UK Guarantee Scheme

Sajid Javid Excerpts

Wednesday 24th April 2013 Written Statements

[The Economic Secretary to the Treasury (Sajid Javid)]

UK Guarantees was announced in July 2012 with enabling legislation, the Infrastructure (Financial Assistance) Act 2012, receiving Royal Assent on 31 October 2012.

The Government are confirming that they have approved a guarantee for up to £75 million to Drax Finance Ltd for the partial conversion of a coal-fired power station to biomass.

UK Guarantees was launched in response to constraints in the long-term debt markets by providing a sovereign-backed guarantee to help infrastructure projects raise debt finance. In exchange for a guarantee a fee will be charged to the borrower, determined by the nature of the guarantee and the risks inherent in the project. Guarantees for up to £40 billion in aggregate can be offered under the initiative.

The Government will report to Parliament on the financial assistance given in line with the requirements set out in the Infrastructure (Financial Assistance) Act 2012.

Public Service Pensions Bill

Sajid Javid Excerpts

Monday 22nd April 2013 Commons Chamber

[The Economic Secretary to the Treasury (Sajid Javid)]

I beg to move, That this House disagrees with Lords amendment 78.

[Mr Speaker]

With this it will be convenient to discuss the following:

Lords amendment 79, and Government motion to disagree.

[Sajid Javid]

We return today to the Public Service Pensions Bill, which will put public service pensions on a fair and sustainable footing for generations to come. There was broad support from all parts of the House for this measure, and I am grateful to all those who have voiced an interest in the Bill for their co-operative approach. I would also like to draw the attention of the House to the progress the Bill has made in the other place.

First, when the Bill left this House, the Opposition were concerned about the wide scope of powers to make retrospective changes and to amend primary legislation. The Government understand that concern. Pensions are an important part of scheme members’ future income in retirement. We therefore tabled amendments in the other place to give members or their representatives a complete veto over any significant adverse retrospective change to their pensions and to restrict the powers to amend primary legislation. Furthermore, any Treasury orders for negative revaluation of scheme benefits will now need to be made by the affirmative Commons procedure.

Secondly, the Opposition sought further assurances on the governance elements of the legislation, particularly a requirement in the Bill for employee representatives on scheme boards. Again, I am pleased to report that the Government tabled amendments in the other place to require an equal balance of member and employer representatives, along with an explicit requirement for national scheme advisory boards.

[Richard Fuller (Bedford) (Con)]

My hon. Friend is talking about some welcome changes that the Government have made, but there is another party to this contract on pensions. The taxpayer will foot the bill for the unfunded part of the obligations of public sector pensions. Will he assure me—

[Mr Speaker]

Order. Will the hon. Gentleman resume his seat? I do not blame him, in the first instance, because the trouble, the mischief, was started, however inadvertently, by the Minister, who is looking at me with an innocent expression belied by the reality of what he was saying in the debate. This is not a generalised debate; these are narrowly defined matters, and we are considering the relevant amendment, to which, to put it kindly, the hon. Gentleman’s remarks were not altogether adjacent.

[Sajid Javid]

With your guidance, Mr Speaker, which I always take very seriously, I will move directly to Lords amendments 78 and 79.

The Lords amendments would give the civil servants in the MOD fire and police services a normal pension age of 60 in the new schemes. The Government do not believe that this is the correct way forward.

[Sir Bob Russell (Colchester) (LD)]

Is the Minister seriously stating that an MOD police or fire officer should be treated differently from a police or fire officer not employed by the MOD?

[Sajid Javid]

As I make progress and explain the Government’s position, I will come to that point.

The Government do not believe the amendments to be the correct way forward, either for the taxpayer or the forces themselves. I will briefly set out some of the key reasons for our position. Allow me first, however, to reassure both hon. Members and the work forces themselves that the Government understand their concerns. We have listened to the representations and reflected on the discussions in another place, and I want to make it absolutely clear that we recognise the unique position of these work forces and the important role that the defence fire and rescue service and the Ministry of Defence police play.

My colleague Lord Newby met DFRS and MDP officers to talk through their experiences on the ground and the demands of their roles. There is no doubt that these public services deliver a valuable service to the armed forces and the country more generally. The nature of the work they are called on to deliver is often very difficult and at times can be dangerous. On occasion, some members of these work forces might find themselves putting their lives at risk. No one in the House is suggesting otherwise, so let us not be distracted from this important discussion by cherry-picking anecdotes and citing emotive examples of the work involved, because that is not the issue being discussed today.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

Like many people, I have met representatives of workers in the MOD scheme, and they have referred me to Lord Hutton’s comments that he was not aware of the anomaly and therefore did not address it in his report, but that he was sympathetic. I have seen both sides of the argument. Our noble friend Lord Newby said that he would reflect on the debate in the Lords. Have there been any further conversations with Lord Hutton? In general, my understanding is that the Government are seeking to implement Lord Hutton’s recommendations, but this issue has clearly slipped through the net.

--- Later in debate ---

[Sajid Javid]

My right hon. Friend is right to raise Lord Hutton’s contribution to these pension reforms. He has done an excellent job overall, which the Government, including me, have put on record a number of times, although I am happy to do so again today. As my right hon. Friend says, Lord Hutton made clear his views on this issue in the debate in the other place. Since then Lord Newby has engaged with a number of stakeholders. I will provide a further update on that as I progress.

[Ian Paisley (North Antrim) (DUP)]

Lord Newby said in the House of Lords debate that these amendments would

“fundamentally alter the status of these individuals and that should not be carried out lightly.”—[Official Report, House of Lords, 12 February 2013; Vol. 571, c. 743.]

How does the Minister respond to those points and will he say what those alterations would be?

[Sajid Javid]

I thank the hon. Gentleman for his intervention. I agree that the general pension reforms in this Bill should not be carried out lightly. As I progress and we have this debate, I hope he will be reassured that the Government have taken this issue seriously and will set out their case carefully.

The issue at hand is the appropriate treatment of those work forces’ pensions. The amendments would actively reduce the normal pension age for individuals joining them. It would not be a minor reduction, but a reduction of five years from the pension age put in place for those work forces by the Labour Government in 2007. It would also be a reduction of seven years from the pension age that they would otherwise see when the new scheme comes into force in 2015. That approach would run counter to the need to control the risks associated with increased longevity, which all parties agree must be addressed. I believe that all parties in this House support the aim of controlling those risks. The amendments would make those work forces unique in the public sector, with their pension age falling at a time when everyone else’s is rising.

In response to the issue being highlighted, the Government have taken measured and appropriate action. Rather than making a knee-jerk response to fit with the legislative time scale of the Public Service Pensions Bill, the Ministry of Defence has written to the forces. Its letter states that the MOD is willing to consider how the current pension age of 65 might be maintained for those individuals when the new pension schemes are introduced in 2015. I believe that is a reasonable offer by the Government, and we will of course stand by it. It is our duty as parliamentarians to look at the whole picture. Pensions are only one part of the remuneration and employment package of those work forces.

[Sir Bob Russell]

The Minister is saying that the retirement age of a current Ministry of Defence police officer would remain at 65. So that I can better understand, what would the retirement age for a constable in the Essex police be?

[Sajid Javid]

To be clear, what I have said is that the Ministry of Defence is willing to consider keeping the age at 65. It has not yet made that decision, which would require further engagement, although it has set out how it intends to engage. As I think my hon. Friend knows, under these proposals the answer to his question about a police officer would be 60, as opposed to 65 for civil servant pension schemes.

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

When the Minister complains that agreeing to these Lords amendments would create a unique circumstance, is he not really admitting that the unique characteristic of this particular class of MOD firefighter and MOD police officer is that they are the outliers? They are the only ones who will have to work all those extra years, whereas other police officers and firefighters in comparable roles will retire at 60. That is essentially what he is saying.

[Sajid Javid]

During the Bill’s passage through Parliament, the Opposition spokesman has raised mostly constructive issues and, as we shall see during this debate, the Government have accepted many of them. This is one issue, however, on which he and his party have little credibility. He says that the current retirement age for MOD police and fire service workers is higher than that of their civilian counterparts, but that situation was created by the Government whom he supported, so he really does not have much credibility on the issue.

[Chris Leslie]

rose—

[Sajid Javid]

I will give way to the hon. Gentleman again. Perhaps he will now tell me whether the previous Government considered these issues when they changed the retirement age from 60 to 65 for MOD fire service workers and policemen.

[Chris Leslie]

I was not part of the Government at that time, but the key point is that, as he knows and as we have heard throughout the debates that have been quoted in interventions today, even Lord Hutton did not spot this anomaly. Lord Hutton says that, if he had known about it, he would of course have corrected it and aligned the MOD firefighters with all the other firefighters. I am prepared to say that the last Government overlooked this issue; it was an error. It was a mistake, and we should be big enough to admit that. Is the Minister now big enough to throw away his Treasury brief, which simply tells him to resist all changes, and to act for himself and do the right thing by treating all firefighters the same?

[Sajid Javid]

I am very comfortable that the Government are doing the right thing by resisting the amendments. As the debate progresses, I hope that more hon. Members will be persuaded that we have taken the right approach to this complex issue. I shall explain further as the debate progresses.

[John McDonnell (Hayes and Harlington) (Lab)]

Will the Minister explain the nature of the offer? I just want to know what the process will involve, following consultation. Will it require primary legislation, or will it be dealt with through delegated legislation? How will it be implemented? What sort of time scale is he considering?

[Sajid Javid]

The hon. Gentleman is asking those questions for all the right reasons. I still have a few more minutes in which to set out the Government’s case, and I hope that I shall answer them in the process. If anything remains unclear, however, I hope that he will come back to me. I will be happy to add to the information that I am giving the House.

[Richard Fuller]

Labour has accepted that it completely forgot about those workers when it was in government. Its spokesman has been noble enough to admit that it did not find the 350 people in the fire service and 3,000 people in the military police. Given that my hon. Friend the Minister now understands that fact, can he tell me why the workers did not bring the issue to the attention of the then Government? Were the unions involved in any negotiations at the time, or has this just become an issue now?

[Sajid Javid]

My hon. Friend raises a good point. I cannot answer on behalf of the previous Government, but I can say that the change was carried out by ministerial order. There was no open, ongoing debate on the matter like the one we are having today. A written ministerial statement was issued by the then Minister for the East Midlands, Gillian Merron, on 26 July 2007, and I can find no record of any Labour MP complaining about the change at that time. If my hon. Friend is making the point that the Opposition’s credibility is severely damaged because of this, he is making it very well.

[Sir Bob Russell]

It was not connected to the pensions issue, but I raised with Labour Ministers at the time the stupidity of cutting the size of the MOD police, whose numbers in my constituency have been reduced from 33 to one.

[Sajid Javid]

We all know that my hon. Friend is an assiduous Member of Parliament, and that he reviews all legislation carefully. I thank him for making that point. He will no doubt have looked at these matters closely at the time, and I welcome his looking at the legislation today.

[Ian Paisley]

The party political spat is incredibly interesting to observers—and the employees are the people who count most here. Will the Minister set out for me—he has been able to travel some way in his contributions to date—where the terms and conditions of employment set for Ministry of Defence personnel are materially and significantly different from those of ordinary Home Office fire services and police officers across the rest of the UK? If he set that out clearly, it might help me to come over to his side on this issue.

[Sajid Javid]

The hon. Gentleman may already know that MOD fire workers and police are classed as part of the civil service and, as such, are part of the principal civil service pension scheme. That is why the changes I referred to, which were made by the then Government back in 2007, affected those employees. As I plough on through my speech, I hope I will be able to answer some of his concerns.

[Ian Paisley]

I thank the Minister for his generosity in giving way again. It is the material condition of their work that counts. What is significantly different between an officer who dons a hat with an MOD badge putting out a fire and one who does so but dons a hat with his regional service cap? I simply do not get it, and I think that many Members do not get it either, while those who do not get it the most are the fire service men.

[Sajid Javid]

Clearly, there is some difference in the roles they carry out, but I readily accept that the physical attributes required and the difficulty of the job are similar in each case. That is why I said at the outset that there is no point in trying to debate the difficulties, for example, of one job in the civil fire service in comparison with those in the MOD fire service, but significant differences have developed over time between the pay and conditions, including the pensions, of the civil and the MOD work forces. The hon. Gentleman will see, as I have outlined, that the MOD has committed to consider the issue. My main point is that this Bill deals with approximately 12 million employees and their pensions in the public sector, and that this is not the right occasion for looking at individual terms and conditions in each scheme for each particular work force. There is a time and a place for that—but it is not the debate on this Bill. I do not believe that it is the job of Members here or in the other place to look at the individual terms of each scheme. Rather, we should ensure that the Bill we pass has sufficient flexibilities to ensure that if the NPAs—normal pension ages—or other terms and conditions in the pensions for particular work forces need to be changed at some point in the future, that can be accommodated.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

Will the Minister tell us how many meetings he has had with Defence Ministers to discuss the implications for the MOD and how many he has held with the MOD police and fire service trade unions?

[Sajid Javid]

I can tell the hon. Lady that I am not the only Minister in the Treasury working on this issue, as there is a whole team of Ministers, including my noble Friend Lord Newby. Treasury Ministers have had meetings with representatives of the respective work forces and other stakeholders. I would like to plough on—

[Mr David Anderson (Blaydon) (Lab)]

Will the Minister give way?

[Sajid Javid]

I promise that I will in a few moments.

It is our duty as parliamentarians to look at the whole picture of pensions, which are only one part of the remuneration and employment packages for these particular work forces. We should not simplify the issue by making stark comparisons out of context. Simply comparing these forces to their local authority counterparts achieves no useful purpose beyond critical grandstanding. Differences between these forces’ terms of employment are of long standing. If these issues are to be reopened, they should be considered in the round, with proper consultation between employer and employees.

As well as having different retirement ages from local authority, fire and police personnel, the MOD employees have different contribution rates and levels of pay. Unlike their local authority counterparts, they also have access to benefits such as the civil service compensation scheme. To pluck out their pensions from the wider package would be short-sighted, and potentially damaging to the efforts of both employers and employees to get the package right.

[Mr Anderson]

I thank the Minister for giving way. He is being very generous.

We are not just legislating on people’s terms and conditions, and it is important for us not to legislate and get it wrong. What about people’s capability to do the job? Are people over 60 expected to go into a burning building in the same way as they did when they were 26? John Hutton clearly does not think that they should do so if they work for a local authority, and the same should apply in this context. We should think not only about the person who is running into the building, but about the person who is inside waiting for him. That is why the Minister should change his mind.

[Sajid Javid]

The hon. Gentleman has made a good point, and made it well. It is important to consider the capability of each work force, especially in view of increased longevity, and to ensure that the retirement age is appropriate. That is what I expect the MOD to do, and that is what it is doing, but it should do it in the context of the particular scheme for each work force, rather than by becoming involved in the details of each work force that are affected by the broad changes introduced by the Bill.

We have a responsibility to look rationally at the costs of the proposed changes. The additional costs may appear small in comparison with the savings that the Government are making through their overall programme of pension reforms, but the Government consider them to be both unnecessary and significant. They are unnecessary because those concerned will continue to have access to the civil service pension scheme, which is an excellent scheme that many in the private sector, including those doing the most arduous or specialist work, would envy. They are significant because some early indications suggest that they could be as high as £10 million a year for the lifetime of the schemes. This expenditure would take money away from front-line servicemen and women, and from other important defence priorities.

Those who support the amendments may believe that the members should pay the cost of the reduced retirement age themselves. That would imply increased employee contributions and a potential average take-home pay cut of over 8%—although it would depend on the exact terms—which might not necessarily be welcomed by members of the forces.

As politicians, we should not be trying to set the fine detail of public servants' pension schemes on the Floor of the House. Rushing at it might lead to mistakes. As I hope I have made clear, I acknowledge that the issue deserves further consideration allowing time for discussions between employer and employee. We owe it to the DFRS and the MDP to get this right.

[Simon Hughes]

What the Minister has just said is very helpful, provided that the Treasury too will be helpful if the negotiations between the unions and the MOD produce a different package. I understand the financial point, and I also understand that this is not just about retirement ages but about all the other benefits, which may be better than they are under the present arrangement. Can the Minister confirm that, if the MOD picks up the baton, the Treasury will not walk away and say “Nothing to do with us, guv”, but will continue to take an interest in the resolution of this outstanding bit of business?

[Sajid Javid]

What I can confirm is that the Treasury and the MOD are in exactly the same place. The MOD agrees with the terms that I am presenting today, and, as I have said, has made it clear that it will think about the issue. It has already written about it to members of the forces, as I would expect it to do in its capacity as the employer of these vital groups of workers.

The Government have not dismissed the claims of the DFRS or the MDP; far from it. The MOD has acknowledged in writing that there is a case for looking at their pension age to check that it is still appropriate.

Finally, there is a technical reason why the Government cannot accept these amendments as they currently stand. They would—unintentionally, I assume—confer powers on the Scottish Parliament and Welsh Assembly to make schemes for these civil servants. That would give new functions to devolved Administrations, without any proper consultation or consideration of whether that is the appropriate framework for managing the interests of these specialised work forces.

In summary, this is a complicated and inevitably emotive issue, and one that we have discussed at some length. I am sure I will not have persuaded all Members present today.

[Mr Anderson]

The Minister has made two clear points: this issue has not been resolved and needs to be resolved; and there is an issue to do with the Welsh and Scottish Parliaments. Therefore, is not the genuine thing to do to withdraw the Bill today, until those points can be put right?

[Sajid Javid]

I have to disagree. Of course that is not the right thing to do. This Bill is about 12 million workers in the public sector and their pensions, and about the settlement between those employees, their employers and the taxpayer, and it is vital that we make this reform so we can get the public finances on a sounder footing. I think the hon. Gentleman knows that, but I do not blame him for trying.

I hope hon. Members at least understand why we are taking this position on these amendments. I have explained why we have to resist the amendments, citing the financial privileges of this House on this occasion. I therefore urge hon. Members to disagree with this group of amendments.

[Chris Leslie]

Although the Minister had quite a long preamble, not necessarily on these amendments, all I would say is that, clearly, with life expectancies increasing, it is in general reasonable to ask people to work for longer before retirement. There is no disagreement on that general principle. We need to adjust the public service pension schemes so that they remain sustainable, which is why we support so many of the changes Lord Hutton recommended. However, as hon. Members know, there are certain categories of workers for whom having longer careers is not realistic because of the physical demands of their professions. There are some physical tasks that it is not reasonable to expect a 67 or 68-year-old to undertake.

The Bill acknowledges that in part, by excluding three categories of worker— firefighters, police officers and members of the armed forces—and fixing their normal pension age at 60. That is a rational position, but there are other professions that we believe the Government should keep under review because they also can be exceptionally physically demanding, such as NHS paramedics and care workers. There is clearly a need for some flexibility to accommodate scheme-specific capability reviews for these associated professions, and it is a great shame that the Government have not allowed the latitude for that in the Bill. We debated that in Committee.

Lords amendments 78 and 79 are aimed at correcting what most people thought to be an oversight: the fact that, for some bizarre reason, Ministry of Defence firefighters and MOD police officers are excluded from the definitions of firefighters and police officers in the Bill. There are about 2,000 MOD police and 1,000 or so MOD fire and rescue scheme workers who essentially carry out the same crucial, but onerous, tasks as police and fire service workers under the auspices of the police authorities and the Home Office.

--- Later in debate ---

[Richard Fuller]

I shall attempt to make my points speedily, Madam Deputy Speaker.

The hon. Member for Hayes and Harlington made two requests. He asked when the negotiations that may be conducted between the Ministry of Defence and the workers and their representatives would have to be concluded, and suggested a three-month time frame. I support that recommendation. He also asked for an indication from the Minister, today if possible but otherwise in a subsequent letter to Members, of what the legislative process would be for the reaching of a resolution. I think that both those suggestions are very worth while.

Will the Minister confirm that the assessment by MOD and the workers’ representatives will not specify a particular retirement age, and that the decision will be based on an assessment of the potential ability of members of those work forces to do their jobs effectively? Will he also confirm—I think he said this earlier, but confirmation would be helpful—that the scheme will be flexible enough to allow us to make the changes without any limit, but that it will be up to those in the scheme to make the recommendations? I hope that he will be able to make those two commitments today.

It is important for the Government to be able to maintain a dialogue about the retirement age of our firefighters, both in the MOD and outside it. We are embarking on unknown territory, and I think that a Government who listen to these workers will be seen to be truly putting their money and their heart where their mouth and commitments are.

[Sajid Javid]

I thank all who have spoken during the past hour. I also thank my right hon. Friend the Member for East Yorkshire (Mr Knight), who could not speak in the debate, but who has an interest in the issue and has made representations to me on behalf of his constituents. I hope that I shall be able to respond to the points that have been made in the time that is available to me.

Both my hon. Friend the Member for Argyll and Bute (Mr Reid) and the hon. Member for Banff and Buchan (Dr Whiteford) made a number of points. As they will understand, I could not agree with everything that they said, but they both made the sensible point that the Treasury and the MOD should take account of those who retire early on health grounds when considering the potential cost implications of the changes that we are discussing. I agree that we must bear in mind all the impacts on costs that the amendments might have.

My hon. Friend the Member for Stevenage (Stephen McPartland) also raised a number of issues, including the important issue of the Opposition’s credibility in this regard. Some MOD firefighters and police officers who are listening to the debate will already have a retirement age of 65 rather than 60 because of the changes made by the last Government in 2007. When the hon. Member for Nottingham East (Chris Leslie) speaks about such matters, his own credibility becomes somewhat shallow.

I do not often agree with the hon. Member for Blaydon (Mr Anderson). I again did not agree with much of what he said, but I know he believes passionately in what he says, and I respect fully what he had to say. He is a great advocate for his constituents, but he, too, did not address the issue of the change that was made in 2007, and nor did his party colleague, the hon. Member for Hayes and Harlington (John McDonnell). For the purposes of this debate, it would be useful to know whether the hon. Members who have spoken up today also did so when the retirement age was changed in 2007.

[Mr Anderson]

rose—

[John McDonnell]

rose—

[Sajid Javid]

I give way first to the hon. Member for Blaydon.

[Mr Anderson]

If the Minister checks the record tomorrow, he will see that I specifically said I made a mistake, and I also made a point about the Liberal Democrats not raising this issue at that time. The Minister is therefore wrong if he is saying I did not deal with the issue.

[Sajid Javid]

I shall now give way to the hon. Member for Hayes and Harlington.

[John McDonnell]

I did not make a mistake: I opposed the lot.

--- Later in debate ---

[Sajid Javid]

That is characteristic of the hon. Gentleman, as he opposes a lot in this Chamber, and perhaps did so even when his party was in government.

My hon. Friend the Member for Colchester (Sir Bob Russell) raised a number of points. I agree with his comments about fitness for the purpose. He asked about whether MOD firefighters and police officers are fit for the purpose and that is key, because it is essential that we set retirement ages that are appropriate for the jobs in question, as I said in my opening speech.

My hon. Friend also touched on the related issue of pension contributions. If we just accept these amendments, there will be consequences from the changes. The hon. Member for West Dunbartonshire (Gemma Doyle), speaking for the Opposition, intervened on my hon. Friend on that matter, but what she said was wrong, because there would be consequences. We would have to think about who would pay for these changes, and if there were a change in the retirement age we clearly could not have a situation where, for instance, the civilian firefighters and the MOD firefighters had the same retirement age but paid different pension contributions. We would have to consider such issues. The hon. Lady knows that such issues exist, and it does not serve this House well to pretend they do not.

[Chris Leslie]

The Members who have engaged in this debate were asking the Minister to see whether there would be any movement, and one issue raised was the time frame for any potential negotiation on movement. I happen to think we should hold out for 60—that that should be the decision today—but I do want to ask the Minister: is he sure there is the potential for going to 60 for MOD firefighters and civilian firefighters without primary legislation? I am worried that, if we let this matter pass today, we might not be able to deal with it through regulations and secondary legislation, and that we will instead require primary legislation if we are to have the potential to get parity. Can the Minister confirm that we would need primary legislation for that?

[Sajid Javid]

I was going to come to that issue, because my hon. Friend the Member for Bedford (Richard Fuller) and the hon. Member for Hayes and Harlington, as well as the Opposition spokesperson, raised it. I will say a bit about the MOD process, but first let me repeat an important point: this is a broad-ranging Bill to deal with all public sector pensions, affecting approximately 12 million individuals, by addressing the issue of increasing life expectancy and seeking to find the necessary savings in a fair way from employees, employers and the taxpayer. It is framework legislation: it sets the general framework for individual schemes, but that is all it does. It is for the individual employer organisations and the employees to negotiate the terms of each scheme.

We deliberately set up the legislation to provide significant flexibility, so that if the MOD, and therefore the Government, decide at a later date that the retirement age needs to change, it would not require further legislation. The MOD can make the decision in discussion with stakeholders and others. The legislation will give not just the MOD but all public sector employee organisations flexibility to deal with the particular circumstances of their schemes.

--- Later in debate ---

[John McDonnell]

When the legislation leaves this House and goes back to the other place, could the Minister write to us explicitly about the generality of the Bill—about its being a framework Bill? It seems curious that a framework Bill lists a number of categories of worker whose retirement age will be at 60. That is why many people felt they needed to be included in that list if they were to be protected. It seems odd that the Minister is now saying, “Don’t worry because it is a general framework Bill.”

[Sajid Javid]

The Government have been very clear that one of the purposes of the Bill is to deal with increasing life expectancy and longevity. That is why retirement ages are increasing for almost all public sector workers, and there is a link to the state pension age. The Government must address the issue; it was something the previous Government ducked, but it is vital for making the public finances more secure. That situation has not changed. What I am outlining today, with regard to the issue relating to MOD firefighters and police officers, is that there is flexibility within the MOD scheme for it to come up with a different arrangement. The MOD has agreed to look into that. It has not made any decisions, but I am sure that it will look very carefully indeed at the issue.

[Chris Leslie]

The Minister says that the Bill is flexible. May I direct him to page 23, schedule 1, where there is a definition of fire and rescue workers? It states:

“In this Act, ‘fire and rescue workers’ means persons employed by…a fire and rescue authority in England or Wales…the Scottish Fire and Rescue Service, or…the Northern Ireland Fire and Rescue Service Board.”

Currently, that reference does not include Ministry of Defence firefighters. Can the Minister tell us that it does not require primary legislation to amend schedule 1 in that way?

[Sajid Javid]

I thought I made myself clear but I will say it again: it would not require primary legislation if the MOD decided it was appropriate and right to make any changes to the retirement age.

[Simon Hughes]

The Minister is being very helpful. In answer to an earlier question, he alluded to the timetable that has started. Would it be reasonable to assume that the negotiations are intended to be concluded by the MOD during this financial year at the latest?

--- Later in debate ---

[Sajid Javid]

My right hon. Friend asks a good question. I have heard the desire of the House for a timetable and I respect that. I will ask my noble Friend Lord Newby to speak further on that point tomorrow.

The hon. Member for Hayes and Harlington asked me to write to him on a specific issue, and I will. I heard that point.

This has been a passionate debate. The Government have been very clear that we value tremendously the work of MOD firefighters and police officers. We have heard clearly the issues that have been raised today and how passionately they have been argued. I hope that I have managed to persuade some hon. Members—no doubt I have not managed to persuade all of them—that the Government take the issue seriously. The MOD will be looking into the issue and has already set the ball rolling. I hope that that will be a speedy process, and I urge the House to vote against the amendments.

Question put, That this House disagrees with Lords amendment 78.

Finance (No. 2) Bill

Sajid Javid Excerpts

Thursday 18th April 2013 Commons Chamber

[Cathy Jamieson]

I thank the hon. Gentleman. He has put his position firmly on the record in exactly the way I would anticipate, because I know from the work that he has done on the Scottish Affairs Committee and elsewhere that he takes this issue extremely seriously and is not slow to make points that are often not entirely in line with his Government colleagues if he feels that that is the right thing to do. His comments are very important.

I want to finish by probing the Minister further to see where the Government intend to go with this. Although representations have been made, the Government have not committed to anything other than looking at the rates for this year and the year ahead. It is unclear whether they intend to address any anomalies and conduct further work—perhaps building on various independent reports and the work of the Transport Committee—in order to consider the issue in more detail.

Those who tabled the amendments will not be surprised to hear—I suspect they expected me to say this—that we will not support them. I look forward to hearing what the Minister has to say about how we might usefully take this issue forward, not just for the benefit of Scotland, Wales and Northern Ireland, which are very important, but for the benefit of the various regions and areas of England where hon. Members are making a case on behalf of their constituents.

[The Economic Secretary to the Treasury (Sajid Javid)]

I thank all hon. Members who have taken part in this energetic debate, which has aroused strong passions in some parties.

Clause 183 sets the air passenger duty rates for 2013-14. These rates were first announced at Budget 2012 and took effect from 1 April 2013. The rates have increased by inflation only. Because of rounding, band A has remained the same, so about 80% of passengers have seen no cash-terms increase in the rates they pay.

Clause 184 gives Her Majesty’s Revenue and Customs the power to require payments on account in relation to the APD annual accounting scheme, which was introduced to minimise administrative burdens for the extension of APD to business jets and will improve the fairness of the tax overall. The clause also updates the list of territories in band B of APD to include the new nation of South Sudan.

It is important to recognise the need for the aviation sector to make a fair contribution to the public finances. I remind hon. Members that no tax is levied on the fuel used in international and almost all domestic flights. Moreover, no VAT is levied on international flights and, unlike many other countries, the UK does not charge VAT on domestic flights.

It was in recognition of the fact that aviation was under-taxed compared with other sectors of the economy that APD was first introduced in 1994. It was introduced purely as a revenue-raising tax and it remains a vital revenue-raiser today. However, despite the challenge of the budget deficit that we inherited, this Government have limited increases in APD to inflation only in the period since 2010-11. During this period, rates have increased by only £1 for the vast majority of passengers. Furthermore, recognising the sector’s need to plan ahead, we have provided greater clarity on future rates. Budget 2013 set out that the rates for 2014 and 2015 will rise in line with inflation only. The real burden of APD will remain unchanged for a further year.

[Phil Wilson]

On the effect of APD on regional airports such as Durham Tees Valley airport in my constituency and Newcastle airport a few miles from the Scottish border, will the Government consider regional APD variations that might incentivise airliners to fly from airports other than Heathrow and Gatwick?

[Sajid Javid]

As the hon. Gentleman will know, the Government have looked at that in the past and have ruled it out thus far, because the evidence shows that it would lead to significant distortions in the UK market. He will also know, however, that we keep all taxes and duties under review to see whether improvements can be made.

Before I move on to the proposed devolution of taxes, I want to touch on the extension of APD to business jets. A new higher rate has been introduced for passengers travelling on planes offering an enhanced level of comfort. APD on these flights is double the prevailing standard rates for business and first class. These changes improve the fairness of the tax overall.

New clause 3 proposes devolving to the Scottish Parliament and the Welsh Assembly the power to set APD rates on direct long-haul flights from Scotland and Wales. New clause 4 and new schedule 1 also propose cutting the rates for direct long-haul flights from Wales to the short-haul rate in advance of devolution from 1 April 2013. The issue of APD devolution is a complex one. As we have heard, it was considered in the 2011 consultation and has been debated several times since then, including here today.

--- Later in debate ---

[Mr MacNeil]

Is the hon. Gentleman saying that there is a competitive disadvantage from APD only where there is a land border with another country or member state? Is that the position of the UK Government?

[Sajid Javid]

The hon. Gentleman knows the answer, but I shall provide it anyway. As he knows and as we heard from my hon. Friend the Member for Argyll and Bute, passengers who might go to Belfast have the opportunity to travel to Dublin by car. Clearly, that opportunity does not exist in Scotland.

We are working closely with the Northern Ireland Executive to consider options for rebalancing the Northern Ireland economy, and we are carefully considering the recommendations of the Silk commission in Wales. Any devolution of APD, however, must take into account the broad range of views on this subject. In response to the 2011 consultation on APD, a substantial number of stakeholders raised concerns about devolution complicating the APD system and creating distortions in the markets for flights. This concern was reinforced in a recent report by HMRC suggesting that the devolution of APD could lead to market distortion as a result of passenger redistributions between UK airports, without substantially increasing demand for aviation overall.

In considering whether to devolve APD, hon. Members will surely agree that we must assess the risk of replicating the same problems that Northern Ireland faced from lower aviation taxes in the Republic of Ireland. There is clearly a concern about an immediate cut in APD rates for direct long-haul flights from Wales. The Government therefore believe that the devolution of APD is a subject that requires continued and careful evaluation, if we are to be confident about its potential effects across the country as a whole. In undertaking this evaluation, we should take note of recent data showing that passenger numbers are growing at Scottish airports. Between 2010 and 2011, numbers grew by 5.5% and continued to grow last year as well. In fact, Glasgow airport achieved growth of 4% in 2012, Aberdeen airport recently achieved 24 months of consecutive growth and Edinburgh airport will provide more choice to passengers in 2013 than ever before.

[Hywel Williams]

Will the Minister tell the House what happened to passenger numbers from Cardiff airport over the same period?

[Sajid Javid]

I do not have the numbers to hand for Cardiff airport, but I am sure that the hon. Gentleman knows the answer. If he wants me to find out for him, however, I shall write to him with the numbers, if they are available.

Talking about Wales, we are considering the Silk commission’s recommendations, as I have said, but we must also take note of the concerns of Bristol airport, which has expressed deep concerns to me that devolution to Wales would have a significantly detrimental impact on its business. In presenting his amendments, the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) referred to the report by the CBI in Wales. However, I have an extract from—I believe—the same report he referred to, which says that

“high mobility between Wales and the UK…is a reason for the rate to remain consistent between the countries.”

Our analysis needs to be based on a full examination of the evidence. We will not be rushed or pushed into making premature judgments. On that basis, I ask hon. Members not to press their new clauses.

Briefly, the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) raised the issue of APD rates to the Caribbean. As she rightly said, I recently met a delegation of hon. Members to discuss that important topic. I am the first to accept the valuable contribution that British people of Caribbean heritage make to our country. I have promised to reflect on the important points raised by that delegation and many others that have brought up the same issue.

We have a plan to cut the deficit and we have already cut it by a third. Our country’s credibility comes from delivering that plan. APD revenues make an important contribution to the public finances and this year’s inflation-rate increase is necessary. The extension of APD to business jets makes the tax fairer overall. I therefore urge that both clauses in this group stand part of the Bill and ask hon. Members kindly to consider withdrawing their proposed new clauses.

[Mr MacNeil]

I can tell the Minister straight away that we will not be withdrawing our new clauses; we will be pressing them to a vote.

This has been an enjoyable debate. I certainly enjoyed the contribution from the hon. Member for Central Ayrshire (Mr Donohoe), who is not in his place at the moment. [Interruption.] I am told he is on a plane to Inverness. I wonder. I have found an exchange in Hansard between him and me from March this year, when I pointed out to him in an intervention that the UK’s tax

“is reputed to be the world’s most onerous tax on air travel, and I am sure the hon. Gentleman will agree that it is damaging Scottish airports terribly.”

From everything that he said today, we might be under the impression that a certain answer was given, but no. The answer he gave was:

“I do agree with the hon. Gentleman on this occasion; it is not very often I can say that. The Government are doing absolutely nothing for air passengers, the aviation industry and those who work in it. They continue with this tax, while our competitors throughout the world are laughing at us.”—[Official Report, 25 March 2013; Vol. 560, c. 1332.]

I just wish the hon. Gentleman was here now, to come through the Lobby with us and put some meaning into his words.

The hon. Member for North Antrim (Ian Paisley) made a very good speech when, as I see it, he described air passenger duty as a win-win situation. I welcome the fact that air passenger duty was devolved to Northern Ireland and I wish those in Northern Ireland well. I hope it succeeds and I hope the economy there grows from strength to strength. The devolution of air passenger duty to Northern Ireland will benefit us all, whether we live in Scotland, England, the Republic of Ireland or Wales. We have nothing to fear, only fear itself. In years to come, when the Northern Ireland economy—hopefully —develops with that, we will see the wisdom of devolving that power and the folly of not devolving it to other parts.

My hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) made a very strong speech—a star speech, in fact. He mentioned the Silk commission and Labour’s immediate need to devolve APD—it was the other week, but of course there is no sign of Welsh Labour in this place today. The word “immediate” has a different meaning for Labour Welsh Members from its meaning for the rest of the English-speaking world. The hon. Gentleman certainly gave us a scary update of the economic situation in Wales, where people face the double whammy of Labour in Cardiff and the Tories in London, with their wee pals in Westminster, the Liberals, giving them a hand. He reminded my colleagues just how fortunate we are to have the SNP Government in Scotland, led by luminaries such as Michael Russell, Kenny MacAskill, Nicola Sturgeon, Alex Neil, John Swinney and, of course, Alex Salmond, the First Minister.

The hon. Gentleman reminded us that the Westminster branch of the Labour party does not want to give powers to the Labour Cardiff branch. Clearly, the Labour brothers in Wales are as happy a band as those in Scotland. We wonder whether they will send an ambassador to Inverness this weekend—I doubt it. They are probably having a punch-up, one with the other, in Cardiff.

Talking of punch-ups, that brings me to the hon. Member for Argyll and Bute (Mr Reid), who offered himself to the Chamber as a punch bag and was taken up on that offer. My hon. Friend the Member for Moray (Angus Robertson) repeatedly asked him what his policy was and he repeatedly failed to answer the question. He was even offered the policy free by the SNP, but he would not adopt it, just in case, such was the level of uncertainty. He is a nice fellow but his politics are sadly lacking. The arms are open—if he wants to cross the Floor and join the SNP, he will be welcome. It is his politics he has to change.

The hon. Gentleman said that the SNP had not made the case. Hang about. Any daft case the Conservatives make and the Liberals happily wander through the Lobbies, be it on tuition fees, the bedroom tax—whatever it is, it is yes, yes, yes from the Liberals. He seems to be unable to make the case himself for APD to be devolved to Scotland—that was sadly lacking. Will he vote tonight for clause 183? Will he come through with us on clause 183? Will he vote against the increase or will he vote for it?

Finance (No. 2) Bill

Sajid Javid Excerpts

Wednesday 17th April 2013 Commons Chamber

[Mark Lazarowicz]

As time is limited, I take this opportunity to pursue with the Minister some of the issues raised earlier by colleagues on the Opposition Benches about how the schemes will operate in Scotland and Wales—outside England. I hope the Minister can answer these questions.

Will the Minister confirm that the mortgage guarantee scheme will apply to Scotland, Wales and Northern Ireland as well as to England? If that is the case, will he indicate which Department will operate it for Scotland and the other devolved areas? If it is to be the Department for Communities and Local Government, I suggest that it would be more appropriate for the scheme to be operated by the Scottish Government or the relevant devolved Administrations.

Would it be possible for the Scottish Government and the other devolved Administrations to amend the scheme to take account of the objections raised, which will no doubt be shared by all of them, that it would benefit the buyers of second homes and people on relatively high incomes? In most parts of Scotland, Wales and Northern Ireland, prices of £600,000 are very much at the higher end of the housing market.

If someone in one of the devolved areas defaulted under the mortgage guarantee, would the cost be borne by the Treasury or the devolved Administration? I appreciate that these are technical questions but I am sure that, as the Minister has thought through the policy in great detail, he will be able to answer them.

[The Economic Secretary to the Treasury (Sajid Javid)]

I thank all Members for their contributions. This has been a thoughtful and engaging debate.

Both new clauses are about housing. New clause 1 would require the Government, within three months of Royal Assent, to provide a report to Parliament on how the tax system supports those seeking to purchase a second new home and how the Government plan to prevent it. New clause 5 suggests introducing a mansion tax on properties worth more than £2 million, with a view to using the revenue to fund a tax cut for those on low or middle incomes.

The Government oppose both new clauses. I will elaborate on the reasons, but first allow me to make a few points about the significant steps the Government have already taken and about our overall housing strategy, as many issues relating to it were raised this afternoon. I shall also respond to some of the other issues that were raised.

The new clauses centre on the housing measures in the Budget. The Government announced a major new package to support new development and affordable housing, alongside reforms to the planning system. The measures included the Help to Buy equity loan scheme and the Help to Buy mortgage guarantee scheme. They will give a much needed boost to housing supply, and equip those who aspire to own their home with the tools to do so.

[John Mann]

Would the Minister accept that, with the affordable housing levy the Government have brought in on single properties, those who build their own home now face a minimum £40,000 tax per property? In Hertfordshire, it is £187,000. That will kill off aspiration for those who wish to build their own home.

[Sajid Javid]

What the Minister will accept is that this Government have done more than any other in recent times to help those who aspire to purchase their own home. The Budget announced financial support of £5.4 billion for housing, which builds on the £11 billion of support already committed during the spending review period. The Government are also taking significant action through our build to rent and affordable homes guarantees programme.

Alongside those measures, the Government are reforming the planning system to ensure that reforms will increase housing supply. Planning constraints have depressed the supply of new homes. The Budget announced that the Government will take further steps to make the vital planning reforms that are needed to ensure that we have a regime that is simple to access, supports growth and is responsive to housing need. As hon. Members will see, this Government have a comprehensive strategy for housing, we have taken significant action, and those measures will give a much needed boost to both the demand and the supply side of housing.

I shall now discuss the new clauses. New clause 1 proposes that the Government provide a report to Parliament, three months after the passing of the Bill, to ensure that the tax measures do not benefit those who are purchasing a second home. The Government have already taken steps, through the tax system, on the issue of second homes. We have changed the discounts on council tax for second homes, through the Local Government Finance Act 2012. From 1 April 2013, billing authorities in England will be able to charge up to 100% council tax, instead of between 50% and 90%, on properties that they consider to be second homes. That corrects an imbalance permitted by the previous Government, which allowed second home owners to pay less than those with a single property.

The report suggested is wholly unnecessary, but in today’s debate issues have been raised about the Help to Buy scheme, particularly whether it will support those who wish to purchase a second home. We have already made it very clear that second homes will not be eligible for the Help to Buy equity loan scheme. The scheme builds on the existing successful First Buy scheme, and is able to use existing processes. In the new scheme the Government, through the Homes and Communities Agency, have a more direct relationship with the purchaser, and require a legal declaration by the purchaser’s solicitor that the property will be the purchaser’s only and main residence. The Chancellor has also been very clear that the intention of the Help to Buy mortgage guarantee scheme is to help people buy their first home, or to move up the property ladder as their family grows. But the mortgage guarantee scheme represents a major new intervention, and we must ensure that we get it right.

[Chris Leslie]

May I clarify the announcement that I think the Minister is making? Is he saying that there will be a requirement, as a covenant within the mortgage deed arrangements, to exclude the use of any equity from remortgages and so on for second home purposes? That, essentially, is what he has announced.

[Sajid Javid]

What I am saying is that, at the Budget, we set out a scheme outline. Now we need to work, with lenders and other stakeholders, on the detail. We want to ensure that we avoid any unexpected adverse consequences of the scheme, such as attempts to use it to purchase second homes. We want to look at this carefully, and we want to ensure that we discuss the details with industry. We have already started this process, and we will report back to Parliament in due course. Therefore the report suggested by new clause 1 is wholly unnecessary.

[Bill Esterson]

This is a really important point. What the Minister has not announced is that, if somebody is moving up to a second home, they must sell their first home. Can he confirm that they will not be able to keep that first home, because otherwise it will mean that people will be able to get a second home by using the scheme?

[Sajid Javid]

The hon. Gentleman raises a good point, which is that it is the Government’s duty to carefully consider what is meant by a second home. He has given as an example the situation in which someone has no intention of owning two homes, but is in the process of moving home. Let me share another example. There are couples who unfortunately get divorced, and there may be a need for another home as the family splits. The question then arises, is that a second home or not? It is sensible for the Government to examine such issues carefully as we flesh out the details.

[Stewart Hosie]

rose—

[Sajid Javid]

In the interests of time, I must press on and answer some of the questions that were raised, including by the hon. Gentleman.

The hon. Member for Edinburgh North and Leith (Mark Lazarowicz) and others asked about the devolved authorities, in particular Scotland. The mortgage guarantee scheme is a UK-wide scheme and will be available to all UK residents, including of course those in Scotland and other devolved areas. The mortgage equity scheme is an England-only scheme as housing is a reserved issue among the devolved authorities.

[Mr Hanson]

For clarity, under that second scheme, could a resident of England purchase a property in Wales, Scotland or Northern Ireland?

[Sajid Javid]

The right hon. Gentleman asks a good question. Those are some of the details that we will flesh out. If he will allow me, I will look into the question further. I hope it is clear to him that the intention is that the mortgage guarantee scheme is a UK-wide scheme.

In the time that I have left, I shall turn to new clause 5. We have always been clear that the proposed mansion tax is an issue on which the two parties of the coalition have differing views. Our Liberal Democrat colleagues have supported the principle for some time, as we heard today so eloquently from my hon. Friend the Member for Bristol West (Stephen Williams). In contrast, Conservative Ministers have very real concerns about such a proposal.

We have concerns that a third of properties in London worth more than £2 million have been in the same ownership for 10 years, and that a mansion tax could hit asset-rich but potentially income-poor households. We have concerns that a family could live in a £2 million house, but have a very large mortgage. That would mean that their net wealth was a lot lower than the actual value of the home. We have concerns that any mansion tax would be administratively burdensome for HMRC to operate, not to mention intrusive for the person having their home inspected. But Opposition Members should be aware that we are taxing anyone purchasing a new home at this high value through the stamp duty land tax of 7% on residential properties costing £2 million or more. That is a policy that is easy to administer and it will not impact on existing home owners.

The Opposition have proposed that a mansion tax could pay for a tax cut for millions of people on low and middle incomes. The Government have already introduced tax cuts for those who need it most. We are increasing the personal allowance to £9,440 from April—the largest ever cash increase. That will be increased by a further £560 to reach £10,000 in 2014-15, meeting the Government’s commitment a whole year early. That is a tax cut for 24 million people and together takes 2.7 million people out of income taxation altogether.

Budget 2013 also announced that the fuel duty increase planned for September will be cancelled. The Finance Bill keeps fuel duty frozen at current levels, resulting in the longest freeze in fuel duty for 20 years, helping households and businesses with the cost of motoring.

Meanwhile, those with the highest incomes continue to contribute the most. This year the top 1% of taxpayers—those with an income of more than £150,000 a year—will pay approximately a quarter of all income tax. The top 5% of taxpayers—those on incomes of £68,000 or more—will pay nearly half of total income tax. As part of the Government’s commitment to create a fairer tax system, since 2010 the Government have raised taxes on the rich in every Budget. Budget 2010 introduced a higher rate of capital gains tax, Budget 2011 tackled avoidance through disguised remuneration, and Budget 2012 raised stamp duty land tax on high value homes and announced a cap on income tax reliefs. The autumn statement of 2012 took action to reduce the cost of pensions tax relief.

In Budget 2013 we announced further significant measures to tackle aggressive tax avoidance and offshore tax evasion by high earners. The richest now pay a higher percentage of income tax than they did under the previous Government. No doubt those on the Opposition Benches think a better approach would be to introduce a new starting rate of income tax, but let us not forget that the 10% rate is a policy that they introduced and then scrapped once before, to the cost of many further down the income scale—the people whom they claim they want to help. Fortunately, the Government have a more coherent income tax policy, as we heard from my hon. Friends the Members for Stevenage (Stephen McPartland) and for Bristol West. Our increases to the personal allowance have replaced the 10p rate, which Labour doubled; there have been successive increases to the tax free personal allowance. Effectively, we have introduced a 0% band.

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

On a point of order, Mr Amess. The Minister is not addressing new clause 5. Surely this is not in order.

--- Later in debate ---

[Sajid Javid]

I do think that it is relevant because the issue came up during the debate, but I take your guidance, Mr Amess.

The Government are committed to making the aspiration of home ownership a reality for as many households as possible. The housing measures introduced in this Budget will tackle long-term problems in the housing market, giving a much needed boost to housing supply and supporting those who want to get on or move up the housing ladder. Introducing a mansion tax would create real fairness issues by hitting asset rich but potentially income-poor households. It would serve to create only complexity and uncertainty. The Government have already made huge strides towards a fairer society and a stronger economy, and new clause 5 will not further that. I ask hon. Members not to press the new clauses.

[Chris Leslie]

Given the constrained time available under the Government’s programme motion and the need to move on to other issues, I do not wish to press new clause 1 to a vote, but it is important that we continue to press Ministers for some firmer answers on their Help to Buy scheme, which gives the impression of having been written on the back of an envelope without much thought and without looking in sufficient detail at some of the questions that have arisen in the course of the last few hours, whether with regard to devolved Administrations or second home purchases. Therefore, it is necessary to consider this further during the Bill’s passage.

However, it is important to test the view of the House on new clause 5, particularly given the speech of the hon. Member for Bristol West (Stephen Williams), who, in an acrobatic display of contortions that tests even the most adept of Liberal Democrats, managed to find a way to oppose a policy that he has supposedly advocated for a long time. Even when we agreed that the policy was the same, raising £2 billion on mansions worth over £2 million and using that money for a tax cut for low and middle-income households, he could not bring himself to abstain on the issue but will vote against the new clause. Therefore, we must test the view of the Committee.

Finance (No. 2) Bill

Sajid Javid Excerpts

Monday 15th April 2013 Commons Chamber

[The Economic Secretary to the Treasury (Sajid Javid)]

In debating the Finance Bill and the economy, one is reminded of the late noble Baroness Thatcher. As my hon. Friend the Member for Macclesfield (David Rutley) said, let us never forget that she rescued the country from a permanent sense of decline and restored economic strength and prosperity. She was our greatest peacetime Prime Minister. May she rest in peace.

We have had a lively and wide-ranging debate, with particularly thoughtful contributions from my hon. Friends the Members for Cities of London and Westminster (Mark Field), for Redcar (Ian Swales) and for Macclesfield. The best I can say about the contributions from the Opposition Benches is that we heard a lot of warm and fluffy talk about motherhood and apple pie but not a single idea on how to rescue our economy from the mess the Labour party created. This Government inherited a shocking legacy. The country will never forget the consequences of 13 years of Labour government: the largest deficit in the G20; the deepest recession since the second world war; and the world’s largest banking bail-out. We have taken action to cut the deficit, stimulate the economy and create a fairer and more efficient tax system. The Bill continues along that path.

Let me focus first on growth and competitiveness. The Bill builds on previous Bills by introducing a range of measures demonstrating the Government’s commitment to supporting growth and enterprise. Against the background of external challenges, such as the continuing crisis in the eurozone, it is vital that the UK tax system attracts investment to this country and does everything possible to ensure that UK businesses can compete in the global economy. The Government have already significantly reduced the tax burden on business. In 2013, corporation tax will be 23%, significantly lower than the 28% inherited from the previous Government.

Since we embarked on those reforms, we have seen a number of high-profile businesses returning to the UK or coming here for the first time, including WPP, Lancashire, Aon, Rowan and Seadrill. But we want to go further. The additional reductions set out in clauses 4 and 6 mean that the corporation tax rate will reach 21% in April 2014 and just 20% in April 2015, the lowest rate in the G20, and lower than any comparable EU member state.

But competitiveness is about more than just the rate of corporation tax. That is why the Bill also includes measures to give targeted support to the innovative sectors that will drive growth in the 21st century. Clause 34 delivers an above-the-line tax credit for large companies’ R and D expenditure, with an increased rate of support of 10%. That will provide a more visible and certain relief and greater cash flow support to the wide range of companies engaging in groundbreaking research in the UK.

Clause 35 legislates to bring in new tax reliefs for the UK’s world-leading creative industries, including animation and high-end TV. That will be among the most effective reliefs anywhere in the world.

The Bill also includes measures to support small and medium-sized businesses, which are the bedrock of our economy—points that were made very well by my hon. Friends the Members for Macclesfield and for Cities of London and Westminster (Mark Field). Clause 7 introduces a two-year increase to the annual investment allowance that has been in place since January. That will make it easier for firms to bring forward capital investment in plant and machinery, helping support businesses to grow and invest.

Clause 56 implements an extension of the successful capital gains tax holiday for the seed enterprise investment scheme, to support investment in new and early-stage firms to help give them the support they need to grow. Clause 63 enhances the tax advantages available under the enterprise management incentive, helping smaller, higher-risk companies to recruit and retain high-calibre employees. Low corporation taxes, support for innovation and help for small businesses—this Finance Bill sends the clearest possible signal that Britain is open for business.

We are also taking action to support the UK’s oil and gas industry. Clauses 77 to 90 support a new contractual approach to provide certainty over decommissioning relief on the UK continental shelf. The Government will sign contracts this year allowing the sector to unlock billions of pounds of additional investment, helping to create thousands of new jobs in Scotland and beyond.

[Sir Malcolm Bruce (Gordon) (LD)]

My hon. Friend is making an important point about the Government’s assistance to the oil and gas industry. Does he acknowledge that that has contributed this year to the biggest single investment in North sea oil and gas since they were discovered?

[Sajid Javid]

My right hon. Friend makes an excellent point. I am convinced that there will be further significant investment in that important industry because of the measures in the Bill.

I turn to fairness, which is at the heart of the Bill. The Bill helps families with the cost of living while making sure that the best off in our society pay their fair share. The increase in the personal allowance in clause 2, mentioned by my hon. Friend the Member for Redcar and others, will set the value at £9,440 for April this year, an increase of £1,335—the largest ever cash increase. It will save a typical basic-rate taxpayer £267 in cash terms and it is a tax cut for 24 million people. That is a major step towards the Government’s commitment to raise the personal allowance to £10,000 by the end of this Parliament. My right hon. Friend the Chancellor announced in the Budget that that goal will be reached next year, a whole year ahead of schedule.

Taken with previous increases in the personal allowance, the Government have taken 2.7 million people out of income tax altogether, providing real help for low and middle earners and rewarding work by enabling workers to keep a greater share of what they earn.

The Government also recognise the rising cost of fuel and the pressure that that puts on the finances of households and businesses. That is why we have decided to cancel the increase in fuel duty planned for September 2013. Clause 177 will freeze fuel duty at current levels, maintaining the longest freeze in fuel duty for 20 years. Under this Government, average pump prices are 13p per litre lower than if we had implemented the plans that we inherited from the previous Government.

When ordinary households are experiencing real pressure on their incomes, it is particularly important that tax reliefs are well targeted and cannot be used without limit by those on the highest incomes to reduce tax bills. Clause 16 legislates for a new cap on certain unlimited tax reliefs from this April to curtail excessive use of those reliefs. The cap will be set at £50,000 or 25% of the relevant person’s income, whichever is the greater, ensuring that the reliefs cannot be exploited unfairly. The cost of pensions tax relief is rising and has doubled in a decade since 2001. This Finance Bill therefore legislates to reduce pensions tax relief lifetime and annual allowances to £1.25 million and £40,000 respectively to limit the amount of relief available to the top 2% of pension savers.

Fairness is also about making sure that everyone plays by the same rules. The vast majority who pay their taxes will, rightly, not tolerate non-compliant individuals and businesses not paying the tax that they owe, and this Government agree. To that end, the Bill includes a major package of measures to crack down on tax avoidance by a small minority who refuse to pay their fair share. Clauses 203 to 212 and schedule 41 legislate for the UK’s first general anti-abuse rule, or GAAR. This is one of the most significant changes to UK tax law. It will have a strong deterrent effect on those concocting abusive tax avoidance schemes or considering using them, and where they persist it will give Her Majesty’s Revenue and Customs an effective new tool to tackle these schemes.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

Let me say to my hon. Friend and to those on the Treasury Bench that his announcement about a general anti-tax avoidance provision is hugely welcome, particularly in London, where people have seen companies get away with not paying taxes for many years—something that no previous Government have adequately dealt with. It is very welcome and we look forward to it becoming law as soon as possible.

[Sajid Javid]

I welcome my right hon. Friend’s support for the measure.

This Finance Bill includes measures to close 15 loopholes that have been used to avoid tax. Nine of these provisions have immediate effect from Budget day, and one—on tackling stamp duty avoidance—is backdated to the previous Budget, following the Chancellor's clear warning in 2012. This demonstrates the Government’s continuing commitment to fast, effective and targeted action to tackle avoidance. In addition, we are strengthening the successful disclosure of the tax avoidance schemes regime to increase the information that promoters of tax avoidance schemes have to provide about the users of their schemes. Together with the GAAR, these measures will increase tax revenues by almost £l billion by 2017-18, as well as protecting future revenues. In addition, the Government are investing almost £1 billion in HMRC’s compliance activities in order to raise additional revenues of £22 billion per annum by the end of 2014-15. This represents £9 billion more in compliance revenues—a 70% per cent increase since 2010-11.

This Finance Bill introduces a package of measures to ensure that owners of high-value properties cannot avoid paying their fair share of tax by placing their property in a corporate envelope. From April, residential properties held by certain non-natural persons that are worth more than £2 million will be subject to a new annual tax on enveloped dwellings. The Bill also introduces a new capital gains tax charge on these non-natural persons disposing of such high-value properties from April 2013.

Allow me, Mr Speaker, to draw my remarks to a close. [Hon. Members: “Hear, hear!”] I thought that that would bring a cheer. Finance Bill 2013 is a Bill for growth and fairness. It encourages investment, it supports innovation and entrepreneurs, it provides real help to families and working people, it tackles avoidance, and it asks those who are better off to pay more. I commend it to the House.

Question put, That the Bill be now read a Second time.

Environmental Taxation

Sajid Javid Excerpts

Tuesday 26th March 2013 Written Statements

[The Economic Secretary to the Treasury (Sajid Javid)]

This Government are reforming the tax system to make it more competitive, simpler, fairer, and greener. As part of this, in May 2010 Government committed to increasing the proportion of tax revenue accounted for by environmental taxes.

Last summer, the Government published their definition of environmental taxes which set the baseline for achieving that commitment. This statement provides an update of the Government’s progress against that commitment, using the independent OBR forecasts published alongside the Budget. To provide greater clarity the Government will also publish similar summaries of progress each year until the end of this Parliament.

The Government classify environmental taxes as those that meet all of the following three principles:

The tax is explicitly linked to the Government’s environmental objectives;

The primary objective of the tax is to encourage environmentally positive behaviour change; and

The tax is structured in relation to environmental objectives (for example: the more polluting the behaviour, the greater the tax levied).

The Government have defined the following as environmental taxes based on these principles:

Climate Change Levy

Aggregates Levy

Landfill Tax

EU Emissions Trading System (EU ETS)

Carbon Reduction Commitment Energy Efficiency Scheme

Carbon Price Floor

The OBR forecasts demonstrate that the coalition remains on track to achieve its commitment to increase the proportion of revenue accounted for by environmental taxes.

Budget Resolutions and Economic Situation

Sajid Javid Excerpts

Thursday 21st March 2013 Commons Chamber

[The Economic Secretary to the Treasury (Sajid Javid)]

I am grateful for the opportunity to respond to this debate. We have heard from my right hon. Friend the Secretary of State for Business, Innovation and Skills, from 30 Back Benchers—if I counted correctly—and from one comedian, also known as the shadow Chancellor. His speech was full of jokes and invective, but there was not a single idea about how to deal with the problems in the economy—the very problems that he and his friends helped to create. He might be taking heart from the Italian election, in which a comedian did rather well. He might think the same will work with the British people, but it will not.

It is worth taking a step back and reminding ourselves of the context. The Government inherited the largest deficit in peacetime history. The Government were borrowing one in every £4 they were spending. We have now cut the deficit by a third, but the shadow Chancellor’s plans would take that off track. It is worth recalling his own record on borrowing. As my hon. Friends the Members for Bournemouth East (Mr Ellwood), for Mid Norfolk (George Freeman) and for Bedford (Richard Fuller) reminded us, the previous Government were running a deficit from 2001 onwards—long before the financial crisis. The IMF said that at the height of the debt-fuelled boom, we were running a structural deficit of 5% of GDP. Only Greece and Ireland were in a worse position.

The shadow Chancellor still does not accept that he spent too much and borrowed too much. He cannot even admit that under Labour’s plans, according to the IFS, the debt would be £200 billion higher. He really believes that we can borrow less by borrowing more. This country will never forget that, true to form, Labour brought our country to the brink of bankruptcy by the end of its term. After 13 years, we were left with the largest deficit since the second world war, the deepest recession of any industrialised country and the largest banking bail-out this country had ever seen—a bail-out that was the direct result of the previous Government’s reckless decisions on financial regulation. I was hoping to hear an apology from Opposition Members for all the disaster they created, but there was not a single one.

[Barbara Keeley]

Does the Minister not think it is time to stop living in the past? Will he give an answer to the point of order I raised about the new Help to Buy scheme? Can it be used for second mortgages? The information about it states that a borrower could be remortgaging an existing property with a new lending institution. It is a very confusing scheme.

[Sajid Javid]

I shall come to the Help to Buy scheme in a moment. I was hoping the hon. Lady would offer an apology, but no such luck.

As my right hon. Friend the Business Secretary stated, yesterday’s Budget had economic growth at its heart. The economy is still feeling the impact of Labour’s disastrous policies, but we continue to find practical ways to turn the economy around and to restore growth. Through the private sector, we have created 1.25 million new jobs since we came into power—more new jobs in three years than were created under the last 10 years of Labour. Under this Government, private sector employment has been growing more quickly in the north-east, the north-west and Yorkshire than across the country as a whole. There are more people in employment today than at any other time in our history. We did not hear a single Opposition Member mention that fact.

We might think that Labour Members would have welcomed that development, but they did not. Instead, we heard cheap political talk. They asked about employment, which of course we all want to fall, but they avoided the facts.

On their behalf, I have looked at the change in youth unemployment in the constituencies represented by virtually every Opposition Member who spoke today and mentioned unemployment. Let us look at the facts. This is what happened to youth unemployment during the last term of the Labour Government in those constituencies. In Paisley and Renfrewshire North it was up 150%; in Clwyd South up 103%; in Feltham and Heston up 77%; in Worsley and Eccles South up 124%; in Luton South up 45%; in Birmingham, Selly Oak up 96%; in Edinburgh North and Leith up 60%; in Scunthorpe up 135%; in Edinburgh East up 87%; and in Denton and Reddish up a record 148%. In each of those constituencies, youth unemployment rocketed during the last term of the Labour Government and in every one of them it is down under this Government.

Let me turn to the employment allowance, which a number of hon. Members mentioned. We are proud to be introducing the £2,000 employer national insurance contributions allowance, which will benefit 1.5 million companies throughout the country and take almost a third—450,000 of the smallest businesses—out of NICs altogether. Cutting this payroll tax will be a boost for employment, but our tax changes do not stop there. We are overseeing a system of competitive tax rates that will be strictly enforced—a system that encourages companies to invest and employ here. That is why we are reducing the main corporation tax rate by April 2015 by an additional 1% to 20%, making it the lowest in the G7 and the joint lowest in the G20.

Let me turn briefly to Lord Heseltine and his report, “No Stone Unturned”. As hon. Members are aware, this week the Government published their full response to the report. I am sure that hon. Members have seen the impact Lord Heseltine made on the docklands and in Merseyside. We all know that he is a man with a vision for cities. I am sure that Members will join me in wishing Lord Heseltine, who turns 80 today, a very happy birthday. To help to celebrate, the Government have accepted, in full or in part, 81 of the 89 recommendations he made in his excellent report.

While I have time, I want to turn to aspiration. We know that businesses, buildings and companies start with the vision of individuals. Yesterday’s Budget was for an aspiration nation. It is a Budget that will support people who want to work hard and get on, by preventing higher costs of child care and disincentives to work, creating a simpler system for retirement and giving people a real opportunity to buy their homes, through the help to buy scheme, the extension of the right to buy scheme and our further investment in affordable homes.

Lastly, I want to turn to the cost of living. This Budget also recognises the pressures on the cost of living, as my hon. Friends the Members for North Swindon (Justin Tomlinson), for Harrow East (Bob Blackman), for Henley (John Howell), for Tiverton and Honiton (Neil Parish) and for Hexham (Guy Opperman) all outlined. We have cancelled September’s planned fuel duty rise. Fuel duty will no longer be 10p a litre lower than the previous Government had intended; it will be 13p a litre lower from April this year. We have also cancelled Labour’s hated beer duty escalator and gone one step further by taking a penny off beer duty. I thank my hon. Friends the Members for Burton (Andrew Griffiths) and for North Swindon for raising the issue and campaigning on it so hard.

We have also achieved our commitment to take the personal allowance to £10,000 by April 2014, a year ahead of schedule, which will be a further tax cut for 24 million people up and down the country. Together, these tax allowance changes have taken 2.7 million people out of taxation altogether. Someone working full time on the minimum wage would see their tax bill more than halve because of the measures this Government have taken. As we heard from my right hon. Friend the Chancellor yesterday, every individual who was benefiting from the 10p tax rate under the previous Government is now on a zero per cent tax rate.

Yesterday’s Budget put faith in hard-working people. It was a Budget that told businesses that they are welcome to set up here and encouraged to employ people here. It was a Budget that told individuals up and down the country that if they want to work hard, they will be rewarded in our aspiration nation. I commend these Budget resolutions to the House.

Ordered, That the debate be now adjourned.—(Greg Hands.)

Debate to be resumed tomorrow.

Child Care

Sajid Javid Excerpts

Tuesday 19th March 2013 Written Statements

[The Economic Secretary to the Treasury (Sajid Javid)]

High-quality, affordable child care is essential in improving children’s life chances and supporting parents back into work. The high cost of child care remains a significant disincentive to work for too many parents.

The Government will therefore introduce a new scheme to offer tax-free child care to working families. Support will ultimately be open to 2.5 million working families with children under 12, around five times as many as benefit from the current system. Support will be provided at 20%—equivalent to the basic rate of tax—of yearly child care costs up to £6,000 per child. This will be worth up to £1,200 per child, and so will save a typical working family with two children under 12 up to £2,400 a year.

To be eligible, families will have all parents in work, with each earning less than £150,000 a year, and will not already receive support through tax credits and later, universal credit.

The new scheme will be phased in from autumn 2015, replacing the existing system of employer-supported child care (ESC) and will build up over time to include all children under 12, with all children under five eligible from the first year of operation.

Tax-free child care will extend support compared to the current system of ESC, which provides a tax exemption for child care vouchers and directly contracted child care. ESC will continue for current members if they want to retain it and new claimants will be able to receive support through the new tax-free offer. ESC recipients who are eligible may choose to move into the new tax-free child care scheme if they wish, but will not be able to receive both. ESC will continue to be open to new joiners until tax-free child care is available. The tax exemption available for workplace nurseries will remain.

The Government will also increase child care support in universal credit to improve work incentives and ensure that it is worthwhile to work up to full-time hours for low and middle-income parents. A total of £200 million of support will be provided within universal credit, which is equivalent to covering 85% of child care costs for households qualifying for the universal credit child care element where the lone parent or both earners in a couple pay income tax. The details of how to provide this support will be determined as part of the consultation on the scheme for tax-free child care, to ensure the two schemes operate effectively together.

The new tax-free offer will be phased in from autumn 2015, partly funded by the phasing out of ESC. The £200 million universal credit offer is planned to be phased in from April 2016 as child care support moves from tax credits into universal credit and will be funded from within social security budgets at the time. Details will be set out in future spending reviews.

This announcement builds on support already announced by the Government, including increasing the free entitlement to 15 hours a week of free early education all three and four-year-olds; extending the free entitlement to around 40% of two-year-olds from 2014-15; and extending child care support in universal credit to parents working fewer than 16 hours.

At the same time, the Government are taking action to drive up the quality of child care and give more flexibility to professionals: improving qualifications through introducing early years teachers; increasing Ofsted’s focus on weaker provision, to drive up quality; and reducing bureaucracy for providers. Alongside improving standards in the early years, this will help ensure that parents’ money goes further.

The Government will shortly consult on the detail of the new tax-free child care scheme, including on how employers could continue to play a role in supporting their employees with child care costs within the new scheme.

Oral Answers to Questions

Sajid Javid Excerpts

Tuesday 12th March 2013 Commons Chamber

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

6. What recent assessment he has made of progress on the Government’s target of public sector net debt falling as a share of GDP in 2015-16.

[The Economic Secretary to the Treasury (Sajid Javid)]

The independent Office for Budget Responsibility assesses the Government’s performance against the fiscal mandate and supplementary debt target. The OBR’s assessment is that the public sector net debt as a percentage of GDP will be falling by 2016-17.

[Tom Blenkinsop]

Will the Minister confirm that the Government will have more than doubled the national debt between 2010 and 2015, and that this Government will have increased the national debt by more in five years than it increased in the entire 13 years of the Labour Government?

[Sajid Javid]

Having brought the country to the brink of bankruptcy and having set the economy ablaze, the Opposition now throw stones at the firefighters. The country will never forget that we had the largest budget deficit when we came to power. We were borrowing £5,000 a second, and that deficit began in 2001, long before the financial crisis. Since then, we have cut it by a quarter, brought back confidence to Britain and created jobs at a record rate.

[Mr Peter Bone (Wellingborough) (Con)]

I congratulate the Government—the Conservative-led coalition—on reducing the deficit, but of course all that is slowing the rate of growth in the debt. When does the Minister think we will get to a budget that is balanced?

[Sajid Javid]

My hon. Friend makes a good point about how we must tackle the record national debt that we inherited. It went up threefold during the 13 years of the previous Government’s time in power. When we set out the Budget forecast next week, my hon. Friend will get a good answer.

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

Businesses in Swansea are telling me that assessing net debt should include an assessment of net assets, and they have written to me and the Chancellor asking that Swansea be considered for superconnectivity status, namely that the Government invest in our broadband capability. Is that something he is willing to look at positively with the businesses involved?

[Charlie Elphicke (Dover) (Con)]

Would it ever be a credible policy to borrow more in order to borrow less, or would it simply increase our debt, damage our credit rating and ensure that the country would be in even greater difficulties than it already is thanks to the Labour party?

[Sajid Javid]

My hon. Friend makes a good point. If the country were now following the Labour party’s plans, independent assessments show that the country would be borrowing £200 billion more: more debt, more deficit. As we bring the deficit under control we will be able to invest in things such as broadband plans in Swansea and help growth in this country.

[Andy McDonald (Middlesbrough) (Lab)]

7. What assessment he has made of the effect on child poverty of his changes to the uprating of tax credits and other payments announced in the autumn statement.

[Mr David Hanson (Delyn) (Lab)]

10. What assessment he has made of the effect on child poverty of his changes to the uprating of tax credits and other payments announced in the autumn statement.

[The Economic Secretary to the Treasury (Sajid Javid)]

The Government have protected poor and vulnerable groups while undertaking the urgent task of tackling the fiscal deficit. Work remains the best and most immediate way out of poverty, and we have continued to prioritise providing the best possible work incentives for welfare reform and increasing the personal allowance.

[Andy McDonald]

The Government’s own impact assessment says that 200,000 more children will be pushed into poverty as a result of the cuts to tax credits and benefits next month. The Children’s Society says that 40% of the children in my constituency now live in poverty. Will the Minister provide an assessment of how many more children in Middlesbrough will be in absolute poverty in 2016 as a result of the Chancellor’s failures, with not enough money for their food, warmth and shelter?

[Sajid Javid]

The hon. Gentleman knows that the official measure for child poverty is flawed. It is based on changes in relative income, which has meant, for example, that under Labour child poverty fell by 300,000 during a recession—clearly a nonsense. This Government are focused on the causes of child poverty, such as unemployment. I would have thought that the hon. Gentleman would welcome the fact that more people are employed in Britain today than at any time in our history.

[Mr Hanson]

The Institute for Fiscal Studies estimates that the changes that the Government are bringing in will cost a one-earner family with children around £534 from April this year. Will the Minister confirm that figure, and in doing so, will he confirm also that a one-earner family with children where the earner happens to be a millionaire will receive a £40,000 cut in April this year?

[Sajid Javid]

What I can confirm to the right hon. Gentleman is that this Government are focused on the causes of poverty, which is what he should be concerned about. I am surprised that he raises this question, because he highlights to his constituents that during the last term of the previous Government youth unemployment in his constituency went up 149%. Under this Government it is down 18%.

[Mr James Clappison (Hertsmere) (Con)]

Is it not a lamentable fact ignored by Opposition Members that for far too long this country has had too many children growing up in workless households, which means bad outcomes for those children over the longer term? Will my right hon. and hon. Friends redouble their efforts to make the tax system as simple as possible and to create incentives for people to work and set a good example for their children?

[Sajid Javid]

My hon. Friend is absolutely right, and that is why the Government have increased the personal allowance, cutting taxes for the low paid, helping 24 million people in the country. In addition, we are introducing universal credit to create the right incentives to get people back into work.

[Neil Carmichael (Stroud) (Con)]

On the subject of the personal allowance, does my hon. Friend agree that that has made a huge difference to a large number of people who are less well-off? In my constituency alone, 38,000 people have benefited.

[Sajid Javid]

My hon. Friend is absolutely right. The previous Government abolished the 10p tax rate. This Government have cut taxes for the lowest paid in this country, 24 million people have benefited and 2 million people have been taken out of taxation altogether.

--- Later in debate ---

[The Economic Secretary to the Treasury (Sajid Javid)]

I thank my hon. Friend for that question. Like us, Barnardo’s is interested in reducing child poverty and understands that that is done by creating jobs. The private sector has created 1.2 million jobs over the past two years, which is more than were created during the last 10 years of the previous Government.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

T6. Owing to the changes to child benefit for families with a higher-rate earner, as from 7 March, 370,000 parents have opted not to receive child benefit. Will the Chancellor say how many of those 370,000 parents are stay-at-home mums who will lose their national insurance credit to their state pension, which is linked to the receipt of child benefit? Were they advised before they made that decision?

--- Later in debate ---

[Harriett Baldwin (West Worcestershire) (Con)]

My constituents find it much easier to take out a payday loan than to open a savings account. What steps are the Government taking to make it much more difficult for my constituents to fall into that sort of temptation?

[Sajid Javid]

My hon. Friend will know that the Government commissioned an independent report from Bristol university on the high interest lending industry. That report shows severe consumer detriment and we have already taken action. We announced last week that we will be working on advertising content and placement, and we will be giving extra powers to the Financial Conduct Authority to impose fines and to close down firms in the most significant cases. She may have seen that last week the Office of Fair Trading announced it is investigating a number of firms: it has told a number of payday firms that they have 12 weeks to shape up; otherwise it will take severe action.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

T9. Financing delays are holding up the Government’s new schools rebuilding programme. What steps is the Minister taking, together with colleagues in the Department for Education, to secure financing for this scheme and to support our construction industry, which is under real pressure at the moment?

Financial Services (Banking Reform) Bill

Sajid Javid Excerpts

Monday 11th March 2013 Commons Chamber

[The Economic Secretary to the Treasury (Sajid Javid)]

This has been a thoughtful and considered debate, led by my hon. Friend the Member for Chichester (Mr Tyrie) and his colleagues on the Parliamentary Commission on Banking Standards. I take this opportunity to thank my hon. Friend for his leadership of the parliamentary commission and to thank all the Members of the House and in the other place who have made contributions to that commission.

I congratulate the hon. Member for Eastleigh (Mike Thornton) on an excellent maiden speech, and I welcome him to the House. I, too, spent quite a bit of time in Eastleigh over the past few weeks. I do not think I helped him get to the House, but now that he is here I congratulate him and wish him the very best. From what I heard today, I think he will make a fantastic contribution. Thank you.

We heard a number of pertinent and considered contributions from both sides of the Chamber, and I am pleased to see widespread support throughout the House for the measures that the Government have put forward in the Bill. The support from the Opposition Benches for so many measures is an admission, at least from some Opposition Members, that they got it wrong during their time in office, and that, as my right hon. Friend the Chancellor has said, when the fire alarm was ringing, nobody was listening. That was a point well made by my hon. Friends the Members for Carlisle (John Stevenson) and for North East Cambridgeshire (Stephen Barclay).

Nearly six years ago, we experienced the first run on a high street bank in over 100 years. Five years ago, the previous Government were forced to bail out both RBS and Lloyds, as well as to provide billions in support to the financial system. It was the worst financial crisis in a generation. It happened on their watch and it left this Government with a huge mess to clear up and with the task of restoring trust in the banking system and ensuring that taxpayers are unlikely ever again to have to step in to bail out banks. That is exactly what the Bill is designed to achieve. Ring-fencing will ensure that core services continue to be provided if a bank gets into trouble, and it will ensure that it is those who lend to banks and benefit in the good times who take losses when there are bad times.

This is a crucial Bill for the future of banking in this country, and its seriousness has been reflected today by the Members who contributed—15 right hon. and hon. Members, and the Father of the House, my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell), who made a superb contribution. I will attempt to respond to as many of the issues they raised as possible.

As my right hon. Friend the Chancellor has stated before, we have built a strong consensus around ring-fencing as the right structural reform, and others are following our lead. The proposals of Governor Liikanen and the high-level expert group draw heavily on this Government’s proposals and are entirely compatible with the Bill put forward by this Government. A number of Members, including my hon. Friends the Members for Chichester and for Caithness, Sutherland and Easter Ross (John Thurso), and the right hon. Members for Wolverhampton South East (Mr McFadden) and for Oldham West and Royton (Mr Meacher), raised the issue of the “electrification” of the ring-fence, as proposed by the parliamentary commission and accepted by the Government.

It seems clear that the House is in broad agreement with this important addition to the Bill. The Government agree that a power to require an individual group to separate could be a powerful deterrent against attempts to game the ring fence. This power would strengthen the ring fence. The Government will therefore table an amendment while the Bill is before this House to provide for the regulator to have the power, subject to Treasury approval, to require a group to separate.

On a related issue, several hon. Members have raised the proposal of the parliamentary commission that the Bill provide for sector-wide separation to be triggered at some, as yet undetermined, point in the future. The Government do not accept that proposal. The parliamentary commission is, in effect, asking the House to legislate two parallel policies: ring-fencing and full separation. That is despite the conclusion of the ICB, which rejected full separation in favour of ring-fencing, and despite the parliamentary commission producing no evidence in favour of sector-wide separation as an alternative. Indeed, the parliamentary commission accepts that there is no compelling case at present for full separation. That is why it recommends an independent review at some point in the future to consider whether full separation should be implemented.

However, ring-fencing has already been endorsed by a thorough independent review, which undertook public consultation, extensive scrutiny and cost-benefit analysis lasting nearly three years before rejecting full separation. The parliamentary commission’s proposal to legislate for an alternative policy in case we change our view would, in the Government’s opinion, be bad law-making. If in the future a Government were to believe that ring-fencing was no longer appropriate, which they would be perfectly entitled to do, they should conduct a thorough analysis of the evidence, consider the arguments for and against, including perhaps by commissioning an independent review. If they concluded that a different approach was necessary, they should bring forward legislation for Parliament to consider in the light of all the facts.

Several Members referred to the Volcker rule, including my hon. Friend the Member for Wyre Forest (Mark Garnier). While some may support such a measure, after 18 months of consideration, Sir John Vickers did not recommend that the ring fence be supplemented by a ban on proprietary trading. When the parliamentary commission asked him whether a Volcker rule should be introduced on top of his ring fence, he warned that the complexity of such a rule could, by distracting regulators’ focus, actually undermine the ring fence. On top of that, in Europe, Governor Liikanen and his high- level expert group noted how difficult it could be to distinguish between market making and proprietary trading. They also worried about pushing proprietary trading into the shadow banking sector, instead choosing to keep it within the regulated banking sphere. This Government are minded to agree with such an appraisal, and do not therefore see the benefit of a Volcker rule on top of ring-fencing.

We have heard some interesting views on the leverage ratio. Let me be clear. The Government strongly support a robust leverage ratio and are pushing hard for full implementation of the Basel III leverage ratio in the EU via the capital requirements directive. The ICB and the parliamentary commission have both proposed that we increase the minimum leverage ratio above the 3% international standard set out in Basel III. The Government strongly support the idea of a minimum leverage ratio as a backstop to risk-weighted capital requirements. But a higher leverage ratio would become a front-stop, the primary capital constraint on low-risk institutions, including building societies—a point made by the hon. Member for Bassetlaw (John Mann)—and one that could reduce essential lending to households. A front-stop leverage ratio would also create perverse incentives for these institutions to risk-up, because a leverage ratio does not distinguish between the safest assets, such as UK gilts, and the most risky assets. I do not think any hon. Member would like to see policies encouraging our safest banks and building societies, including those that weathered the last crisis quite well, to become more risky. So the Government are not persuaded by the arguments for a higher leverage ratio.

We have also had a number of interesting interventions on primary loss absorbing capacity requirements, not least from the Chairman of the parliamentary commission. The Government are committed to ensuring that banks have the means to absorb losses should they get into trouble, and that those losses fall on those best able to assess the risk that they are taking. The Government agree that the ICB recommendation that ring-fenced banks, and UK-headquartered globally systemically important banks, should be subject to new PLAC standards. That will be 17% of risk-weighted assets for the largest banks. That extra capacity to absorb losses will improve resilience against shocks and mean that, if a bank does fail, it can be resolved without recourse to bank bail-outs.

Some Members questioned who would decide whether banks should issue primary loss absorbing capacity against their overseas activities. The parliamentary commission recognised that the Treasury should have a role in shaping how the regulator applies primary loss absorbing requirements. That is because such decisions will be inextricably bound to the key Treasury objectives of protecting public finances and supporting long-term growth. The Government therefore believe that there is strong merit in the FSA’s suggestion that PLAC instruments and decisions should be made in the context of a firm’s resolution strategy. We will therefore make provision during the passage of the Bill to give effect to that.

Members have also mentioned bail-ins, which were discussed at some length by the right hon. Member for Wolverhampton South East. Bail-in is an important statutory tool that helps to ensure that creditors, rather than taxpayers, expect to bear the costs in the event of bank failure. It is a particularly important tool for systemically important banks, where the impact of insolvency on the wider economy is large.

To ensure that UK banks are not disadvantaged relative to international competitors, and because the task of resolving large cross-border banks is complex and requires close co-operation, it is important that the UK works with other countries to design a consistent bank bail-in tool that can work in relation to the resolution of cross-border institutions. We are therefore working closely with our European partners to develop a credible and effective bail-in tool as part of the European recovery and resolution directive. We are pleased that the Irish presidency has set out its intention to make rapid progress towards conclusion of the RRD. However, if agreement cannot be reached—we expect that it can—we will consider tabling amendments at a later stage in the Bill’s passage to allow the UK to act alone.

We heard many thoughtful interventions on competition matters. We heard from my hon. Friends the Members for Wyre Forest, for Cities of London and Westminster (Mark Field), for Wycombe (Steve Baker) and for South Northamptonshire (Andrea Leadsom). The Government are committed to making changes to encourage greater competition in the banking sector. Many of those do not require legislation to take effect, and we have already acted in a number of ways. The FCA is now tasked, through the Financial Services Act 2012, with a competition objective, as Sir John Vickers, the former head of the Office of Fair Trading, recommended.

While discussing competition, we also heard from a number of Members on what might be called alternative structures for banking. The hon. Member for Bassetlaw suggested that we move to the Chinese model, and the hon. Member for Hayes and Harlington (John McDonnell) suggested that we nationalise the entire banking sector. However well intentioned those proposals, I think that they are wholly misguided.

[John Mann]

It ill befits the Minister, when an hon. Member makes a point on three occasions, not to manage to listen to it. Perhaps he would care to consider the point I made: I dismissed the Chinese model and recommended the German model.

[Sajid Javid]

Well, let us talk about the German model. As someone who worked for a German bank for 10 years, I think I might know a little more about the German model than the hon. Gentleman does. The German model was the one that had to nationalise Commerzbank and other banks in the regional sector, and the largest bank in Germany was not without its own problems, such as the LIBOR scandal. He suggests the German model, but I do not really understand what the difference is.

[John Mann]

The difference between the German model and the model the Minister has at the moment is that the German model is lending to business.

[Sajid Javid]

I think that the hon. Gentleman needs to do some homework on the German model.

Let me turn to switching. The Vickers commission made a number of recommendations on competition, one of which was for a seven-day switching service. That will go live in September this year. It will be free to use and will come with a guarantee to protect customers against financial loss in the event of any errors occurring during the switching process. A number of Members, not least my hon. Friend the Member for South Northamptonshire, made interesting points on full account number portability. The Government have always kept an open mind in that debate, arguing that the seven-day switching service should be allowed a good run. If it does not deliver the expected consumer benefits, more radical options will of course be looked at, including full account number portability.

The structural reforms proposed in the Bill will of course aid competition. As the Bank of England’s executive director for financial stability, Anthony Haldane, said to the parliamentary commission, one of the biggest challenges we face on competition concerns is that banks are perceived as being too big to fail. The banking sector reforms made through the measures in this Bill are designed to address precisely that issue.

[Andrea Leadsom]

Does my hon. Friend agree, though, that the big banks will lobby extremely hard against greater competition, particularly full bank account number portability, and does he undertake to resist their lobbying attempts?

[Sajid Javid]

My hon. Friend makes a good point. The contents of the entire Bill show how the Government have already resisted the attempts of many in the banking lobby.

My right hon. Friend the Chancellor—this will also interest my hon. Friend—has, as she will know, announced a consultation on bringing the payment system into regulation. We will make sure that new players in the market can access the payment system in a fair and transparent way and that they serve the needs of consumers, not those of established banks. Members may want to note that we will launch this consultation soon after the Budget. I am sure that my hon. Friend will want to make representations on full account portability to the consultation.

Several hon. Members talked about RBS. The Government believe that RBS’s future is as a major UK bank with the majority of its businesses in the UK as regards personal, SME and corporate banking. United Kingdom Financial Investments Ltd continues to be responsible for managing the Government’s shareholding in RBS on a commercial and arm’s-length basis and for developing and executing a strategy for disposing of the investment in an orderly and active way. UKFI continues to look at a full range of options for disposing of the investment, and RBS should emerge as a stronger and safer bank able to maintain lending to businesses and consumers that can, in time, be returned to full private sector ownership.

The Bill before us ensures that a future Government can keep bank branches going and cash machines operating while letting investment arms fail. It ensures that taxpayers will not fork out for the mistakes of others. Put simply, it deals with exactly the issues that are of concern to most of the UK public after the recent crisis. Financial services are a vital part of our economy, as evidenced by points well made by my hon. Friend the Member for Cities of London and Westminster, and they employ over 1 million people across the country. Let us not forget that the total tax take of the financial sector, including the income tax paid by its employees, adds up to over £60 billion—money that we rely on to fund our vital public services. It is crucial that we make sure that the British public again begin to trust the industry, that banks continue to serve families and businesses, and that the sector becomes what my right hon. Friend the Chancellor has described as a

“financial industry that is strong, successful and inspires the pride of all those who work for it.”

Question put and agreed to.

Bill accordingly read a Second time.

Financial Services (Banking Reform) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Financial Services (Banking Reform) Bill:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 18 April 2013.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Greg Clark.)