Payday Loans: Debt Collection

Baroness Wheatcroft Excerpts

Tuesday 1st July 2014 Lords Chamber

[Lord Newby]

My Lords, I think Wonga is finding it increasingly difficult to portray itself as the good guy. That has been demonstrated by this episode. The key thing to point out is that the action of the FCA has resulted in prompt redress and that 45,000 consumers will be getting a payment from Wonga. Until the FCA had the powers that it assumed in April, there was no provision under the previous regime for the OFT to secure redress for customers in that way. If, under the old regime, the OFT had initiated a criminal process, it is quite likely that it would have taken the best part of three years to reach a conclusion; whereas, under this process, consumers have got money back from Wonga very quickly.

[Baroness Wheatcroft (Con)]

My Lords, we hear much in this Chamber about how credit unions are a preferable alternative to the Sue, Grabbit and Run tactics of some of the payday loan companies, but many people working in Parliament would probably benefit from the presence of a credit union. Has my noble friend given any consideration to the establishment of a parliamentary credit union?

[Lord Newby]

My Lords, I think there may be one but, sad to say, I have not become a member of it. I will write to my noble friend explaining how she might join and put the letter in the Library of the House so that other Members may do the same.

Economy: Growth

Baroness Wheatcroft Excerpts

Tuesday 11th February 2014 Lords Chamber

[Lord Newby]

My Lords, I absolutely agree with the noble Lord. The Treasury has done some work on the so-called border effect: what happens to growth if the Scottish economy and those of the rest of the UK are separated by a border. Its best estimate was that over a period of several decades, the Scottish economy could be about 4% poorer than would otherwise be the case, compared to a reduction in the rest of the UK economy of 0.2%. There are much bigger risks for the Scottish economy through independence than there are for the rest of the UK, but both sides would suffer.

[Baroness Wheatcroft (Con)]

My Lords, can my noble friend tell us what would happen to the BBC in the event of Scottish independence?

[Lord Newby]

My Lords, I am not sure I can, but that demonstrates how difficult it will be to manage the independence process. There are so many parts of what we take for granted in the way that we do things in the UK that would have to be severed; for example, one has only to think about the value of having an integrated BBC to see that if it were severed, how much of a loss that would be to everybody, whether they were in Scotland or the rest of the UK.

Finance Bill

Baroness Wheatcroft Excerpts

Monday 15th July 2013 Lords Chamber

[Baroness Wheatcroft]

My Lords, I echo the words of my noble friend Baroness Kramer in saying what a pleasure it was to sit on the committee chaired by the noble Lord, Lord MacGregor. This is not a subject that everybody would find intensely intriguing, but our deliberations were always entertaining, as well as interesting.

The most important thing that this Government have done on income tax is to make sure that the wealthiest pay the most. The top 1% now contributes more to the coffers of the country than in the past. This is a principle to which we need to adhere and I am glad to see that it will continue. The theory is—and I am sure it will be proved right—that, even as the top rate comes down, we will get more income from the wealthy. There are ways that they can move their domicile and their tax status, should they find their surroundings uncongenial.

However, we need to go a lot further in simplifying tax. My noble friend Lord MacGregor referred to the Office of Tax Simplification. It was created in July 2010, though I fear that tax has not become much simpler since. Indeed, the latest edition of Tolley’s Tax Guide now runs to 16,220 pages. The individual guides on income tax, corporation tax and capital gains tax each run to more pages than War and Peace. There must be progress that we can make there; I would like to think so.

Moving to the Finance Bill, the two issues I wish to address are the GAAR—which has been much spoken about—and the income tax relief limit. The GAAR is going to be a disappointment to a lot of people, and we should not be surprised by that. The hostility to the way in which many multinationals organise their tax affairs runs deep. The hope is that the Government are doing something about it. The GAAR cannot and does not attempt to do that, nor can the Government do so alone. It is right that the route that we are taking is through international organisations such as the OECD and the G8 because, as a country, we cannot move unilaterally to deal with the taxation of multinationals.

Winston Churchill, always a good man to quote, said:

“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.

It is a good image. If we go out on a limb and create a tax regime that is inhospitable to other countries’ companies, we will be the ultimate losers. We need a regime that is fair, and the only way that this can be done is on a multinational basis. We are going in the right direction and leading the discussion, but I am under no illusion about our chances of success any time soon.

In the mean time, what is to be done? The debate in the other House spent a long time discussing the possibility of companies having to declare the amount of corporation tax that they pay in this country. The Government do not want to go in that direction. However, they could encourage a degree of boasting. Would it not be a good idea if companies were encouraged to declare proudly how much tax they were paying in this country? I do not mean fudging it by folding into their total tax bill VAT, national insurance and anything else that they can think of. We want to know about corporation tax. It would be very good if some companies followed the lead of RTZ, for instance, and spelled out proudly what they were paying, to see whether that would win them a few brownie points from consumers. It was intriguing to see how Starbucks eventually reacted to public fury over its tax bill. While proclaiming all along that it was doing nothing wrong—which was absolutely true in legal terms—it felt obliged to offer a bung of £25 million. That was a strange thing to do in the circumstances: “I’m not guilty but, just in case I am, here you are”.

The GAAR cannot deal with this. As my noble friend Lady Kramer said, it will not be the easiest thing to operate. A double-reasonableness test is a hard one to get over. Not only must an action be seen to be reasonable, even if it is not in some minds reasonable, but the individual undertaking the action need only contend that he had a reasonable belief that it was a reasonable action for the action not to fall foul of the GAAR. One of the most interesting sessions that our committee had was when two tax counsel came before us. Their eyes lit up at the prospect of the work to come. These things will be contested.

Nevertheless, it has to be a step in the right direction, and it is already beginning to change behaviour. I am told that fewer questionable schemes are being put forward. It is good to think that the creativity that has gone into finding ways around the tax laws might be used in more positive ways. Avoidance on the aggressive scale that has been in evidence is against the interests of the country, and it is absolutely right that a measure such as the GAAR should be brought in to try to deal the worst cases of abuse.

The other item in the Finance Bill that I will talk about probably needs very speedy changing. It is the limit on reliefs. I understand why the Government feel that it is right to limit the amount of tax relief of which any individual can make use. However, the law of unintended consequences could mean that entrepreneurs are restricted in what they do at a time when we need businesses to flourish, and young businesses in particular to grow and invest. It would be perverse to bring in something that could involve an individual facing a tax bill that is higher than the profits from their business. The Minister may have seen the evidence put forward by the Chartered Institute of Taxation, which is deeply concerned about how this may work. In the end, our committee recommended that there should be a review of these provisions. It was perhaps unfortunate that the Government did not follow their own tax consultation framework in driving through the proposals. Therefore, a speedy review is a very good idea.

Queen’s Speech

Baroness Wheatcroft Excerpts

Monday 13th May 2013 Lords Chamber

[Baroness Wheatcroft]

My Lords, it gives me great pleasure to follow the noble Baroness, Lady Lane-Fox, and I congratulate her on such an insightful maiden speech. As others have said, she is a very welcome addition to this House, bringing to it a remarkable business background and a determination to help everyone make the most of digital technology. She is now working with the Cabinet Office to that end, but I first met her when she was running lastminute.com, the business she started with Brent Hoberman. Unlike so many digital businesses, lastminute.com is still going strong. However, the noble Baroness, Lady Lane-Fox, has moved on and now sits on several boards, including that of Marks & Spencer. She has also launched a chain of karaoke clubs. I like to think that many of your Lordships are members and enjoy their facilities.

In February, “Woman’s Hour”, that most influential of programmes, anointed her as one of the 100 most powerful women in the UK. From what we have heard today, I am certain that she will make a very powerful contribution to your Lordships’ House. Britain needs more people to build businesses and create wealth. The gracious Speech spelt out that the Government’s first priority is to strengthen Britain’s economic competitiveness, but we have a long way to go. I am delighted that by 2015, this Government will have cut the rate of corporation tax to a level which makes the UK the joint lowest in the G20, but a low rate of corporation tax will not ensure our competitiveness. The UK suffers from a dire level of productivity. Figures released in February by the Office for National Statistics showed that output per British worker trailed the G7 average by 21% in 2011. Output per hour was some 16% worse than across the other major industrialised economies, the worst figure for 18 years. Economists expect that the picture will be even bleaker in the current year. According to Spencer Dale, the Bank of England’s chief economist, the level of private sector productivity is around 15% below the level that would be implied by a continuation of the trend before the economic crisis hit. My noble friend Lord Deighton pointed to the new investment in infrastructure and transport being made and that will help, but it will not cure the problem.

Today, in his inimitable style, the Mayor of London gave his own explanation for why UK productivity may be low. He referred to classic,

“British short-termism, inadequate management, sloth, low skills, a culture of easy gratification and underinvestment in both human and physical capital and infrastructure”.

No doubt London’s business leaders will wish to respond to his considered view. I do not completely share it. However, it is clear that low productivity disadvantages the country and we need to find a way to improve it. The gracious Speech heralded some welcome measures for business—in particular, the promise of further deregulation. Red tape remains a major hindrance to business efficiency and undoubtedly puts UK firms at a disadvantage when competing particularly with those from outside Europe. Europe, of course, is where much of the red tape begins.

I also applaud the move cited by my noble friend Lady Kramer to exempt companies from the first £2,000 of their national insurance bills. That should encourage businesses to recruit, but the Mayor is right when he cites low skills and a lack of investment as the key to Britain’s productivity problems. The Government are doing their best to enhance the skills of those currently in the education system and are committed to trying to ensure that school leavers not going on to university move into training or apprenticeships. However, we have far too many unskilled workers. According to the Chartered Institute of Personnel and Development, there are on average 45 people applying for every low-skilled job. Improving the skills of the older unemployed is essential—and so is investment.

Britain’s companies are sitting on an unprecedented cash pile. Non-financial businesses had a total of £672 billion in the bank last year. The Government have tried to encourage them to invest. Generous capital allowances are available but that policy has not been noticeably successful. There seems to be a risk aversion in business and the key may be to address the chronic short-termism that the Mayor cites. The owners of big businesses, the shareholders in public companies, do not encourage investment for the long term, because they are too interested in short-term gains. We need to find a way of encouraging investors to think long term and to foster an attitude that does not view stocks as mere gambling chips. There have been many investigations and reports into this but, so far, nobody has found a solution. If the Government were to find some means of encouraging and rewarding institutional investors for taking a long-term view, it would result in an improvement in productivity.

The other aspect of the economy on which I should like to focus is the dominance of London. Even allowing for the importance of financial services to the capital and the hammering that the sector has taken in recent years, London’s economy has outperformed that of other regions since 2007. Between 2007 and 2011, it grew by a nominal 12.4%, compared to just 2.3% in some parts of the country and no more than 6.8% anywhere else. This led to London’s share of output increasing from 20.7% to 21.9% over that period. The right reverend Prelate the Bishop of Birmingham spoke eloquently of the needs of the regions.

Whether the statistics say that we have escaped a double-dip recession or not, there are many parts of the country where the views of economists count for little. If it looks like a recession, if it feels like a recession and if it hurts like a recession, it is a recession. The Government are pledged to push a greater proportion of growth-related spending to local areas from 2015, and we have heard how that will be of benefit. However, more can be done. The numbers employed in the public sector are decreasing but will remain substantial. Wherever possible, those jobs should be pushed out of London—not just the clerical jobs but the jobs at the top. In the digital age, with Skype available to all, there is no need for everyone to be in the capital. The savings in property costs would be beneficial, as would the boost that would be delivered to the regions. I am sure that plenty of civil servants would hesitate even to contemplate this and might talk about the huge transport bills that they would incur when coming to London for meetings. Forget it; they can just go online. I am sure that the noble Baroness, Lady Lane-Fox, can advise on how that could be done. There is much talk of rebalancing the economy away from financial services to manufacturing, but a bit of rebalancing away from London would also be a good idea.

Taxation: Avoidance

Baroness Wheatcroft Excerpts

Thursday 14th March 2013 Lords Chamber

[Lord Newby]

The Government support country-by-country reporting for the extractive industries, where some of the worst abuses are taking place. We are currently looking at broader proposals for country-by-country reporting. On the point about expanding the principle more widely, we want to make sure that we get the costs and benefits right.

[Baroness Wheatcroft]

My Lords, does the Minister agree with me that the important thing, as we have heard, is to get global companies to pay their fair share of taxes everywhere, including in Britain? One way in which to ensure that we get more from them would be to look again at the transfer pricing regime.

[Lord Newby]

Absolutely. Because the transfer pricing regime is based on international rules, we have put more resources into the OECD process, which is moving forward reasonably quickly. An interim report was produced last month, and there is now a recognition that the rules have to be changed among the major European countries and the major countries in the G20. I sincerely hope that the rules will be changed.

EU: Eurozone Financial Transaction Tax

Baroness Wheatcroft Excerpts

Tuesday 5th March 2013 Lords Chamber

[Lord Newby]

My Lords, the noble Lord needs to understand the difference between a tax which we would levy, where there is a veto, and a tax which we would help collect, of which there are a number of existing examples in EU law and this would be another.

[Baroness Wheatcroft]

My Lords, does my noble friend agree that a tax which was to some extent a deterrent on frequent trading—for instance, algorithmic trading—might not be such a bad thing if it encouraged long-term investment in shares?

Finance: Peer-to-Peer Lending

Baroness Wheatcroft Excerpts

Wednesday 19th December 2012 Lords Chamber

Asked By

[Baroness Wheatcroft]

To ask Her Majesty’s Government what is their assessment of the impact of peer-to-peer lending on major financial institutions.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords—

[Lord Sassoon]

Wait for the Answer—but I believe it is a good news story.

Peer-to-peer platforms are currently small in the context of the UK lending market but they are growing fast. It is too soon to assess what impact they might have on other financial institutions but, over time, we expect alternative forms of finance, including peer-to-peer platforms, to bring additional choice and greater competition to the lending market.

[Baroness Wheatcroft]

I thank my noble friend for his response. This positively being his last time at the Dispatch Box, I take this opportunity to thank him for all his work there.

[Noble Lords]

Hear, hear.

[Baroness Wheatcroft]

Although there is a place for peer-to-peer lending, small firms really require lenders who understand their business, who can see them through difficulties as they arise, who understand what they need in the way of advice and who certainly will not pull the rug away from them at the first sign of difficulty. The Government are doing what they can to encourage lending to small businesses but can my noble friend tell me whether they are managing to encourage a longer-term approach?

[Lord Sassoon]

My Lords, I am grateful for my noble friend’s remarks. I certainly agree that we want diversity in lending. I do not believe that p-to-p lending will solve every problem but I think it has an important role to play. Alongside the money that BIS put in to support two of the p-to-p businesses only last week, through the Business Finance Partnership, BIS also put some money into funds managed by lenders that I think will probably fit more with my noble friend’s model. It is also worth noting that some of the new bank lenders, such as Aldermore, have been some of the biggest takers, relatively, of funds under the Funding for Lending scheme. I agree that diversity is needed.

Autumn Statement

Baroness Wheatcroft Excerpts

Wednesday 5th December 2012 Lords Chamber

[Lord Sassoon]

My Lords, the question of corporation tax in Northern Ireland continues to be considered. The key thing is that we are making the United Kingdom as a whole a more competitive place and in corporate tax terms the most competitive place to do business among our major competitors. Of course, the position in Northern Ireland will continue to be debated.

As far as the reduction in VAT is concerned, this is a case that is made regularly. We believe that what we have announced today—the two-year increase in the investment allowance—is a better way of targeting the limited resources that we have, in addition to what we have done on the basic rate of corporation tax.

[Baroness Wheatcroft]

My Lords, I add my congratulations to my noble friend on what he has achieved in his time in the House. I wish him well in whatever he chooses to do next. I agree that it is depressing that he has to leave us on the back of a Statement that shows the growth forecast having to be lowered.

It is worth noting that in the Blue Book the GDP fall in 2008-09 has been revisited and has come down by a massive 6.3%. Given that background, it is hardly surprising that the efforts to rebuild the economy are proving difficult. Nevertheless, in this Statement there are several things that will make a major contribution to improving the economy, and I congratulate my right honourable friend the Chancellor on the things he is doing to encourage investment and infrastructure investment.

Does my noble friend share my concerns and those that were voiced recently by Sir Mervyn King, the current Governor of the Bank of England, that one thing that is going to hold back growth in the economy is if the banks do not acknowledge the real state of their balance sheets and take the hits that they should?

[Lord Sassoon]

Again, I am grateful to my noble friend for her kind words. It is also important that the House recognises that the damage done by the fall in GDP as a consequence of the structural position and the mess left behind by the previous Government, combined with the financial crisis, continues to be assessed as worse and worse. As my noble friend said, it is now estimated to be a fall in GDP of an extraordinary 6.3%.

I also agree with my noble friend that it is important that the banks are realistic about the state of their balance sheets. Linking back to the debate on the Financial Services Bill that we had earlier this afternoon, it is important that the new Financial Policy Committee—up and running now for a period in shadow form—is beginning to get to grips with these issues. These sorts of things were never debated and put on the table by the authorities in the past, when the punchbowl should have been taken away. So my noble friend is completely right.

Financial Services Bill

Baroness Wheatcroft Excerpts

Monday 26th November 2012 Lords Chamber

[Baroness Wheatcroft]

My Lords, I am very grateful to my noble friend for taking up the issue of auditors. Clearly, auditors did not emerge well from the financial crisis. The clean audit reports that they delivered on banks that were on the verge of bankruptcy, as later became apparent, were evidence of deep failings in the system. Much as I am grateful to my noble friend for attempting to address that, I am not entirely convinced that these amendments go far enough.

I am unclear about what these amendments might achieve. As far as I can see, they do not go much further than reiterating what is already in the Financial Services and Markets Act but failed to deliver. I hear what my noble friend says about the approach being much harsher but I am not sure. Section 342 of FiSMA contains a power for the Treasury to make,

“regulations prescribing circumstances in which an auditor or actuary must communicate matters”

to the FSA. Equally, there are provisions allowing the FSA to communicate matters to the auditors. These amendments may contain a subtle increase in the duty that is imposed, but I am not convinced that they go far enough.

My original amendment was intended to heighten the duty on auditors to report on the risks they found. I continue to believe that it is essential that they should not be able to give a nearly bust bank a clean bill of health. The Financial Reporting Council takes that view and has made changes to its corporate governance code that increase the duties on directors and auditors. It remains to be seen whether these will be effective. The FRC is also launching a consultation into changes on the interpretation of “going concern” and “liquidity risks” following the Sharman inquiry. Directors would be required to give greater disclosure on the risks in their business and how they were being addressed, and auditors would be required to report on whether they concurred with the directors’ report. On past performance, I am not sure we should be confident that auditors will take issue with directors, who, after all, pay their fees.

We should be putting more of an onus on auditors to voice any doubts that they might have about the risks being taken by any business, but particularly by a bank. The FRC says that it is keen to encourage what it terms “professional scepticism”. I hope that the Minister will forgive me if I remain somewhat sceptical about these changes and I hope that he will at least undertake to keep under review the effectiveness of the amendment that he is now proposing.

[Baroness Noakes]

My Lords, unfortunately I was not able to be present when my noble friend’s amendment was debated in Committee, but I read Hansard and noted that my noble friend had undertaken to take the issue away and bring an amendment back. I was surprised when I looked at the amendment and saw what it was trying to deliver. It seems to me, as my noble friend has just pointed out, that there are already provisions in FiSMA, which covers the relationship between auditors and financial institutions. In addition, the Minister said that these are things that could and should have been done—but they are being done.

I have a copy of the code of practice for the relationship between the external auditor and the supervisor. This was refreshed after the financial crisis and is dated May 2011. It sets out a number of principles. Principle one states:

“Supervisors and auditors shall seek an open, cooperative and constructive relationship”.

Principle two is that they should “engage in regular dialogue”. Principle three states:

“Supervisors and auditors shall share all information relevant to carrying out their respective statutory duties and in a timely fashion”.

That code is already in existence and governing the dialogue between the FSA and auditors. Under the current legislative framework there is no reason for this not to continue when the PRA takes over its functions. I am struggling to see what it is that adds any substance to the current arrangements. The Government have brought forward an amendment, which is—and I hate to use this term—window dressing.

Financial Services Bill

Baroness Wheatcroft Excerpts

Tuesday 6th November 2012 Lords Chamber

[Baroness Wheatcroft]

My Lords, I share the qualms that have been voiced about this group of amendments. I believe that the court needs to exercise far more power than it has appeared to in the past, although I am intrigued to hear the noble Lord, Lord Myners, say that when three members of the court tried to make their views and their concerns known, they had no impact at all. That would seem to be a failing of the Government rather than the governance of the court.

The amendment that causes me particular concern is Amendment 3B, which proposes that the Bank’s strategy should for the time being be “prepared” by the Court of Directors. It does not seem to me that “preparing” a strategy should be for the non-executives. It may well be, and should be, their right to determine whether that strategy is the right strategy. However, we want them to “determine” rather than “prepare”.

[Lord Flight]

My Lords, it seems to me that none of these things makes any difference. The real issue is that if a board of directors cannot sack the chief executive if it thinks that he is not doing his job properly, then it is an enfeebled board. That is the fundamental issue. As long as we have the chief executive appointed for a term period and not able to be removed by the board, then there will be an issue about the effectiveness of that board.

--- Later in debate ---

[Lord Myners]

My Lords, I support the amendment in the name of the noble Baronesses, Lady Noakes, Lady Wheatcroft and Lady Kramer. I, too, have been struck by the potency of the Walker report appendix on group effectiveness, drafted by the Tavistock Institute. My experience leads me to conclude that the larger the group, the less effective it becomes. The R-squared is actually extraordinarily high and making the FPC any larger would not be the right solution, although it would be better than doing nothing.

Amendment 4 is, in my judgment, significantly superior to Amendment 5 and I think the noble Baroness, Lady Noakes, has, as she so often does, put her finger on the issue. It is almost certainly the governor who is insisting on having this right to appoint additional people to the committee. The past culture of the Bank is that it speaks with a single voice and that voice expresses the opinion of the governor. The more people around the committee table who therefore speak with that single voice, the better it is from the perspective of the executive. From the perspective of a functioning committee, that is almost certainly not an optimal outcome. In fact, if the Tavistock Institute had been invited to comment on the existence of a cabal or blocking group within a committee, I am sure it would have been even more powerful in its views about its appropriate constitution.

The central thrust of everything we are doing in helping the Government get this legislation through Parliament is to try to ensure that we have as many checks and balances in place as is appropriate. One of them must be a check on the strength of the voice of the executive of the Bank on these committees and, while both of the amendments put forward by the noble Baroness, Lady Noakes, will achieve that, Amendment 4 is preferable to Amendment 5.

[Baroness Wheatcroft]

My Lords, Amendment 4 will achieve an improvement in the balance of the FPC and I support the other amendments in this group, tidying-up amendments which would bring the number of extra appointees from the Bank down to one instead of two. It is obviously better to have a balance, if we can, between the Bank team and the outsiders—as they will undoubtedly feel that they are to start with.

We have heard about groupthink. There obviously has been a fair amount of groupthink at the Bank in the past, although it is worth remembering that on the Monetary Policy Committee the Governor of the Bank of England has been outvoted on several occasions, so it is possible for people to disagree with the governor and for the committee to go against him. However, on the basis that a balance would be better, bringing down the level of Bank people represented on the FPC would be an improvement.

[Lord Deben]

I merely suggest that in these detailed discussions, when we hear mainly from those who are very expert, it is as well to consider views from outside, from business as a whole. A trick which all businessmen know is that there are two ways in which you can control a committee. One is to have a very small committee mainly related to you, and the other is to have a very large committee in which you know very well that you can organise the dynamics. I am much impressed with the arguments of the noble Baroness, Lady Noakes, who has put her finger on a very important issue. I hope that the Government would accept that nowadays there is a good deal of expertise looking at these matters and the Tavistock Institute has much of it. I would be unhappy if we suggested that we knew better than its experience, over a very long time, of how best to do these things. I hope the Government will see this as a perfectly reasonable thing, a balanced situation. The noble Baroness, Lady Noakes, and I do not always agree on matters—indeed, there are lots we disagree on—but on this occasion, coming from my understanding of trying to run boards and companies, this would be a good thing to do and not to do it would seem a little perverse.