be necessary to thrash out the issues properly. We also need a proper strategy for jobs and growth throughout Europe and concrete steps to support demand immediately. We have to end the prevarication about the role of the European Central Bank as lender of last resort and to give proper attention to what it takes to make that EFSF firewall stand behind eurozone members.

Hon. Members mentioned the IMF in some detail. In the summer, before the details of the permanent eurozone bail-out fund had been agreed, the Labour party urged the Government to pause before granting additional funding to the IMF. We called for the commencement of the larger eurozone-only bail-out fund to be brought forward and for the Government to negotiate an end to our liabilities via the temporary EFSM. The Minister at the time did not explain what the UK Government were doing to help to ensure that an adequate and permanent EFSF was put in place and, as I said, the European summits came and went, despite the Prime Minister’s attendance.

Ministers, including the Prime Minister, have repeatedly misrepresented our view of the IMF’s role. Today’s debate shows that our concerns are shared across the party divide. Tim Geithner in the United States and people in many other countries have also voiced their reservations. In principle, because of the IMF’s generally vital role in the global economy, we support an increase in its subscription, but I make no apologies for questioning the Government’s stewardship of our public funds. We have a duty to protect the best interests of the UK taxpayer.

We have consistently said that the IMF’s job is to support individual countries with solvency crises and not to solve a structural problem caused by eurozone countries unable to agree the necessary steps to support and maintain their own monetary union. The IMF does have a role around the world and should have the necessary resources, but there should be no IMF funding to plug the gap in the eurozone’s bail-out fund and to do the job that the ECB should be doing. The only way to ensure market confidence in the eurozone is for the ECB, alongside that permanent bail-out fund, to be given the political support that it needs to act as lender of last resort when liquidity problems arise. That is the logic of monetary union that the 17 eurozone countries are signed up to.

I want to hear the Minister’s answers, so I will curtail my remarks. It is vital for the Government to wake up and realise the role that a growth strategy must play in Europe and in the UK. Without that, there could be serious ramifications for the UK and our economy. If the Government fail to act as an honest broker, stepping up to show the leadership that many hon. Members have urged in today’s debate and so that the ECB becomes lender of last resort and that the EFSF has enough weight to become an effective firewall, the eurozone crisis may well deepen further. The Chancellor continuing to talk about Britain as a safe haven betrays a relaxed complacency in the Treasury that is not warranted. Such an approach is misinformed, neglectful and very dangerous in the situation that we face.

Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 21st June 2011 Commons Chamber

[Danny Alexander]

As I say, growth forecasts are a matter for the independent Office for Budget Responsibility. I am clear that the deficit reduction programme is essential to ensure that we have confidence in the UK economy. Given that the Opposition caused the mess we are trying to clear up, I hoped the hon. Lady would support that.

[Stephen Hammond (Wimbledon) (Con)]

Does the Chief Secretary agree that one of the assessments that we can make on growth is that encouraging job creation in the private sector will see a reversal of the decline in the productivity experienced when the Labour party was in power, and is likely to see growth forecasts continue to rise?

[Danny Alexander]

The hon. Gentleman is right that we need to see the private sector lead the economic recovery. Many of the measures that we announced in “The Plan for Growth”, such as reforms to the planning system, the measures on regulation and some of the tax measures that we announced to support investment, will all help to encourage and support private sector businesses to lead the recovery that we all want to see.