Economic Productivity
Baroness Neville-Rolfe Excerpts(1 year, 3 months ago)
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Baroness Neville-Rolfe
To ask His Majesty’s Government what plans they have for increasing productivity in the UK economy.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, in the decade from 2010 the UK economy saw the lowest productivity growth since the Napoleonic Wars, which led to the lowest growth in living standards ever recorded. Reversing that performance is the number one mission of this Government. As part of our growth strategy, we have set out far-reaching plans to increase productivity, including restoring economic stability, reforms to planning, to skills and to the labour market, record levels of investment in R&D, new investment in transport connectivity, a modern industrial strategy and a 10-year infrastructure strategy.
Baroness Neville-Rolfe (Con)
My Lords, I believe the Government missed an important opportunity by failing to impose productivity conditions alongside their costly public sector pay rises. I do know that productivity is a complicated area. On most metrics, public sector productivity has been significantly lagging that of the private sector. What measures will the Government adopt to ensure that it increases towards private-sector levels?
In particular, the Minister mentioned planning. Does he agree that speeding up and simplifying planning, and reducing the cost of electricity for businesses, rather than doing endless review, should be important components of the plan that he set out?
Lord Livermore (Lab)
I am grateful to the noble Baroness for her Question. To answer her first point, she is incorrect to say that we did not impose any productivity criteria. We have introduced a 2% efficiency and productivity target in the NHS for this year and next year. We have also gone further than the previous Government did by extending that target to all government departments to ensure that we are improving the quality of public services while also improving value for money.
The noble Baroness mentioned planning. A significant programme of planning reform was announced by the Chancellor on her very first day in the Treasury. The previous Government had 14 years to announce those things but never did anything.
International Banking: Payments
Baroness Neville-Rolfe Excerpts(1 year, 4 months ago)
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Lord Livermore (Lab)
That is very much the spirit that lies behind the Financial Assistance to Ukraine Bill, which will shortly be before your Lordships’ House. The Financial Assistance to Ukraine Bill provides spending authority for the UK to implement our commitment to the G7 Extraordinary Revenue Acceleration Loans to Ukraine scheme, a landmark agreement which provides a collective £50 billion to Ukraine.
Baroness Neville-Rolfe (Con)
My Lords, there is much evidence that the international order is undergoing a process of major and very troubling change. The BRICS proposal is just one manifestation of this phenomenon. Given what we have heard from my noble friend Lord Lamont, does the Minister agree that we must be even more clear-sighted as to where our national interests lie? In particular, can he outline what the Government are doing to protect our substantial interests in the financial services industry and indeed in the interconnected system that he mentioned?
Lord Livermore (Lab)
I absolutely agree with the noble Baroness that we should of course always proceed from a position of our own national interest. The Chancellor in her Mansion House speech two weeks ago set out a very comprehensive programme to ensure that our financial services industry was examined from that position of our own national interest and set out a comprehensive set of proposals in that regard.
Financial Services: Mansion House Speech
Baroness Neville-Rolfe Excerpts(1 year, 4 months ago)
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Baroness Neville-Rolfe (Con)
My Lords, the Chancellor’s speech at the Mansion House covered a wide range of very important topics which we will need to discuss over the coming months. I can touch on only a few of them today. However, perhaps first we should note that very recent developments include an unexpected reduction in the rate of economic growth and an increase in the rate of inflation; and, today, an increase in monthly borrowing to £17.4 billion—the highest level ever outside the pandemic.
The reduction in the growth rate in the fourth quarter was brought about in part by the unwise and inaccurate remarks on the state of the British economy that have been made frequently by both the Prime Minister and the Chancellor since taking office. Taken alongside the problems of the Budget, it has not been an auspicious beginning for the Government. Some of the effects on hard-working citizens, small businesses and farmers were brought to our attention outside this very building only this week. Furthermore, the UK gilt market has taken a hit, meaning that the cost of servicing our debt has risen. The last time yields on 10-year gilts were this high, Labour promised it would ensure that it never happened again; and, of course, higher bond yields mean higher debt-servicing costs. How do the Government intend to square this particular circle?
One major sector covered by the Chancellor’s very comprehensive speech was pensions, which are important for almost everyone. We share the Chancellor’s aims of securing greater returns for pension savers while at the same time enabling pension funds to contribute to funding increased infrastructure spending here in the UK. These objectives are not necessarily incompatible, but it will be difficult to bring about both. We on these Benches will take a keen interest in how this initiative is taken forward in the forthcoming pensions Bill and elsewhere. When can we expect more details?
We are also keen to know more about how, precisely, the proposed pension megafunds will work and, in particular, what rules they will need to follow as regards UK and foreign investments. We all know about the massive investment that Australian and Canadian funds have made in UK infrastructure. Will the proposed UK funds be able to invest in a similar fashion overseas? The Government have proposed consolidating 86 local authority pension funds into eight. When will this occur and on what criteria? How will the interests of those in well-run funds be protected from the ravages of the less successful ones?
Lastly, I return to the Government’s stated first aim of improving the rate of economic growth. We want them to succeed; really, we do. Per capita growth is the right measure of success. All economic policies should have growth as one of their aims, so I note with particular satisfaction that the Chancellor has recently impressed on several economic regulators that this should be their objective also. Otherwise, unfortunately, the Government have made a poor start on achieving growth and managing inflation. When we left government, we had the fastest-growing economy in the G7. Now that has greatly diminished. Let us hope, for the sake of our citizens, that the Government will do better in future.
Baroness Kramer (LD)
My Lords, my party is determined to see growth in the UK economy and to use tools such as reform of the financial services sector to drive that growth, though we would put much more emphasis on a revival of community banking and financing for SMEs. High risk, however, is not for all. For people with small pensions, safety—not a jackpot—is the goal. Will the Minister assure this House that, in all the various changes, small pensions will in some way be backstopped from losses generated through higher risk, including illiquid investments? In Canada, which seems to be a template for the Government, public sector pension funds are, in effect, wholly backstopped by the state.
Members on these Benches remember the financial crisis of 2007, which destroyed growth for a generation. It was enabled by gullibility and naivety in dealing with the financial sector, both by Conservative and Labour Governments and by the regulators. The Bank of England is re-looking at the regulation of CCPs to allow greater derivates risk; the PRA now allows insurance companies to hold illiquid assets without relevant reserves; the bank ring-fence is being undermined, and the FCA plans to gut the clawback on bankers’ bonuses and downgrade the certification of senior managers. We are back to jobs for the boys.
Much more—if I understand the Chancellor correctly in the Mansion House speech—is to come. I sat for two years on the Parliamentary Commission on Banking Standards, listening to the pernicious incompetence of masters of the universe who were turning a deliberate blind eye to market manipulation, mis-selling and money laundering, with no acceptance of responsibility. Will the Minster read the reports of the PCBS before he proceeds with any further weakening of regulation? If this is not done with extraordinary care, we risk seeing the reseeding the next financial crisis.
Lord Livermore (Lab)
I am grateful to my noble friend for the question. I do remember the conversations we had in the past and I am, of course, happy to continue to discuss these issues with my noble friend. He talks about partnership; it is a key part of our investment plans. Partnership between public and private investment is key to our national wealth fund, with our public sector investment leveraging greater amounts of private sector investment into exactly the kind of green technologies that my noble friend references. I understand and sympathise with the spirit behind his question, and I am very happy to continue discussions with him on that point.
Baroness Neville-Rolfe (Con)
My Lords, I thank the Minister for his welcome; I too look forward to a constructive relationship in the traditions of the House. Can he comment on my point about gilt yields? My concern is their impact on compliance with the Chancellor’s fiscal rules. There has been a worrying increase of about 0.5% in the gilt yields, and I was interested in his reflections—perhaps in writing—on that.
Lord Livermore (Lab)
The noble Baroness is kind enough to give me the opportunity to write, and I will happily do so.
Autumn Budget 2024
Baroness Neville-Rolfe Excerpts(1 year, 4 months ago)
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Baroness Neville-Rolfe (Con)
My Lords, I am speaking from the Back Benches today about productivity, but I want to start with a thank you to the Minister on two counts. He has rightly resisted the temptation to erode further horse racing’s competitiveness, vis-à-vis France and Ireland, by increasing betting duty—I declare an interest as a member of the racing APPG. I was also pleased to hear that the Government are going to tackle the ever-exploding level of retail crime. A few years ago, from the Back Benches, I sought an amendment to the Policing and Crime Bill to achieve just that, but although I worked constructively with the noble Lord, Lord Coaker, on a proposed amendment, I could not persuade him to be sufficiently radical. This Pauline conversion is most welcome.
As a country, our greatest economic challenge is to increase the growth rate, by which I mean GDP per person. The only sustainable way to do that is to increase productivity, and I was disappointed that the Budget includes so little to advance that aim. The truth is that the productivity figures since the financial crisis of 2008 make depressing reading. The situation is not the same everywhere, and I note that, in my old sector of retail, matters are somewhat better than elsewhere. According to the BRC, productivity in retail is 8.1% higher than in Q4 2019—which was before Covid—while the equivalent figure for the whole economy is 1.45%.
What should we do? The most important change is to have efficiency in mind when taking all decisions. The Government state that growth and productivity are right at the forefront of their concerns. That is a good start, but they have to act as though they mean it. They state in the Red Book that, in the medium term, above-inflation pay awards will be funded from improved productivity—good. It is a pity they did not follow that policy when, on attaining office, they awarded public sector bodies above-inflation pay awards costing £9.4 billion without any productivity conditions. I am glad the Government have seen the light on this, but will Minister look at my proposal for a new productivity and growth assessment to accompany all legislation, which I mentioned in our debate in the House on 9 October?
Other necessities are to reduce unnecessary bureaucracy and to examine environmental requirements. On bureaucracy, I do not believe that checks to counter money laundering need to be anything like as onerous and time-consuming as they are. The march of the data society, with its many benefits, has made government, regulators and others lazy. They do too much checking and collect too much information, instead of focusing on what really matters and doing that speedily. It creates some pretty awful jobs too, in both the public and private sectors. David Graeber, in his splendid book Bullshit Jobs, stresses how depressing this can be.
On environmental protection, I read with despair that HS2 has spent £100 million on building a tunnel to protect bats. Can we have a sense of proportion? Moreover, why are our electricity prices for industrial users, which make up the most productive part of the economy, treble those in India and the US? Both phenomena seem good candidates for early study by the new Office for Value for Money.
I turn to construction, including housebuilding and infrastructure; I have two points. The first relates to planning controls, which need simplifying and speeding up. The second relates to the building-related workforce. There is much evidence that more skilled labour of every kind will be required for the foreseeable future. What plans do the Government have to help in that regard?
Likes others, I am very concerned about the triple whammy of increased national insurance—especially the lower threshold—the new national minimum wage and the new regulation on workers’ rights. I know from my own experience that these are particularly difficult for SMEs because of the extra cost and bureaucracy that they will bring. The “good news”—I suppose—from a short-term productivity point of view is that this will send the less efficient into insolvency, but that is a very hard way to improve productivity.
As our new Conservative leader has so rightly said:
“It is not the Government that creates growth, it’s business that creates growth”.
The Government’s attitude to business and public sector efficiency so far is unsatisfactory. If they are to achieve their growth ambitions—which we all share—they need another Pauline conversion.
United Kingdom Declining Birth Rate
Baroness Neville-Rolfe Excerpts(1 year, 4 months ago)
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Lord Livermore (Lab)
My noble friend makes some very interesting points. I assure him that the Treasury is working closely with the Department for Science, Innovation, and Technology to advance the things that he mentions.
Baroness Neville-Rolfe (Con)
My Lords, we have just had a Budget which the OBR says will lead to a loss of jobs and the first ever taxes on education. What does this do for family life and for the birth rate in the shorter term?
Lord Livermore (Lab)
To clarify, the OBR is very clear that, over the next five years, employment will grow by 1.2 million people.
Working From Home: Public Sector Productivity
Baroness Neville-Rolfe Excerpts(1 year, 5 months ago)
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Lord Livermore (Lab)
I am not sure I am going to be able to answer that right now, but, as set out by the noble Lord, Lord Darzi, in his investigation into the state of the NHS, productivity in the NHS has fallen significantly and is far too low. Improving productivity in the NHS is a key priority. What the noble Lord said about management was really interesting. Emerging studies show that, where workforces are well managed, productivity can rise with working from home. This is a point that the noble Lord who asked the original Question raised in a previous debate on this subject, which I read: the quality of management has a key impact on productivity when working from home.
Baroness Neville-Rolfe (Con)
My Lords, although good management certainly makes a difference, there is strong evidence from academic studies that working from home reduces productivity—although there are other benefits. So far, this Government have been coy about publishing office attendance figures for government departments, as we used to do. Will the Minister ensure that the publication of such figures is restarted and that working from home is limited to those areas where efficiency is not compromised?
Lord Livermore (Lab)
This Government have exactly the same policy in terms of civil servants working from home as the last Government: civil servants should be in the office for a minimum of 60% of the time. That is unchanged and those figures will of course be published in exactly the same way. The noble Baroness said that working from home reduced productivity: that is not actually the case, according to many studies. I read one from the IMF recently that said that the positive and negative effects of working from home roughly offset each other, generating no net productivity impact.
Finance (No. 2) Bill
Baroness Neville-Rolfe ExcerptsWednesday 26th April 2017
(8 years, 11 months ago)
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The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)
My Lords, this Government have long demonstrated that we can deliver a stronger, more secure economy. The economy continues to grow robustly, employment is at a record high and the deficit has been brought down by almost two-thirds. Following discussions, the Bill before us is shorter than on its introduction in the other place. None the less, the changes it will make take significant steps in helping to create a fairer and more sustainable tax system.
Following the parliamentary vote on the general election, the Finance Bill is proceeding on the basis of consensus. At the request of the Opposition, the Bill has been amended to take out a number of measures originally included. There has been no policy change. The provisions before the House will make a significant contribution to the public finances and the Government will legislate for the remaining provisions at the earliest opportunity at the start of the new Parliament. These include: corporation tax restrictions on interest expense and on loss relief; the reduction in the dividends allowance; changes to the tax treatment of the non-domiciled; anti-avoidance changes, such as the new penalty for enablers of tax avoidance; and the primary legislation for the Making Tax Digital programme. The Government remain committed to the digital future of the tax system, a principle which has been widely accepted in extensive consultation. I want, in passing, to acknowledge the work that the Economic Affairs Finance Bill Sub-Committee has done on the tax administration aspects of the programme. The Government have decided to pursue this measure in a Finance Bill in the next Parliament, in the light of the restrictions on time which now apply.
I now turn briefly to the main provisions included in the Bill before us. The UK has one of the highest rates of obesity among developed countries. Soft drinks are a major source of sugar in children’s diets. Obesity drives disease and it costs our economy. The NHS incurs direct costs of over £6 billion each year from treating ill health related to obesity. The Bill legislates for a soft drinks industry levy to encourage producers to reduce added sugar in their drinks. I am pleased that this change has gathered a wide degree of support here and elsewhere. I am even more pleased that the levy is already working, with Tesco—once my employer, so that is good to hear—and the manufacturers of Lucozade, Ribena and Irn-Bru among those already committing to reformulate their drinks and reduce added sugar. That is good news for our children’s health and, although revenues will be lower, we will maintain the full £1 billion funding committed to the Department for Education to give children a better and healthier future.
There has been debate as to whether the levy should go further and, in particular, whether it should apply to milk-based drinks. Milk and milk products are a source of calcium and other nutrients. One in five teenage girls do not get enough calcium in their diet, and the same is true for one in 10 teenage boys. However, we want milk-based drinks to contain less added sugar, so Public Health England will challenge and support producers to reduce added sugar content by 20% by 2020, and will publish a detailed assessment of progress in that year. Yesterday, in the other place, my honourable friend the Financial Secretary, Jane Ellison, committed to review the exclusion for milk-based drinks in 2020, based on the evidence from Public Health England’s assessment of producers’ progress against their sugar reduction targets. I am happy to reaffirm that today.
The Finance Bill also legislates for increases in duty rates as announced in the Spring Budget and that took effect shortly afterwards. These increase tobacco duty rates by 2% above RPI inflation for all tobacco products, which also makes an important contribution to the Government’s wider health agenda to reduce smoking prevalence. A minimum excise tax on cigarettes ensures that the cheapest cigarettes will pay a minimum level of duty, making it less profitable to sell cigarette packs below this level. Alcohol duties will be uprated in line with RPI inflation, while producers will continue to benefit from the effect of freezes and reductions in recent years.
The Finance Bill makes an important contribution to securing the nation’s public finances, reducing the deficit while allowing the Government to support our critical public services. For that reason, we announced in the Autumn Statement an increase in the rate of insurance premium tax from 10% to 12%. The Bill provides for this increase, which will take effect from 1 June and is expected to contribute over £800 million annually to the public finances.
Turning now to personal tax, the tax system needs to keep pace with the different ways in which people are working. As the Chancellor set out in both the Autumn Statement and in the Spring Budget, the public finances face a growing risk from the cost of incorporations. Indeed, the Government estimate that by 2021-22 the cost to the Exchequer from people choosing to work through a company will be over £6 billion. Part of this arises from people choosing to work through their own personal services company who would otherwise be classed as employees. The off-payroll working rules, also known as IR35, are designed to ensure that, where individuals work in a similar way to employees, they pay broadly the same taxes. However, non-compliance is high, costing an estimated £700 million each year. The Finance Bill therefore addresses this by transferring the liability for compliance with the rules in the public sector to the body for which the individual is working. We expect it to improve compliance significantly, raising revenue, while simply ensuring that the correct amount of tax is paid under the existing rules.
Finally, while some changes to address tax avoidance and evasion originally included in the Bill have been omitted and will be legislated for at the next available opportunity, the Bill includes a number of changes that advance the Government’s aims in this area. This Government are committed to tackling tax avoidance and evasion at all levels in order to ensure that everyone, no matter who they are, pays the right amount of tax at the right time. Since 2010, we have invested more than £1.8 billion in HMRC to tackle evasion, avoidance and non-compliance, helping to secure more than £140 billion in additional tax revenues. This includes more than £45 billion from large businesses and more than £2.5 billion from the very wealthiest. The UK also has one of the lowest tax gaps in the world, and the Government have announced more than 35 policies in this Parliament which are forecast to raise more than £18.5 billion by 2021-22. The Finance Bill extends that record by making changes to ensure that those who promote tax avoidance schemes cannot circumvent the rules by reorganising their business while continuing to use high-risk tactics in promoting avoidance schemes. It tackles abuse of the VAT relief for adapted motor vehicles and introduces a new charge on loans from disguised remuneration schemes that have allowed beneficiaries to avoid paying the tax that should have been due on their employment. The Government’s record on tackling avoidance and evasion and making sure that tax is paid fairly is one of which I am proud.
So to conclude, this Finance Bill supports our commitment to a fair and sustainable tax system, one that can support our critical public services and gets the country back to living within its means. I beg to move.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their valuable contributions to this select debate. In his wide-ranging speech, the noble Lord, Lord Haskel, mentioned the importance of social measures and, as usual, made a number of interesting suggestions, including the point he often rightly makes about the importance of digital. On this occasion he not only referenced the workplace generally but the importance of getting it right in Whitehall.
On care and the NHS, to which he referred and which was also tackled by the noble Lord, Lord Davies of Oldham, we announced at the spring Budget an additional £2 billion for social care. This will help to ease pressures on the NHS by supporting more people to be discharged from hospital and into care as soon as they are ready. We are giving the NHS the funding that it needs. The Five Year Forward View plan asked for annual funding to rise by a minimum of £8 billion above inflation by 2020-21 and for investment to be frontloaded. The Government have delivered what the NHS asked for on both counts: the NHS’s annual funding will increase by £10 billion above inflation by 2020-21 and £6 billion of this £10 billion will be delivered by the end of 2016-17, which is particularly important. I was pleased that to help manage demand on A&E we have committed to provide £100 million of new capital investment in A&E departments because that will help to ensure that patients access the most appropriate care as quickly as possible by improving the space for assessing patients and providing on-site GP facilities. This can help with bed blockers and is a good example of how things can be improved through management and efficiency, which I always regard as extremely important.
The noble Lord, Lord Haskel, talked about business investment and growing consumer debt. The OBR forecast business investment to grow by 15% over the forecast horizon period to 2021 and to rise as a share of GDP. Households’ financial positions are certainly stronger than they were before the financial crisis, and debt interest as a proportion of income is at a record low.
The noble Lord also talked about productivity, a subject that we have often debated here. At the Autumn Statement, we announced £23 billion of extra investment through the national productivity investment fund, and tackling the UK’s productivity challenge is a priority. To respond to the noble Lord, Lord Davies: the Chancellor mentions it often, it has pride of place in the Prime Minister’s industrial strategy consultation and I agree that it is important. The Government are taking targeted action to invest in important things such as innovation, infrastructure and digital, to promote skills, to improve management and—I see my noble friend the Minister for Trade here—to encourage firms to export, which always tends to be associated with strong productivity growth. There is work to do, as has been said, but productivity as measured by output per hour grew by 0.4% in Q3 of 2016 and by 0.4% in Q4 of 2016.
The noble Lord, Lord Haskel, asked about Brexit resourcing. The Treasury is working with all departments to understand the work required to prepare for a successful exit from the EU. Although aggregate spending plans for this review period remain in place, I can assure the noble Lord that the Treasury continues to engage with departments to ensure the right resources are allocated to the right places. I would add that I know from my own experience in dealing with Brexit for financial services that there is very high-quality Civil Service and external support, both in the Treasury and in DExEU.
The noble Lord, Lord Davies, asked about HMRC resourcing. The Government have always ensured that HMRC has the resources it needs. It makes sense to do so, and since 2010 we have invested over £1.8 billion in HMRC, and steps have again been taken to improve its effectiveness and efficiency.
I, too, was grateful to the noble Lord, Lord Kerr of Kinlochard, for joining us in the gap to share his view on making tax digital and for referring to the two recent parliamentary reports on the subject—particularly the one that was done in this House by the Finance Bill Sub-Committee, which I mentioned in my opening remarks. I am always very grateful for the work that is done on Treasury areas in the House. It really helps us to improve policy formation. Although there has been no change of policy, I entirely accept that time is needed for proper debate and scrutiny of the provisions for making tax digital. The Government remain committed to the digital future of the tax system—it was good to hear support for that from the Opposition Benches—and it was of course, in principle, accepted in the extensive consultation we held. But more time is needed for parliamentary scrutiny, and that will be made available at the earliest opportunity in the next Parliament.
I am grateful to noble colleagues for their contributions. We will debate some of the wider issues in the country, when we will demonstrate that we have a programme for a stronger, more secure and more productive economy under a Prime Minister who is also determined to lead a country which works for all people and for all regions.
I have this evening outlined the benefits that the finance Bill, in this form, will bring in advancing our aims for a fair and sustainable tax system. I take this opportunity to thank Treasury officials for their high-quality support on the Bill and for getting it quickly into a state in which it could be considered today. On that basis, I invite the House to give the Bill a second reading.
UK Convergence Programme
Baroness Neville-Rolfe Excerpts(8 years, 11 months ago)
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Baroness Neville-Rolfe
That this House approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, HM Government’s assessment as set out in the Budget Report and Autumn Statement, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook and Fiscal Sustainability Report, which forms the basis of the United Kingdom’s Convergence Programme.
The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)
My Lords, the major political events of the past few weeks have been the calling of a general election and the triggering by the UK of Article 50 of the Lisbon treaty, giving notice of our withdrawal from the EU. Given that background, today’s debate, which stems from arrangements and rules in essence designed to ensure economic convergence among EU member states, might at first glance look a little odd. But the oddity, if it exists, is on the surface only, and there is good reason for submitting the 2016-17 convergence programme before us. Most importantly, there is the fact that, until we leave the EU, we have all the rights and obligations of a member state. Of course, we continue to exercise our rights of membership in this period, and the document before us, which explains UK economic policy, especially in relation to maintaining stability and bringing down the deficit, is one such obligation.
In practice, drafting the paper was relatively straightforward, since it is based on the Spring Budget report and the OBR’s most recent Economic and Fiscal Outlook. I am sure that noble Lords who have examined it will have seen much familiar content.
I should draw to the attention of noble Lords one detailed but vital point. It is the Government’s assessment of the UK’s economic and budgetary position, and not the convergence programme itself, that requires the approval of the House. There is one further point which I should stress now. It is that, as the UK is outside the eurozone, we cannot be subject to any sanctions under the EU fiscal rules encompassed in the stability and growth pact of which the convergence programme forms part.
It may be helpful to the House if I provide a brief overview of the information that we have set out in the UK’s convergence programme, even though much of this will be familiar. Perhaps the most pleasing point is that in March 2017 we were in a better position economically than many—indeed, most—had predicted. The IMF recently revised up its 2017 growth forecast for the UK by 0.5 percentage points and growth in the second half of 2016 was stronger than the OBR anticipated in the Autumn Statement. In fact, last year the UK grew faster than most other advanced major economies, with near record employment, too. The deficit has also been reduced. Overall public sector net borrowing as a percentage of GDP is predicted to fall from 3.8% last year to 2.6% this year. It is then forecast to be 2.9% in 2017-18 and to fall thereafter to 0.7% in 2021-22—its lowest level in two decades.
As a consequence of all this, we are forecast to meet the EU’s 3% stability and growth pact target this year, for the first time in almost a decade. Accordingly, the UK will cease to be subject to the EU’s excessive deficit procedure. Although we are leaving the EU, this is good news. We are within sight of bringing to a halt the increase in the national debt as a proportion of GDP. Nevertheless, at nearly 90% of GDP, the Government believe our debt level is too high. That is why they set out fiscal rules that combine the flexibility to support the economy if necessary in the near term with a long-term objective of returning the public finances to a sustainable position.
The OBR forecasts that business investment will remain subdued as we begin the period of negotiation with our EU friends and partners. It continues to judge that, in the medium term, growth will slow due to weaker growth in consumer demand as a consequence of a rise in inflation. Accordingly, putting the public finances in good order will remain vital for the foreseeable future, all the more so given that the deficit remains too high and that there is a range of risks in the global economy. That is why we are getting ourselves into a position of readiness to handle difficulties of any kind that might come our way.
Our fiscal rules, which enable us to do that, strike the right balance between reducing the deficit, maintaining flexibility and investing for the long term. Our Autumn Statement and Spring Budget set out our plans to build on recent economic growth and our strong employment record, and indeed to raise productivity, which has been disappointingly weak over a long period. We are taking action to improve skills, to give more children the chance to go to a good school, to support the care system and the NHS, to drive innovation and to invest in infrastructure and digital. We have consulted on a Green Paper about an industrial strategy aimed at delivering a high-skilled, productive, competitive economy that benefits people in all parts of the UK. Sound public finances are an absolute necessity to make this happen and to provide the level of public services we all wish to see. That is essentially what the convergence process is about.
To conclude, following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit it to the Council of the European Union and to the European Commission. Doing so also provides the EU with a useful framework for co-ordinating fiscal policies. A degree of fiscal policy co-ordination across countries can be beneficial to ensure a stable global economy, which is of course in our own interest. The UK has always taken part in international mechanisms for policy co-ordination, such as the G7, G20 and OECD. Although we are leaving the EU, we will continue to have a deep interest in the economic stability and prosperity of our European friends and neighbours. We will also continue to play our part in this process while we remain an EU member, and we will play our part in other international policy co-ordination processes once we have left the EU. The Government are committed to ensuring that we act in full accordance with Section 5 of the European Communities (Amendment) Act 1993, and I ask this House to approve the economic and budgetary assessment that forms the basis of the convergence programme. I beg to move.
Lord Davies of Oldham (Lab)
My Lords, the Minister made the best fist of a pretty thin case. First, it is somewhat absurd that we are debating and seeking to put through a Motion on the issue of convergence just at the point when the Government have set their sails in the opposite direction, away from any convergence as far as their direct relationship with the European Community is concerned. At least the Minister in the other place, when pressed on this particular obvious sailing point, said, “Well, I don’t really think the issues of convergence affected government policy a great deal”. It is quite clear that the Government have had their own agenda for the economy and have pursued it with considerable rigour, at particular cost to sections of our population—and, I might add, to the economy as a whole. But the issue of convergence certainly did not rank particularly highly in that agenda and the Government, I imagine, can therefore begin their approach to the question of Brexit untrammelled with any regrets that no British Government will have to face up to this issue in the future.
The Government are making much at this stage of economic growth over the last year and a half, with the prediction that it might last a little longer. That is against a background where their record on economic growth was close to catastrophic. They presided over the slowest recovery from a recession in more than 100 years and followed the worst policies for getting the country back on to an even keel. What has this meant? Their target was 2015, which was two years ago. They were meant to hit their target in 2015 but we now have a revision under a new Chancellor, who has slightly more elastic concepts on how rigorous an onslaught should be pursued on the debt position. He is saying that it may be the early 2020s but has not made too great an assurance about that. What would your Lordships say normally to anybody who had promised that they would bend every sinew to producing a position where they got out of debt in five years, and then after seven years said, “We haven’t made it—in fact, we are only half way there and we don’t think we’ll be able to do it for another five years anyway”? It suggests that there is a slight flaw in the Government’s thinking on how well they have done with the economy over the last few years.
The other dimension of it is quite clear: the absence of growth has reduced significantly the receipts to the Exchequer and made the Government’s onslaught on public expenditure even more savage. The Government boast about the fact that they have been conducting their position on public expenditure with a real sense of fairness. Tell that to the disabled. Tell that to the families where children are entering poverty in numbers that we have not seen for two decades. Tell that to the people who are seeing benefits for those in work cut at the levels which they are by this Government. That is to say nothing about what I hope the Government recognise is a crisis in the health service, or about the problems we have with regard to welfare and in particular with care for the aged. It says nothing about the real problems of so many in our community, who depend upon government handouts not because they are idle and have brought things upon themselves but because they live in a society, and an economy, in which it is difficult for them to earn sufficient to sustain their living standards. Yet the Government are busy eroding any support which they enjoy.
Let us turn as well to the question that the Government always emphasise as such a significant achievement: levels of employment. What kind of employment is it? It is no coincidence that when the Minister says that we have made painfully little progress—I am not sure whether she used quite that adverb but she was generous enough to concede that progress on productivity has been limited in recent years—it is a direct reflection of the employment conditions of so many of our people. Far from them being engaged in enterprises alongside employers who are seeking to promote the work, to engage the workers constructively and perhaps even from time to time to listen to them on how work could be done better, we have the exact antithesis. We have people on zero-hours contracts with no commitment to the company at all, apart from the hope that they will be able each week to sustain enough hours in work to keep their living standards.
What employers have been doing is worse. There are appalling examples. They have been saying to such people, “Sling your hook”. That phrase comes from dockers in the 19th century who turned up for work with their hook and if not so many were needed or those who were needed were carefully selected, they rest had to sling their hook, go away and receive no remuneration or sustenance of living standards. It is not surprising that the late 19th-century state had to react to that situation in the face of such discontent. The Government may feel that they are not presiding over a period of such discontent at this time. That may partially be because so many of the people who are in that position have no voice. They have no voice because the very vulnerability of the work they do renders them unable to challenge.
What does this all mean? It means that the Government are now engaged upon Brexit, which will dominate all political and economic debate for a considerable period ahead. What is conspicuous about Brexit—I hope the Minister may at least own up to this fact—is that the Government had absolutely no plans to cope with Brexit and had not anticipated that the vote might go that way. If they did anticipate it, they are very culpable for leaving us in this position, where it is quite clear that our negotiating position is a good deal weaker than it ought to be. The Government keep on saying that we are out on a deep, wide ocean and that we can greatly increase our trade with others whom we have neglected in the past. I have not noticed the British economy neglecting markets in the past. Our problem is being able to be sufficiently competitive to win them. We are walking out on the largest market of all. Whenever the Government mention the United States, India or China, do they not realise that trade with those countries adds up to only a fraction of that which we enjoy at present under the framework of the European Community? That is the nature of the risk being taken.
I realise that this is a straightforward Motion today. There is no question of the Opposition not seeing that we make a last gesture towards convergence, which is required of us as long as we are a member of the European Community, which we are at present. Underpinning it all—and this is what this Government have to face up to—is the basic weakness of their economic position. That may not worry Ministers in this House too much because, although they would probably like to continue in office, it is not quite as serious a threat as that to Ministers at the other end who have to retain not just their office but their seat as well. The confidence of Ministers in the other place may be shaken somewhat, and therefore, although I have indicated that the Opposition support this Motion, I offer some warnings as to the future.
Baroness Neville-Rolfe
First, I thank the noble Lord, Lord Davies of Oldham, for supporting the Motion and for filling the void in a debate with few participants today. I suspect he will not be surprised to learn that I do not agree with his cynicism. We have our own economic policy of course in this country, and as I tried to explain, the work to bring deficits down is important from both a European Union and a UK point of view, and we have made progress. It has been difficult, not least because of the legacy—the mess—that we inherited on the economic side, but since 2010 our economy has grown by 14.6%: faster than Germany’s and twice as fast as France’s. As I mentioned in my opening remarks, we have had good news recently from the IMF, and indeed the CBI published strong figures today. The deficit has been cut by almost two-thirds from a post-war peak of 8.8% and, as he acknowledged, employment is up, by nearly 2.8 million. The employment rate is at a record high of 74.6%.
This is, in my experience, the envy of other member states in Europe, alongside the small business creation that we have also managed to oversee. Our labour laws are strong, and will remain strong, but they also allow different types of employment which have helped us in this country to grow and to innovate. The rise in employment is not all in lower-paid or unskilled jobs. Three-quarters of the rise is in higher-skilled occupations. Zero-hours contracts have a part to play in a modern, flexible labour market, as we have debated before. They are also a small proportion of the workforce—2.8%. We have invested for the future and are at last tackling productivity in a comprehensive way, something which I am certainly very engaged in.
I do not think there is any point in us arguing about Brexit, but I am clear that our bold and ambitious plan offers this country a great future.
As I stated in my opening remarks, following this debate, and with Parliament’s approval, the Government will inform the Council of the European Union and the European Commission of our assessment of the UK’s medium-term economic and budgetary position. This is a legal requirement under the EU’s stability and growth pact, and the information we present is based entirely on information and documents already presented to Parliament and, in the main, debated. That includes the Budget we set out this spring, which upholds our economic stability, invests in the future and keeps the UK on a clear path to prosperity over the long term. The foundation of all those things lies in our work to improve the national finances, and that is the basis of the convergence programme that we are, this month, presenting to the EU. I am pleased to commend this to the House.
Premium Bonds
Baroness Neville-Rolfe Excerpts(9 years ago)
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Lord Lee of Trafford (LD)
My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and I declare an interest as a bond holder—one among 21 million.
The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)
My Lords, premium bonds are a popular savings product. They date back to 1956 and were introduced by Harold Macmillan, the Chancellor of the Exchequer of the day. They provide a way for government to raise debt financing through the retail savings market. Depending on the Government’s financing requirement, NS&I promotes sales through its website, through direct correspondence with customers, through media coverage and through advertising.
Lord Lee of Trafford
My Lords, is it not time, after 60 years, to look again at the rules and aims of premiums bonds? Specifically, why cannot clubs, societies and charities own premium bonds? Could not those who win, say, £25 but do not wish to receive that prize have it designated and directed to a national charity by ticking a box? More radically, could we not think about reconstructing and converting premium bonds into something perhaps rather more popular, such as national care bonds? I think that would generate much greater public support, particularly if the unclaimed prizes were hypothecated to the care sector.
Baroness Neville-Rolfe
My Lords, that is for a debate, not a Question. I am not a fan of hypothecation. The Government raise premium bonds to fund government expenditure, as I have explained, and obviously there is nothing to stop anybody giving their tax-free winnings to charity as they see fit. We do not have any plans to introduce a direct transfer to charities, which would require stakeholder consultation and a systems change. The product is a good part of the portfolio of savings products that we have and, as I said, it is very popular.
Lord Dubs (Lab)
My Lords, would not more people buy premium bonds if there were not such a miserably low rate of interest?
Baroness Neville-Rolfe
We try to make sure that premium bonds are a reasonable deal in the market for savings. The noble Lord will probably know that we delayed reducing the rates on premium bonds until quite recently. They continue to be popular, and it makes sense to look at them in the round, aiming for a balance for savers and taxpayers, as well as stability in the sector, obviously, in which they have a role as part of NS&I’s work.
Lord Lansley (Con)
My Lords, will the Government consider giving pensioners who are eligible for the winter fuel payment the option of electing to receive premium bonds instead of a cash payment, thereby helping to meet the Government’s funding requirement and reducing the cash call on government?
Baroness Neville-Rolfe
That is another innovative idea for premium bonds. I will certainly think about it, but the basic point about premium bonds is that they have to be part of a portfolio of sensible savings, such as the investment bond that we are bringing in. That seems to me the right way to go. They are popular and successful, and they give people a bit of excitement, as well as easy access to saving, and there is a 100% Treasury guarantee.
Lord Davies of Oldham (Lab)
My Lords, every statistician and financial adviser can establish that premium bonds are a pretty poor deal, and the Government are in the business of reducing the rate yet again, so the deal is not getting any better. What they are is a flutter but, as my horse will fall at the second fence in the Grand National in the fairly near future, I am not going to argue against gambling at this point.
Baroness Neville-Rolfe
I think we can agree on the excitement, but there is also a more serious point underlying this. When you are choosing how to save, you need to look at a number of options, which we have debated here in this House, including having a pension through the auto-enrolment system and taking advantage of other savings products such as ISAs and so on. I see premium bonds as a very important part of the savings market. And I am so glad that the noble Lord likes to have a flutter.
Baroness Kramer (LD)
My Lords, I exclude my noble friend Lord Lee from this but many people who purchase premium bonds also have an adverse amount of credit card debt or personal loans outstanding. They are attracted rather to the prize element of the premium bond. Would it be sensible to have on the website some advice to encourage people to think first about paying down their debts before they go for a low-interest savings product?
Baroness Neville-Rolfe
As I said, it is important that people have choice and look at a sensible way of saving. Having material on different websites is important but, in the round, we try to make sure that government advice gives people a sound sense of direction on savings, including what is good value for money. Again, I emphasise the point about pensions: investing in a pension is a very good form of saving.
Lord Forsyth of Drumlean (Con)
My Lords, would my noble friend look at the rules, which, while respecting the importance of avoiding money laundering, make it extremely difficult for grandparents and others to gift premium bonds to young children? That would be a very useful way of encouraging saving.
Baroness Neville-Rolfe
I am grateful to my noble friend. I will certainly look at the point without commitment.
Lord Brooke of Alverthorpe (Lab)
My Lords, I am not sure whether the Minister is old enough to qualify for the silly £10 a year Christmas bonus that most of the people in this Chamber will receive. Apparently it was introduced decades ago and if it had been updated with inflation it would now be worth £187 a year. Building on the suggestion of the noble Lord, Lord Lansley, why should that not be converted into savings rather than paid out, when many people do not know what it is about, why they are receiving it or what they do with it?
Baroness Neville-Rolfe
The noble Lord highlights that there are many good pension benefits in this country. I take his point but this is a difficult area in which to make sudden changes.
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017
Baroness Neville-Rolfe Excerpts(9 years ago)
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Baroness Neville-Rolfe
That the draft Order laid before the House on 9 February be approved.
The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)
My Lords, the order that we are looking at today forms part of the UK’s transposition of the markets in financial instruments directive II. The directive is accompanied by the markets in financial instruments regulation. I will, if I may, refer to these collectively as MiFID II.
Before I turn to the specific changes made by the order, let me start by explaining the important context in which the changes are made. MiFID II is a key part of our post-financial-crisis regulatory reform. Agreed by the EU in 2014, it will have a significant role in strengthening the regulation and transparency of our financial and commodity markets. This means keeping pace with market developments and strengthening the protections available for investors. MiFID II applies from 3 January 2018 and member states are under an obligation to transpose the directive into national law by July 2017. That brings us to why we are here today.
In the UK, we are transposing MiFID II through legislation and regulators’ rules. Last month, we concluded our consultation on the legislative changes needed to do that. This order therefore makes amendments to the regulated activities order, which sets the regulatory perimeter for financial services in the UK, to give effect to MiFID II.
The order makes three key changes. First, it brings the new activities and investments introduced by MiFID II within the regulatory perimeter. This includes, for example, structured deposits which are sold or advised to clients, emissions allowances and organised trading facilities. In accordance with the regulated activities order, this will mean that performing a specified activity in relation to a specified investment is a regulated activity for the purposes of the Financial Services and Markets Act.
Secondly, the order classifies binary options as a type of financial instrument. This means that the regulation of binary options will move from the Gambling Commission, where they are currently regulated as bets, to the Financial Conduct Authority. An example would be betting a sum of money against the FTSE 100 rising by 50 points. This is an important change that will ensure that consumers receive at least equivalent protections to those that exist with similar financial instruments.
Thirdly, the order updates definitions, references and makes a number of minor amendments to allow MiFID II to operate within our domestic legislative framework. I will be happy to answer any questions that your Lordships may have on the detail of the order as far as I am able. I beg to move.
Lord Davies of Oldham (Lab)
My Lords, I apologise to the Minister for failing to contact her yesterday and give her some indication of one or two of the anxieties that I had about the order, but I am afraid that the disruption that affected the Palace also affected my liaison. Consequently, I was not able to warn her of what is to come. Nevertheless, I am sure she will be able to answer the points I make with great facility, as she usually does, or, if not, perhaps she will write to me in due course on the issues which are not covered.
Of course, we support MiFID II and bringing it into our national law. It entrenches consumer protection. If we learnt one thing from the financial crash of 2008, it was the need to guarantee consumer protection in the most adverse circumstances. MiFID is a European response to that worldwide crisis, which affected our colleagues in Europe as it did us here in Britain. I appreciate the fact that the Minister has brought the instrument forward.
The consultation for the Government’s transposition plans revealed that, along with this order, two further statutory instruments were required in order to deliver MiFID II: the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations and the data reporting services regulations. When can this House expect to scrutinise and debate those instruments? They are a crucial part of the package. As the Minister will appreciate, they have at least an indirect impact on the workings of the instrument in front of us today—I am thinking particularly of the extended regulatory provisions and their subsequent impact on the FCA and PRA. Given this, perhaps it would have been more helpful to debate all three instruments in the round, but we are making progress on this one first.
The public consultation on transposing MiFID closed in June 2015, nearly two years ago. The Economic Secretary to the Treasury, when moving this order in the other place, stated that,
“last month we concluded our consultation on the legislation needed”.—[Official Report, Commons, Second Delegated Legislation Committee, 14/3/17; col. 1.]
What were those discussions, who were they with and why did they last so long? Where are the documents on those proceedings, which, as far as I know, are not available to your Lordships’ House?
We of course support the supervision of binary options being transferred from the Gambling Commission to the Financial Conduct Authority. We agree that they are financial instruments and as such the FCA is clearly better placed to regulate their use. When does the Minister expect the FCA to produce its guidance, particularly about how it intends to protect potentially vulnerable consumers? The Minister will clearly appreciate that consumers need full disclosure about the product they are purchasing and we need the greatest clarity. Related to this, the consultation document says:
“Ahead of the legislation coming into force, the Government will consider whether consequential amendments to the Gambling Act 2005 are necessary in order to support the transfer of the regulation of relevant binary options from the Gambling Commission”.
I was somewhat involved in the Gambling Act. The experience does not rate enormously highly on the list of my joys in speaking in this House and introducing legislation, so I am very glad to see that the Government are taking a very different view in this instance.
The consultation document goes on to say that further consideration will be given to the fee arrangements for firms that hold a Gambling Commission licence and to the implications of these legislative amendments for the relevant tax framework. Again, I do not expect an immediate, full answer today—perhaps I will get one—but I hope we will get an indication as to the progress that is to be made. Can the Minister say where the Government are on these issues, given that they are not included in the order? I am sure that firms will be grateful for clarification as to where they will stand when this legislation comes into force.
I feel particularly guilty about dropping my last question on the Minister at this point, but she has enormous support and great experience and she will handle it readily. I would have given her notice had I not been so disrupted by events yesterday. An issue was raised in the Explanatory Memorandum which accompanies this order. It says:
“The Treasury is working closely with representatives from local government and the FCA in order to mitigate the possible effect on local government’s participation in financial markets”.
Yet we have not been able to find anywhere in the impact assessment or the consultation document what the Government expect those effects to be. Is the Minister in a position to outline the key monetised and non-monetised issues involved in the transposition of MiFID II for local government in this country? What discussions have taken place between local government representatives and the Treasury?
My final point relates to costings. The estimated annual net cost to business has been calculated at £105.2 million, while the impact assessment states that the direct impact on business will be £148.5 million. Can the Minister clarify the disparity between these two figures?
Baroness Neville-Rolfe
My Lords, I thank the noble Lord for offering to accept a written response to some of his detailed points. We were all disrupted yesterday; it was an extraordinary day. My officials have had a great deal of difficulty advising me because nobody without a parliamentary pass is now allowed into the building. That makes it somewhat difficult for me to answer all his questions. I will do my best and will then follow up, copying the reply to anybody else who has an interest in the issues.
I very much agree with the noble Lord that these changes enhance consumer protection. We have to transpose vital parts of the post-financial crisis legislation into UK law and, indeed, until exit negotiations conclude we have an obligation to do so: we need to move ahead.
The noble Lord asked about the transposition of MiFID II in the round. As he said, in February we concluded our consultation on the legislation needed to transpose the instruments and there will be three statutory instruments. One is the order we are discussing today. As I explained, that applies from 3 January and we are under an obligation to transpose it into law by July, which I understand is very important in terms of people making preparations.
Of the other two statutory instruments, one transposes relevant requirements on the provision of data reporting services and the second transposes a wide range of other MiFID II requirements. For example, in accordance with MiFID II, it creates a position limits regime and imposes obligations on certain persons engaging in algorithmic trading. Regulators have also been consulting on the proposed rules to transpose MiFID II, one or two of which the noble Lord mentioned. I will obviously take away the point he made about consultation and debate on those issues.
I was glad to have the noble Lord’s support on the changes on options and I will look carefully at what he asked about the Gambling Act. However, there is a fair amount of agreement that it is right to bring that into the curtilage of the FCA. I am afraid that I do not have a reply on local government and I will ensure that I respond properly in my forthcoming letter.
It seems to be agreed that these are important reforms to ensure that our financial system is transparent and resilient. This is important to the City of London and other financial service operators right across the UK, which actually provide more employment outside London than in London. The changes form part of the wider regulatory reforms since the financial crisis to ensure the efficient functioning of our financial markets. I hope that we have learnt lessons from the past; this legislation puts those into practice by ensuring that our financial markets are effective and stable. There has been a fair degree of consultation. The noble Lord knows that I always value that, but I will ensure that his specific questions are answered and if necessary, we can have a further word about that.
Lord Davies of Oldham
Let me say how much I appreciate the Minister’s response. She will know that we are enthusiastic about the developments contained in the MiFID position. I was therefore not in any way being critical of the Government, merely seeking to elucidate things further. I am grateful for her response.