Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2013
Baroness Kramer Excerpts(12 years, 8 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Kramer
My Lords, I shall comment on three aspects of these orders, of which I am very supportive. First, I welcome the elements of the order that create a regulated environment for peer-to-peer lending platforms. While most industries have spent their energies saying, “Remove red tape”, this industry has been coming to the Government and the regulator saying, “Please can we have proper regulation”, because it knows that without proper regulation, rogue players can come in from the outside, undermine the credibility of the industry and probably provoke a regulator to come in with inappropriately heavy regulation as a consequence.
Can the Minister reassure me that the industry has been involved in negotiating and structuring these regulations? It looks to me as though they meet the test, but can he assure me that they reflect the kind of safeguards that that industry has already outlined in its code of conduct, established under its trade association? I think that that code was to be the basis of most of the discussions. It is a real way forward because, as we know, the banks have been very challenged over providing the credit we need in our economy, and peer-to-peer lending is increasingly coming in to fill that gap to provide both competition and additional resource, which is useful and positive.
Secondly, I pick up my noble friend’s comments on payday lenders. I share many of his concerns about this industry. Indeed, the whole House did so, as the Minister will remember, during the passage of the Financial Services Bill in 2012, when an amendment that we colloquially called the Sassoon-Mitchell amendment put very effective powers into the hands of the FCA. When it takes over supervision of this industry in April 2014, the FCA will have powers to regulate, manage and supervise it.
The powers were written with an eye to some of the regulation that has been put in place in Florida—I believe 13 states use this kind of regulation—which includes the ability to limit the amount of borrowing to $500 outstanding at any one time, to limit the number of outstanding loans, to cap interest rates and fees and to provide for a grace repayment period. It also has various other characteristics. I would like assurance that the order does not compromise the wide range of powers sought by the House in the legislation and in the amendment.
Like my noble friend, I am concerned with the impression the industry is giving of marketing energetically and raising its interest rates above and beyond what most of us already regard as high levels. I hope the FCA will be able to hit the ground running. That means going through the consultation process and deciding how it will manage that regulation.
It is also a systems issue. As the Minister knows, the various US states that have regulation have systems that allow them to see on a real-time basis what applications are taking place, what the amount is, what the interest rate is, unauthorised rollovers and so on, and they are able to manage the process. This not only allows the regulator to look at the data and intervene in retrospect, but enables it to set up systems so that if the rules are contravened an automatic decline shows up and an offending loan cannot be made. While it needs time to put such a system into place, I wonder how likely it is that the FCA will be in a position to deliver it as early as April and, if not, what the thinking is around it.
I am afraid my next question comes from my lack of understanding and my difficulty in reading my way through orders. It concerns social impact investment, the financial promotions order and its relationship to the FCA. The Minister will know that if, for example, a social enterprise attempts to create a new community hall, it can turn to members of the local community and ask them to donate. However, it cannot ask them to invest without offending Finprom unless it has become a qualified investment, which is financially impossible for any kind of small project.
We raised this issue during the passage of the Financial Services Bill and the Government expressed their desire to deal with this problem and enable a project to turn to individuals with small amounts of money and allow them to invest. Will the FCA have the necessary power to make those changes under Finprom without having to come back for new primary legislation? I assume that, in the end, we will see a kind of materiality clause that will state that if you want to make an investment of less than £500, or whatever, you will not have to go through all that incredible palaver and you will be able to do so. Will these orders affect that, or will it fall outside their scope?
Baroness Hayter of Kentish Town
My Lords, I thank the Minister for his clarity in introducing these orders. Very often we are not wholly behind what the Government are doing but, on this one, we are. We welcome the move to the FCA and these SIs. I have supported the policy behind them for a long time, but I do not know for how long my party has done so. We particularly welcome the powers they give to the FCA. As the Minister implied, they will be its enforcement tool kit for consumer credit and will strengthen its powers to punish misconduct. We also welcome the Government’s decision not to exempt small businesses, as that might have weakened, rather than strengthened, consumer protection.
Finance Bill
Baroness Kramer Excerpts(12 years, 8 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Kramer
My Lords, it will surprise no one that, in my mind, the most significant measure in this Finance Bill is the lifting of the tax threshold to £9,440, shortly to rise to £10,000. More than 23 million people are now paying £700 a year less in tax—that is cash in their pocket—and 3 million of the lowest paid are out of income tax altogether. It has led to a fairer society. I was very pleased to read the ONS study, which named this as one of the key elements in income now being shared more equally between households than at any time since 1986. That is a very significant achievement.
I was also exceedingly pleased by the change in capital allowances—the temporary uplift in the capital allowance from £25,000 to £250,000. From my work with small businesses I am very aware that one of the competitive deficits in the UK is small businesses which have not invested in new technology in their production lines. This gives them a real incentive to do so and to do it now. The timing of that, as we begin to emerge from recession and companies have new opportunities to grow and expand, is absolutely essential and will be an important element in the economic growth that we are all seeking.
I was very privileged to be a member of the Finance Bill sub-committee. I thank the noble Lord, Lord MacGregor, for his fair but effective chairing of that committee. It has been one of the most enjoyable committees in which I have participated; that was shown by the work we achieved and the consensus that existed right across those from different political parties and on the Cross Benches. Like the noble Lord, Lord MacGregor, I emphasise that the work we looked at, particularly on the GAAR, does not cover international and multinational tax abuse. It does not cover issues such as forms of avoidance by deferring income from one year to another, as that is not its purpose. We have to emphasise that, as so often friendly politicians fall into the trap of thinking that the GAAR fulfils that role. It does not and should not. Christian Aid and others asked for clauses to be introduced into the Finance Bill that might do some of that work, but that is not appropriate as this has to be an international effort. I understand that they want a study—which seems right—on the impact of UK tax structures on developing countries. However, that is outside the scope of the Finance Bill.
Ironically, if the GAAR is a success, in a sense we may almost never see it used. Its role is very much one of deterrence. It makes the judgment as to whether a GAAR works quite difficult. However, the review is absolutely crucial. If it turns out that general rules—the noble Lord, Lord Wakeham, spoke eloquently on this issue—are far more effective in partnership with specific rules in managing the constant attempts of companies to find mechanisms around attempts to get them to pay their fair share of tax, we will need to start to think through whether or not we should consider an anti-avoidance GAAR. Like many others—I notice that the noble Lord, Lord Haskel, who spoke eloquently on this issue, is not here today—I note the importance of including a clearing system, which has been discarded as being too expensive at this time.
I am one of those who are somewhat concerned by the narrowness of the GAAR, not because it is anti-abuse but because we have the double reasonableness test. I understand where the Government are coming from in introducing such a test, but I have two concerns. One is that there is quite a lot of deference by the Government to the accounting profession. It would be wise sometimes to be more cynical and challenging to that profession around these issues. Also, if it is taken to its extreme so that nothing is ever an abuse because somebody can always come up with a reason as to why it has some economic basis, this whole exercise will have been in vain. Therefore we need to look at the application; that is a very particular vulnerability, and one in which we have to have an ongoing watching brief.
I will move quickly to the issues around stamp duty, land tax avoidance and the annual residential property tax which we also examined. I know the legislation is complex, but I believe that it is a crucial step. For many people the unfairness of watching those with very large and expensive properties avoiding the stamp duty and the inheritance tax that they bear on their smaller properties has tended to undermine the sense of common bond that is necessary in our tax system. My concern is less about what is in the legislation than the fact that, as yet, it does not capture some of those opportunities for abuse—for example, the use of the Cayman Islands for trusts and companies that have also been used by those seeking to avoid those kind of taxes. If I am wrong, I should be glad for the Minister to correct me. There are still loopholes and none of us wants to see them exploited.
I also found myself defending the Chancellor over his cap on income tax relief. This is not an approach which is palatable to everybody. For many years, I lived in the United States where the alternative minimum tax plays this kind of role. No matter how people choose to invest—whether or not it is in economic growth—on the basis of fairness, I believe that everyone should participate in the income tax system, and the tax on reliefs gets us much more into that territory. Fairness matters, especially in a time of austerity—we are all in this together.
This issue has been widely debated and there is little else that I can add to the speeches that came before mine, except to say that I think this has been an important Finance Bill which helps to position us for a fairer society, as well as one that is growing economically.
Banking: Regulation
Baroness Kramer Excerpts(12 years, 8 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford)
Forgive me. If we could hear from the noble Lord, Lord Pearson, then we will hear from my noble friend Lady Kramer.
Lord Newby
My Lords, the basic assertion that the noble Lord makes, that the Government are unable to put in place a satisfactory regulatory framework for banks in the UK, is, frankly, simply not true. We have taken a wide range of measures to strengthen the regulatory structure and the provisions with regard to remuneration and capital, and in all those areas what we have done is compatible with what has been happening at EU level.
Baroness Kramer
My Lords, while many of us in this House will be working to strengthen banking regulation based on the commission’s report, and I was privileged to be part of that commission, is it not also true that what is remarkable from the evidence we received from the European Union is the common ground shared by the regulators, both in their definition of the issues and the areas in which they are seeking solutions? Is it not true that the key issue of dispute between the two is in fact whether or not there should be a cap on bankers’ bonuses—on which, ironically, the British public are with the EU?
Lord Newby
My noble friend is clearly right in that respect. The previous Government started a process with regard to remuneration for senior bankers, which has been strengthened in several respects. One of the more encouraging developments in recent years is that as a result of that—and as a result of public pressure—the level of bonuses at RBS has fallen by 70% between 2010 and 1012, and at Barclays by 40%.
Government Spending Review 2013
Baroness Kramer Excerpts(12 years, 8 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Kramer
My Lords, I want to thank my noble friend Lord Deighton, who has done the heavy lifting in this debate by providing us with the details of the spending review and summarising them for us, so I will not try to repeat that. However, I want to confirm that I find myself very much in support of the general thrust of the two Statements, first on the spending round and then on infrastructure, because what lies beneath them is essentially a strategy of reducing revenue spending in order to allow a shift into infrastructure investment. That surely is what we need to achieve the growth that we require for this country.
I know that the Labour Party now buys into austerity, so I will be very interested to hear its comments, but I am still not clear whether Labour understands why austerity has been so necessary. We have seen the build-up of debt over more than a generation, but during those years Labour spent and borrowed as if we were at the bottom of an economic cycle when we were in fact at the top of one. When the inevitable bust came—it is always caused by one event or another, but cycles happen—the economy found itself so heavily overborrowed that many of the tools that would have been available in more rational circumstances were not available, leaving the Government with no choice but to cut sharply into structural revenue spending.
However, the coalition is also having to rebuild an economy that, in the view of many now, had been neglected for more than generation. It is hard to believe that manufacturing fell from 26% of GDP in 1979 to a low of 10.5% in 2009. The service industry grew but manufacturing did not grow alongside it as it should have done. However, that is only part of the imbalance that was allowed to develop. We became a largely public sector-driven economy, and it has to be excellent news that for every job that has been lost in the public sector, three have been gained in the private sector. Those are now sustainable jobs, which is what we need in order to build. How did we lose so many apprenticeships in the Labour years? How did we take so many young people through education but find that when they finished they lacked the skills needed to get a job? This spending round, again, has supported apprenticeships and protected, in real terms, spending on schools and the pupil premium, which surely is an investment in the future of our most disadvantaged youngsters.
How did we end up with a Government, although this concerns more than one Government, with a procurement process that simply is not fit for purpose? I congratulate the noble Lord, Lord Deighton, for bringing sense, skill and proper planning into government purchasing. I now understand that the infrastructure programme that he has laid out represents a steady rollout, year by year, which is exactly what we need in order to deliver infrastructure. Perhaps he could tell me whether I am correct in my understanding that the order of play of this rollout of infrastructure is to have an early focus on opportunities for fairly quick wins, such as broadband, school places and affordable housing, with the longer-term projects that need much more planning and preparatory work, particularly in transport, coming out over the longer term. We now have a path for that.
We are holding this debate just as increasingly positive news is creeping out; we are moving, as the Chancellor said, from rescue to recovery. Both the manufacturing and service sectors are growing, according to the PMI and the Bank of England. Very encouragingly, the headline small business index rose to 15.9 in the second quarter, up from 6.3 in the first quarter. Mortgage approvals are up and confidence is improving. The position with the silver pound, which is rarely talked about, is interesting. Projections show that spending by the over-50s—a group of people who have been far less hit than others in the population, especially younger people—is increasing steadily. We know that it is a group of people with the capacity to spend. Their spending was up from £250 billion in 2007 to £317 billion in 2012. The forecast according to Age UK is for a bigger number to be delivered this year. That seems to be an affordable place to go to see that kind of consumer stimulus.
I am particularly encouraged that exports are rising markedly. The BCC—the British Chambers of Commerce—reports that the growth in exports is at its fastest since 1989. The Government have taken on a really tough target of doubling exports to £1 trillion by 2020. Much of that will have to come from SMEs, which provide over half our exports today. I give credit to the noble Lord, Lord Green, but also very much to Vince Cable, for turning UKTI into an effective tool after a generation of neglect. This spending round provides more money for our embassies to work with UKTI and for increased export finance, especially to small businesses, which is surely vital. This is an area where scaling up has to continue. It must surely be one of the primary focuses now of economic policy.
The welfare changes in this spending review are, frankly, modest. That must be right, as we have to manage austerity in a fair way. I want us to monitor the impact of the delay in paying jobseeker’s allowance to see whether that has an untoward impact, albeit one that is unintended. As I say, the changes on the welfare side have been very modest. However, I have a point of clarification for the noble Lord, Lord Deighton, on the so-called welfare cap, which strikes me as less a cap and more a sensible management tool to capture key parts of annually managed expenditure: programmes such as incapacity benefit, which spiralled completely out of control under Labour even though there seemed to be no particular increase in either disabled or injured people. Will the Minister confirm my understanding that the cap is the OBR forecast of the cash cost of the included programmes? Does breaking the cap trigger a report to Parliament but not necessarily an automatic curtailment, unless there turns out to be an important need for underlying change?
I will talk briefly about infrastructure because the noble Lord, Lord Shipley, will focus his remarks on that issue, especially on housing. However, I take this opportunity to repeat a plea to the noble Lord, Lord Deighton, for increased flexibility for tax increment financing to allow local authorities to pick up the pace of investment in small-scale infrastructure. The very case that he makes for large infrastructure, involving the orderly rollout of schemes, certainty of funding and tapping into external financing applies just as much to the small and local. We have accepted that small is crucial in business and commerce; we now need to accept that small as well as big is vital in infrastructure.
All this has consequences for our financing system. The business bank is an important beginning, but long-term patient capital is still hard to find in the UK. I hope we will try to develop the capital markets to provide that capital. The noble Lord, Lord Davies, the noble Baroness, Lady Noakes, and I all attended a talk given by Robert Peston not long ago in which he pointed out that in the US, 80% of small business funding comes from the capital markets rather than the banks. The opposite is the case here. Therefore, when a bank is compromised, we are in a very difficult position. The major banks are going to be seriously challenged to meet lending demand, despite Funding for Lending, as growth picks up and firms chew through their cash reserves.
It is good news that RBS has asked Sir Andrew Large, former Bank of England deputy governor, to look at its lending practices, because when it says that it has £20 billion that it would love to push out of the door tomorrow morning but cannot, we all find that a fairly extraordinary statement. However, something is holding our banks back. I suspect that it is not the usual argument about capital but is much more about capability, and it would be interesting to find out more. The Government have done much to enable recovery, and this spending round is an illustration of that. However, we cannot let a weakened banking system derail these early beginnings for which the public have waited and worked.
Lord Davies of Oldham
My Lords, I was making a point that the noble Lord ought surely to take into account. Far from there being an environment in which foreign investors will necessarily find a place to invest in the future, as long as we are extremely uncertain about our relationship with the biggest market that we service, Europe, it is bound to cause anxieties among investors.
I also noted what the noble Lord, Lord Higgins, said—he is also my noble friend when we are on the golf course. He was very concerned to address some real points to the Minister with regard to the future of interest rates and the assumption made about future public expenditure. The Minister must address that point in his reply.
I appreciated the point that the noble Lord, Lord Shipley, made about local authority finance and being able to identify local resources. One product of the debate on Scottish independence and the referendum will be to identify those issues as far as Scotland is concerned. That is bound to give a stimulus to the broad argument that the noble Lord is putting forward about the resources available to the various localities of the United Kingdom and the needs that may be identified. I would have thought that that is bound to take a significant step forward as a result of the debate on next year’s Scottish referendum.
The noble Lord, Lord Flight, entertained us all with the Hayek versus Keynes debate. Although the noble Lord said that growth before the Second World War was considerable, he may have noticed that full employment in this country did not return until we went into wartime defence production. It is quite clear that under the Hayek principles you can certainly run an economy with a considerable level of unemployment. However, that word has not been manifest in this debate at all because the fact that we have significant levels of unemployment is a limited consideration for all those on the Conservative Benches concerned with how to manage the economy. We have people coming out of our colleges and universities who are highly qualified by any standards and who, in the past, would have expected to find a choice of jobs. They are facing a situation where the market is such that there are no jobs available. That is why I was grateful that the noble Lord, Lord Flight, identified the thinking behind the Conservative position and, to a more limited extent, the Liberal Democrat position with regard to what the Government are doing at present.
It took the right reverend Prelate to introduce morality into this debate. Why is it that the only person who is prepared to talk about those people who suffer the real costs of what is being carried out in the name of austerity is the right reverend Prelate? He identified the shock we all felt in the Chamber yesterday when it was suggested by a Conservative Minister that food banks are supply-driven and nothing to do with people’s needs. People’s needs have occasioned the development of food banks, which are necessary, but our great shame. Nor is there any understanding on the Conservative side about what it is to lose one’s job at present. It is quite okay to say, “We will cut public expenditure by making sure that there is a week in which one cannot claim jobseeker’s allowance”, but what do noble Lords think the morale of a family will be when someone loses his job against a background where the chances of getting a fresh job are very limited indeed? Why is it that, within that framework, it is thought that a really effective cut is to make sure that an application for support cannot be made until a week has elapsed?
Baroness Kramer
Can the noble Lord, Lord Davies, confirm that, during the years of the Labour Government, job centres were prohibited from referring any client to a food bank?
Lord Davies of Oldham
I am not well enough equipped to answer that question, nor am I quite sure of the point of the question.
Baroness Kramer
I shall try to be helpful. Like many people, I take the view that we live in a country where food banks should not be necessary, but unfortunately they have been necessary for a long time because the same issues of delays over benefits and various kinds of crises have affected those at the bottom. As I understand it, during the Labour years, job centres were not permitted to refer clients to food banks. As noble Lords know, you can go to a food bank only with a reference from an appropriate person: a job centre, a doctor or a limited number of other people. You cannot just turn up and make a claim. Today, job centres offer vouchers where they think there is need, but that need is not very different from the need that existed before. Food banks were just not announced.
Lord Davies of Oldham
Food banks are developing in almost every constituency in Britain because the so-called supply-driven factor has been occasioned by the demand of real necessity at present. It is a vastly different situation from that which obtained a decade or even five years ago.
I would ask the Minister to take on board the very important points that have been made by his noble friends today in supporting the coalition. Will he also, at some point in his remarks, address the question of morality? Why is it, for example, that his supporters are concerned to promote a bedroom tax that ensures that there is a desperate issue for impoverished people as to whether they will be forced to move but that when a mansion tax is proposed by the Liberal Party, there are all sorts of anxieties that people who are reasonably well off might be obliged to move and about what an affront to fairness that would represent? The mansion tax would be aimed at properties of very considerable value and at people who know they well might come under attack rather than the very large numbers of people who, under the bedroom tax, are being forced to move from their homes, the schools which their children attend and even the localities in which they have lived for very many years. I hope the Minister will address some of those points.
G8: Eurozone and UK Growth
Baroness Kramer Excerpts(12 years, 8 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Kramer
My Lords, the summit also addressed the issue of the international tax regime. Will the Minister recommend to this House the website www.fairtaxmark.net, which ranks companies as part of its campaign for greater transparency and fairness in corporate taxation? It is rather sober reading for the Government to see who pays tax and who is transparent, and it is most helpful to us as consumers, since consumers and the Government need to work together on these issues.
Lord Newby
My Lords, I absolutely agree with my noble friend and I do commend the website to Members of your Lordships’ House. However, I also point out that at the G8 summit significant progress was made on tax transparency, whether in promoting the standards of the Extractive Industries Transparency Initiative, promoting a new global standard for automatic information exchange, or making more information available on beneficial ownership. These are big changes on which the UK is taking the lead.
Spending Review
Baroness Kramer Excerpts(12 years, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Deighton
The question of how we unwind QE is a matter for the Monetary Policy Committee. It is not for me to give advice here.
Baroness Kramer
My Lords, when it comes to not understanding, I have to say that from the conversations that I have had in the media today with members of the Labour Party and listening to today’s speech, I am unclear whether they want different cuts or more borrowing, but it seems to be one response or the other to this particular spending round. I am very pleased with many aspects of this spending round, particularly the emphasis now on future growth.
Will the Minister confirm that the decision to put more money into schools, thereby protecting the schools budget as well as being a real-terms increase in the pupil premium, is because they have proven to be successful and effective programmes? On the infrastructure area, which is his area of specialty, will he assure me that although there is the Heseltine pot for local areas, the big national infrastructure expenditures will be co-ordinated with local activity so that we can maximise the opportunities that spin off from this very substantial increase in infrastructure?
Lord Deighton
I thank my noble friend for her observations about the education programme being a prime example of investing in the success of an effective programme. That is absolutely right. On the local pot and infrastructure spend, it is absolutely our intention to make sure that there is a strong relationship between the regional plans—ultimately, all infrastructure operates at a local level—and that we co-ordinate those at a national level to ensure that we get the maximum leverage from the money that we are spending at both ends.
Taxation: Income Tax
Baroness Kramer Excerpts(12 years, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
My Lords, there is an awful lot of hype about what may or may not be achieved by reducing or retaining the higher rate of tax. HMRC produced its report on the matter last year and estimated that, in the short term, the cost to the Exchequer was £100 million. It said that the “direct yield” from the higher rate,
“might fall over time toward or beyond zero”.
Baroness Kramer
My Lords, since this Question looks at the impact of tax policy, can the Minister give me his assessment of the impact of raising the tax threshold in this Parliament?
Lord Newby
My Lords, the effect of raising the tax threshold is that some 2.7 million low-income earners will be taken out of tax by April 2014 and that 23.6 million individuals will benefit by paying less tax.
Taxation: Evasion and Avoidance
Baroness Kramer Excerpts(12 years, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Kramer
My Lords, I, too, congratulate the noble Lord, Lord Foulkes, on bringing forward an important issue, and on giving us an opportunity to discuss it, as it were, in the general. I suspect that there will be many discussions in this House about many specific measures in this area of enormous complexity.
I say to the noble Lord, Lord Foulkes, however, that when I started to make some notes for this debate I had little intention of making more than a passing reference to the history of Labour Governments in this. However, his comments have forced me to do so. This kind of amnesia, wherein what happened in the past is irrelevant, is a very uncomfortable position from which to pass. He talked about “new in scale” as if we are suddenly coming across problems which had not existed in the past, and had now forced themselves on to our attention. I remind him that even his own Labour Party was in 1997 sufficiently aware of tax evasion on the domestic scale to look at a GAAR—a general anti-avoidance rule or anti-abuse rule—which it rejected. This Government have now brought that back into the frame; I will talk about it in a minute. Also, however, the US Senate thought this was such a crucial issue that it started its major hearings in 2001. That put into the public arena so much of the information now being used by all the parties that it is impossible that it was not going across Ministers’ desks and had not been drawn to government attention.
The noble Lord, Lord Browne, drew attention to the culture in which businesses, and those such as the CBI who speak as the trade bodies for businesses, work from the assumption that this issue should not be challenged. I think we all find that offensive. However, surely that grew out of what they saw as a very long period of complacency and a rejection by Government, who had the power to intervene, to make those interventions. Those years of neglect have played a very significant role in the culture that we now have to turn around. In the end, we have to get businesses, as well as government, to take responsibility.
I come from a party that, in conference after conference, debated these issues, put them on the agenda, introduced them into manifestos, and was treated as though it just did not understand the ways of the world and, as a consequence, business. I take some satisfaction in reading, in the coalition agreement in 2010:
“We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals”.
It is right that people should be aware that there has been a loud and pressed voice, but that it has been ignored.
I will talk very briefly about the GAAR. I had the privilege of being on the Finance Bill’s sub-committee, which took a look at the general anti-abuse rule. It is a toe in the water—a first step at looking at a principles-based approach to sit alongside a rules-based approach. I suspect that in future years we will have to look at whether or not anti-abuse is sufficient, and whether we need to move into anti-avoidance. However, I will bring to your Lordships’ attention the first of the conclusions in the summary of the report from that sub-committee. It says:
“Given resource constraints and the need to provide certainty for business and to promote UK competitiveness, we regard the narrowly focused GAAR as a reasonable starting point. However, we think it important that the scope of the GAAR should be reviewed in the light of practical experience of its operation as part of the wider review that we recommend elsewhere in this report. Such a review should consider, in particular, how the double reasonableness test”—
the most constraining part of the GAAR—is impacting on the GAAR’s deterrent capacity.
It is also crucial that we understand that the measures we take that affect our domestic tax framework do not tackle the international, multinational tax issues. I sometimes think that when people talk about GAARs and anti-avoidance measures that can be taken domestically, they create an impression among the public that those measures can deal with the multinational and international problems. This report also reminds us of that, saying:
“We are fully persuaded that the GAAR will not apply to issues involving the taxation of multinational groups or the deferral of bonuses from one tax year to another”.
It is, therefore, reminding us that even approaching anti-abuse in this country does not deal with the wider set of problems.
My frustration, particularly with the capacity of multinational companies to use their offshore reach to avoid or minimise their tax—effectively, not to pay tax—is in part because of the impact on public spending. Other noble Lords have talked about that. It is also because of the way in which it destroys the level playing field for many of our businesses, and in particular our domestic and small businesses. I note that in my own community, Qbookshop, which is one of a chain of three, has a notice in its window reminding the public that the taxes it pays support at least one nurse in the local hospital. The reality is that Amazon, for all its reach, does not do a lot more than that with the corporate taxes that it pays.
As I look for ways to do my purchasing from companies that have a proper approach to tax—as others do—I find that it is extraordinary how few exist. There are times when you are simply forced back to Amazon to carry out a transaction. This basically shows that the advantage of being able to avoid tax payments has subsidised those players in growing and squeezing out the competition that otherwise would naturally occur. We as a country are suffering from the destruction of that kind of level, competitive playing field.
I also note that when small businesses in the UK begin to grow, they are frequently sold to a foreign owner, and sometimes the owner is essentially a Luxembourg-based shell. Once again, it is almost impossible for a company to continue to compete unless it tries to enjoy the tax advantages that others in its field can access. One can see the temptation of many an investor to buy a company and move its activities or quasi-activities simply from a tax motive. I wonder how much the issue that we have often addressed, which is why we cannot get our small companies to grow into medium-sized and large companies based in this country, has a tax motive somewhere at the bottom of it.
I, like many people, have a real frustration that the kinds of rules of which these large companies take advantage were written by Governments on the understanding that it was unfair for companies to pay tax on the same economic activity in one, two or three locations. It is an entirely fair request for a company to say that it should pay tax only once. However, to take advantage of that, to work around it and to use it in order to create an environment where tax payment is in effect zero strikes me as the most extraordinary abuse and contempt, and it is absolutely necessary that we should bring it back under control.
I am looking very much at the G8 to begin to make strides in that direction. We have to advocate the principle that tax is paid essentially where economic activity takes place. There are complexities around that, but it is the principal basis on which we should expect to proceed. We have to look very differently at online companies, which can move their profits, domicile and activities in such a significant way. I wonder whether we should look at whether online companies should pay tax on the basis of revenue rather than profits. We may have to be as radical as that.
Before I finish—I am not going to use my full time—I will say one thing quickly to the Government. I was struck by the fact that one of the important instruments that the United States uses is the Foreign Account Tax Compliance Act, which requires individuals, or corporations as individuals, to report the financial accounts that they hold overseas. It also requires foreign financial institutions to report to the IRS on American clients. The UK is one of the countries that are co-operating with FATCA. It was designed primarily to combat offshore tax evasion and to recoup federal tax revenues. I would like to know whether we could have a UK version of this, because transparency—the kind of exposure that comes with FATCA—can be a very important basis for trying to challenge both tax avoidance and tax evasion.
Finally, I will say that many people, like me, would like to shift their economic activities—their business, their trade—to companies that play by the rules, but it is very difficult to find out which they are. I wonder whether there is any way that the Government could assist us: a way that would enable us to understand, when we walk into a shop, deal online, or, through our corporate lives, look at setting up relationships, whether we are working with a company that, as it were, has the kitemark of paying its taxes in an appropriate way. I admit that my ingenuity on this issue is limited, but it would be very helpful, and it would allow the public to do what they have done on many other occasions, which is to use their spending power. In that way, the Government would not have to deal with the issue simply through legislation and through enforcement by HMRC, but would have the public on their side. I note that Starbucks at least decided to make a voluntary tax payment—I think that we all agree that taxes should not be voluntary—in large part because when it was exposed as a company that paid virtually no corporate tax in the United Kingdom, its customers decided that they could go to a very nice coffee shop just down the road that did actually pay tax.
Economy: Fiscal Framework
Baroness Kramer Excerpts(12 years, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
My Lords, the Government have pushed back the period during which we are going to eliminate the deficit. The rate at which we are doing it, at about 1% of GDP per annum, is exactly in line with IMF guidance to countries that find themselves in the position that we do.
Baroness Kramer
My Lords, I have some sympathy with the noble Lord, Lord Barnett, because he put down his Question before Ed Balls did a U-turn yesterday on the Labour policy that his Question reflects. However, would the Minister not agree that the greatest risk to recovery at the moment is the lack of credit as business returns to its growth phase and will need that credit in order to succeed? What is his assessment of the capacity of the banks to fill that need?
Lord Newby
My Lords, the capacity of the banks to fill that need is shown by the latest borrowing figures, which are mixed. Of the 40 banks that are participating in the Funding for Lending scheme, 27 expanded their lending and 13 contracted it. There was a small net contraction—much less than in recent quarters. There is evidence that net lending will expand as the year progresses, as a number of banks—such as Santander, which is winding down its mortgage book—come to the end of programmes.
Economy: Growth
Baroness Kramer Excerpts(12 years, 10 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Kramer
My Lords, I join in the congratulations to the noble Lord, Lord Solely, on obtaining this debate. He is absolutely right—there is no more important issue than growth in our economy—and we in this Parliament and the Government have to focus directly on these crucial issues.
However, I would challenge him on his analysis of how we got where we are today. I fully accept that a financial crisis came—some say like a meteor out of the sky; others, who have looked at the banks, thought it was predictable—and hit us hard in 2007-08. This country was in no position to sustain that blow. We were at a point where the former Labour Government had raised public spending and public borrowing to a point where it offered no resilience. I can understand how the Labour Government got there. They bought into the idea that boom and bust had ended and that there would be a constant flow of substantial tax receipts coming from the financial services industry and that they therefore could let loose the leash on both spending and borrowing because there would be a constant flow of money coming into the Treasury. They should have recognised that we were at the top of an economic cycle—we do not end boom and bust; economies cycle—and every Government have prudently to take cognisance of that. So that is the situation in which we found ourselves.
We also found through that process that the underlying British economy was in very weak shape. We had become so dependent on financial services that we had bled much of the life out of our other activities, both in the service industries and manufacturing industries. We had allowed the balance to swing so heavily to London and the south-east that much of the north was being sustained only by having public service activities there—the private sector had not been building and thriving for a long time—and, worst of all, we had failed to recognise for more than a generation that the backbone of the economy is our small businesses. Twenty per cent of all the small businesses in the EU are in the UK. This is a thriving location for small businesses but it has not been receiving the kind of support that it needs to grow, to take risks, to create new jobs and to build its export base.
For the past few years, the rebalancing of that shift has been the work of this coalition Government. I am encouraged by the comments of Sir Mervyn King and the CBI made earlier in the week which suggest that they can finally see that we are going into a modest recovery. It is very dangerous in this current unstable international environment to focus too much on green shoots, but the same verdict is coming back from small businesses, from the accountants who spend time up and down the country with businesses and even from the commercial section of the banks. They identify that the beginnings of a real recovery are under way, in part because of the rebalancing and redevelopment of those abandoned areas. This work will turn out to be absolutely crucial.
I have often said before that the neglect that most appalled me, not only during the Labour years but during the Conservative years before, was in the area of building skills among our young people. The fact that there was a lack of apprenticeships and that the whole apprentice structure had been allowed to collapse was irrelevant in many people’s minds. There has been a turnaround in that area: more than 1.25 million young people are now either in or have gone through apprenticeships in the past couple of years. That will be important.
We all thought that any debate introduced by the noble Lord, Lord Solely, would undoubtedly touch at some point on aviation and I admire his self-restraint in not addressing the issue of Heathrow. I shall therefore limit my comments on this issue out of common respect to his self-restraint.
However, I wonder whether he recognises the inconsistencies in his own position. I agree that regional aviation capacity is the key issue we must look at. As he knows, that is not hub aviation capacity but very much point-to-point. One of the issues that the Davies Commission will have to take on is whether we should try to build a single London-style hub as our primary connection both within the country and outside. Should we have one main hub and a number of minor hubs? Should we build a balance between one hub and a number of point-to-points? We have to come up with a solution that manages and supports the rebalancing necessary for our economy. That means that it must service the north and the west as well as London and the south-east. That is one of the arguments that leads people to think that much of the London hub should now be shifted somewhere between London and Birmingham, potentially alongside an HS2 route, but there are a number of other visions.
The noble Lord also stressed the fact that aviation, usually thought of as passenger aviation, plays a crucial role in freight. I fully accept that. However, you cannot drag those words out of most of the aviation industry because it becomes impossible to argue for the use of Heathrow, an incredibly expensive and scarce resource, when you are doing a point-to-point freight movement. So that issue has to come into the picture and it will be interesting to see where it goes.
There are two issues I wish to address before I sit down. I shall certainly not use my full time today. One is an issue which is sometimes not addressed in the context of economic growth—that is, tax avoidance. I recommend a speech made on this yesterday in the other place by my colleague, Ian Swales, MP for Redcar. As he was discussing the problem that we face—the inherent reality that most multinational companies now effectively enjoy a corporation tax rate of zero because they export their profits to somewhere such as Luxembourg or outside the G20—he said that one of the impacts of that is greatly to disadvantage those very small and medium-sized businesses in our economy that we need to grow for the future. For example, a chain of three book shops within my local community have pasted on their walls that each book shop pays for a trainee nurse through its taxes on an annual basis, whereas Amazon, their great rival, effectively contributes nothing. Yet they face this price differential because, in effect, the international community has provided a taxpayers’ subsidy to the large multinational entities. We have to tackle the tax avoidance problem for that reason in addition to the failure of those companies to contribute as they should to the public spending that, as it were, pays for the society in which they participate and provides the basis for many of their sales. I think that the level playing field argument is an incredibly powerful one.
In my last comments I wish to pick up on the remarks of the noble Lord, Lord Marland, on exports. I agree completely that building the exports of our SMEs is absolutely vital. However, sometimes I disagree with BIS about its focus on saying to small businesses, “Come on, go to China, Brazil and India”. It is wonderful if small businesses can export to those countries and I have no problem with that, but when you talk to these businesses, you find that many of them have had very bad experiences when they have tried to do it. It is quite risky to export to China if you have a patent you wish to protect. It is very difficult to export to the United States because of all its non-trade barriers. I have talked to quite a few small businesses, but I shall not use their names because they are quite hesitant about this, which have found that in the end they had to form a joint venture to sell into the United States and essentially surrender most of the upside of their additional revenues and the exports from their US operations. Instead, they just accept royalty payments because, without a joint venture relationship, it is impossible for them to operate on American soil.
From the small business perspective, the ongoing debate that David Cameron was leading on in the United States in his discussions with President Obama on an EU/UK trade negotiation to tackle many of these non-tariff barriers, is absolutely crucial. There is a real need for an awareness that this is the kind of thing we can tackle only as part of the EU. I lived in the United States for 20 years and I know a lot of people in the Administration. The chance that they would ever waste time on a UK/US debate along these lines is close to zero. I suspect the same for China and, indeed, for the various developing economies of the world.
We are at an exceedingly exciting point where there is great potential. We are starting to see movement in the economy, but it is crucial that we have sustainable growth, not growth created by a sudden surge in public spending that sparks a short-term response and transient behaviours. We need long-term, sustainable growth by getting new businesses off the ground and encouraging them to export. Any discussion is too much to try to include in this speech, but it is also crucial that the banks back up that growth with a credit supply, because it will be in huge demand as businesses begin take off when they see the end of the recession and can move into a much more investment-focused and expansionary mode. We are at a very interesting point at which the decisions and the way we shape this growth must be such as to set us up well for future years.