Centenary of the Battle of the Somme

Kelvin Hopkins Excerpts

Wednesday 29th June 2016 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

I congratulate the hon. Member for South West Wiltshire (Dr Murrison) and my hon. Friend the Member for Barnsley Central (Dan Jarvis) on securing this important debate on the centenary of one of the most tragic events in Europe’s history, and on their very fine and moving speeches. I also congratulate all hon. Members on their equally fine speeches. We have heard not just very moving words, but interesting speeches from people who know a lot about what happened in those terrible times during the first world war.

I wish to pay my personal tribute to those who fought and died on the Somme in the weeks that followed 1 July 100 years ago. Controversy has raged for decades about why such suffering of hundreds of thousands of men should have been first initiated and then tolerated, even as an act of war. The particular role of General, later Field Marshal, Haig, has been considered controversial, but perhaps that is a debate for another day. It is the men who died and were wounded on the Somme that must be and are uppermost in our thoughts today. Their incredible bravery and dreadful suffering are what we commemorate and are discussing. I hope I speak for all my party colleagues when I pay tribute to those men in this debate.

The Somme has come to symbolise the terrible nature of war at its most devastating and tragic. We must salute and remember all those who were killed and wounded on the Somme, and ensure that they are never forgotten. The first world war, and the Somme in particular, seem very close to me and are far from distant in my thoughts. I am older than the great majority of hon. Members in this House, and I have some personal associations with those events.

My maternal grandfather, Arthur Frost, was wounded early in the war, and could not return to the trenches. Instead—perhaps fortunately—he was employed as a chauffeur to a general, which is surely the reason he survived. My mother was born shortly after the war, and I would not be here today if my grandfather had not come through. I remember him telling me about his experiences in the war when I was seven and he was just 60—14 years younger than I am now. I, too, was lucky to survive the second world war. We lived in south London in Norwood in 1943, and my mother insisted that my brother and I were evacuated with her to my grandparents in Leicester, shortly before a V1 destroyed our house.

I have always been very conscious of war and its dangers and tragedies, but I have a particular association with the Somme. My wife Pat’s grandfather, Private Arthur Thomas Langley, died on the Somme, and my late father-in-law was raised by his mother and his aunt, whose fiancé had also been killed. I remember Nan and Aunty Sis, as they were known in the early 1960s—two dignified and kindly women who had both suffered tragedy in their lives but retained an amazing serenity. They, too, were a good deal younger than I am now. I knew several such women in those years, and there were hundreds of thousands of them, together with mothers, sisters, fathers, brothers and children.

I have brought with me the posthumous medals that were awarded to Private Langley and later posted to my wife’s Nan. We even have the registered envelope in which they were delivered nearly 100 years ago. My wife and I were the first members of her family to find out through the internet where Arthur was buried, and to make a journey to visit his grave. He lies in a war cemetery called Caterpillar Valley, alongside hundreds of his comrades. We took those medals with us and photographed them on his headstone as we paid our respects. We shall not forget him, nor the sight of the vast numbers of white headstones in one of many such cemeteries across the Somme. Each year we drive to see friends in Burgundy, crossing the Somme near Saint-Quentin, and we give more thought to those who died 100 years ago. The land around there is now calm, undulating and mostly grassy, and it is difficult to imagine the horror and slaughter that took place in those times.

I also remember the poems of Rupert Brooke, Wilfred Owen and Siegfried Sassoon, which we read at school—some of that has been referred to today. Those men were there, and they put into moving and eloquent language their thoughts on that war, and the death and destruction that they saw, and that two of them were later to suffer themselves. Their words are perhaps more telling than anything we might say today—moving though many of today’s words have been—and they will live on.

We should also remember all those from other lands, about which much has been said today, who fought on the Somme on both sides. My constituency contains the largest Irish community in the eastern region of England, and, as we have heard, many thousands of Irish soldiers died on the Somme—indeed, last Saturday I was at the annual general meeting of the Luton Irish Forum, and mention was made of that. I also represent many communities from across the Commonwealth who suffered great losses in the war. It is astonishing to think that they came from all over the world to fight and die in what was essentially a European war, and we should not forget that. I have many thousands of constituents from south Asia. They know that their parents and grandparents were associated with and involved in those wars, and we remember and pay tribute to them.

It has been a privilege and an honour to make my first speech from the Dispatch Box in this most significant, honourable, and heartfelt debate.

Finance Bill

Kelvin Hopkins Excerpts

Monday 27th June 2016 Commons Chamber

[Roger Mullin]

I agree with the hon. Gentleman that it would be better for some in this community to achieve traditional forms of employment, but that is not the situation for the in excess of 1 million people in the UK who fall into this category.

Despite the Minister’s warm words, we intend to press new clause 1. It relates to a matter of some real import for the communities and the economy of Scotland. I have indicated that we are simply speaking to amendment 180, which we will not press, and we will support the Opposition’s amendment 2.

[Kelvin Hopkins (Luton North) (Lab)]

I rise to speak briefly on these amendments and new clauses. The hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) was absolutely right to mention HMRC. Successive Governments have consistently understaffed HMRC, consistently arguing that they would make it more efficient or whatever. When I was first elected to this House 19 years ago, I remember going to my local VAT office and being told that every member of staff collects five times their salary. Being a logical sort of person, I wrote to the then Chancellor of the Exchequer and suggested that it was a good idea to employ more staff to collect more revenue for the Government. I received a letter back not from the Chancellor and not even from a junior Minister but from a civil servant, suggesting that HMRC was to save money by cutting staff. It was so irrational that it was just nonsense. That kind of nonsense has continued ever since—reducing the number of offices, making things more remote and so on. I was also not terribly impressed by the idea of having a benefits-distributing service—tax credits—going through HMRC rather than through the Department for Work and Pensions. I was not the only Opposition Member who was uneasy about that change.

I want to discuss new clause 3 and the tax treatment of workers employed through intermediaries and support my hon. Friend the Member for Wolverhampton South West (Rob Marris) on the Front Bench. It has long occurred to me that intermediaries and private agencies make lots of money out of both the public purse and the people they employ. That could be overcome if we instituted a substantial public ownership programme for agencies, particularly when the public sector is involved. If there was a local authority or NHS agency for nurses, the money would either go into the pockets of the staff employed through the agency or would be saved in public spending by the health service—everyone would benefit. However, the people who would lose would be in the private sector, which could not make profits out of employing people in this way. In that way, staffing and taxation could be properly regulated. There would be no cheating, irregularities or tax fiddles, because it would all be within the publicly accountable public sector.

[Rob Marris]

I have considerable sympathy with my hon. Friend on organisations such as agencies that deal with supply teachers. As he will remember from his background in education, that function was commonly done by the local education authority before, sadly, a Labour Government started changing things. LEAs were then gutted by the current Government and their predecessor. Will my hon. Friend concede that in certain areas, such as construction or oil rigs, there is a role for specialist agencies and that it would be rather Stalinist to look at nationalising them or having them run by national Government bodies, as he appeared to suggest?

[Kelvin Hopkins]

In the public sector, not everything that was in the past was bad. Some people say that we cannot go back to the past, but a succession of Governments have gone back to the 19th century in the way they run the economy, and neoliberalism was invented then. Since then, we have had social democracies and managed economies that worked well, but that has all been thrown away and we have gone back to the 19th century. Some things from the past that we can return to might actually improve things. I suggest that public agencies for temporary staff would be a good thing.

I might even debate with my hon. Friend that such a proposal could be employed in the private sector as well, because the staff involved would at least be properly protected, the companies would know that they are not being ripped off, and the Treasury would know that it is getting a fair deal through collecting its proper taxes. We could even have them properly organised with the trade unions, ensuring that they are properly paid and so on. We could go back to a splendid world of active social democracy. My hon. Friend’s new clause does not go quite that far, but I support it.

[Rob Marris]

I must say to my hon. Friend that I am quite in favour of a world of active social democracy. I am unsure whether my definition is quite the same as his if he seriously suggests that construction agencies should be run by some kind of state body—that is a step too far for me. I also caution my hon. Friend that, having got his way last Thursday, he is pushing his luck somewhat on this somewhat Stalinist approach.

[Kelvin Hopkins]

My hon. Friend suggests that my proposal is Stalinist, but we are talking about a world in which we had several splendid democratically elected Labour Governments after the second world war that did wonderful things. Nobody would call them Stalinist. They submitted themselves to the electorate every five years and were sometimes defeated—sometimes even in this House—so I do not think “Stalinist” is the right word.

I do think, however, that there should be a bigger role for the public sector in regulating employment, making sure that people are properly paid and securely employed, even if they are temporary staff, that taxes are fully paid and that private sector agencies do not rip off both the public purse and employees. I will leave that suggestion with my hon. Friend. I hope that he will bring forward even more radical proposals along the lines that I have suggested.

[Kirsty Blackman]

I shall be brief, as I know nobody wants a lengthy debate tonight. I have a couple of specific points to make about reviewing the income tax treatment of workers who provide services through intermediaries. We are asking for a review. I understand the Government’s point that they feel that their approach is sensible for the majority of workers and that it is levelling the playing field for the majority of people, but there will be unintended consequences on specific issues and in specific areas, and they are going to be a major problem.

We have mentioned that this will have a disproportionate impact on rural communities. That is partly because of geography, as those communities are further away and it is more difficult for people to make cheap travel arrangements to go there and for people to find reasonably priced overnight accommodation. That will have a disproportionate financial impact. We do not want specialist contractors to choose not to go to a rural community on the basis that it will disproportionately cost them money, as that will mean our rural communities will lose out; they will not have the ability to get whatever it is that needs to be done in that community because the contractor will choose to go somewhere cheaper. That is a major issue, particularly in the oil industry, as has been said, and in the whisky industry. The whisky industry may have specialist contractors that need to go to rural locations in order to do things, and we do not want those areas to be disproportionately affected.

--- Later in debate ---

[Mr Gauke]

I appreciate that that is the intention of the amendments, and of course the hon. Gentleman would be the first to accept that it would require some time for that to take effect, but there are other measures elsewhere that the Government are taking that I believe achieve those objectives more effectively.

[Kelvin Hopkins]

There is a proposal to build a railway line that would take 5 million lorry journeys off our roads every year, transforming current levels of emissions, particularly in towns. This has widespread support apart from in the Department for Transport and the Government. Will the Government look seriously at the scheme and see it as a positive way forward?

[Mr Gauke]

This Government are committed to a very substantial investment in our railways—the biggest rail building programme since Victorian times. As a Government, we have great ambitions; we intend to spend £60 billion on transport infrastructure over the course of this Parliament.

Turning to supporting testimonials, a point was raised about the definition of “customary”. To reassure the hon. Member for Wolverhampton South West, I point out that HMRC is committed to working with external bodies in the production of guidance on this, which will cover issues such as the definition of “customary”. He also asked about the numbers of testimonials that fall within the contractual or customary categories, or fall outside that. No figures are available, as employers have not had to report this to HMRC. It is worth pointing out that contractual and customary payments are treated as earnings and it is therefore not possible to disaggregate them from the PAYE system.

A number of points were raised on clause 14. It was asked whether this change would disadvantage rural communities. Workers in rural communities who are contracted directly cannot claim travel and subsistence on their ordinary home to work commute. This change equalises the tax treatment of workers employed through employment intermediaries with that of other workers. It addresses an imbalance in our tax system, ensuring that it is fair. It is a long-standing principle of the tax system that tax relief is not allowable for the expense of ordinary commuting—travelling from home to a permanent workplace. I made that point earlier.

In terms of whether it would reduce contractors’ ability to travel, creating a skills shortage or reducing flexibility and preventing growth, where businesses wish or need to recruit workers living some distance away, the Government expect businesses to pay a wage sufficient to attract workers without any special tax subsidy being necessary. This forms part of the Government’s plan to move to a high-wage economy with businesses meeting the costs of paying their workers a wage which does not require a top-up from the state. I should also make the point in this context that this change puts supply teachers —an example that I think was used in the course of the debate—who are engaged through an intermediary on the same terms as other supply teachers who are contracted directly or through an agency. Like other workers, supply teachers not engaged in this way would not receive tax relief on their travel and subsistence expenses on regular home to work travel.

Prior to the last general election, the Labour party said that it would stop umbrella companies exploiting tax relief. It stated this both in its published plan to tackle tax avoidance and subsequently in Parliament, and that is exactly what this change does, so I hope our measures in this area will have cross-party support.

The hon. Member for Aberdeen North (Kirsty Blackman) made a point about the impact on the Scottish oil industry. Employees with a permanent workplace at an offshore oil or gas installation are already exempt from income tax where they are provided with transfer transport, related accommodation, subsistence or local transport. These changes will not affect that exemption.

UK Economy: Post-Referendum Assessment

Kelvin Hopkins Excerpts

Monday 23rd May 2016 Commons Chamber

[Mr Gauke]

Yes, that is absolutely right. Access to the single market reduces trade barriers to a level simply impossible to find outside the single market.

[Kelvin Hopkins (Luton North) (Lab)]

The institutions and individuals forecasting economic doom if we leave the EU have got it wrong time and again in the past and seem likely to do so again. The exchange rate mechanism debacle, driven by the whole Europhile spectrum; the prediction that the skies would fall in if we did not join the euro; and the complete failure to foresee the 2008 crisis coming down the road—all this shows just how hopeless they are. Does the Minister accept that a plausible opposite case—that we would be better off outside the EU—can easily be made? If not, I will happily provide him with one.

[Mr Gauke]

I look forward to hearing that plausible case when it is made. I look forward to an analysis, supported by leading economists, making that case, but we have not heard it yet. The hon. Gentleman and I agree about our membership of the euro—we always have done—but if we were to single out two politicians in this country perhaps more responsible than anyone else for keeping us outside the euro, I would highlight, from my party, William Hague and, from his party, Gordon Brown, both of whom believe we should remain in the EU.

Protection of the EU’s Financial Interests

Kelvin Hopkins Excerpts

Monday 8th February 2016 General Committees

[Mr Gauke]

I thank the hon. Gentleman for his question. It is 0.02% that is identified as being fraud. I think that a slightly larger number is suspected of and looked at as being fraud, but when it comes down to it, only 0.02% is established as being fraud.

In terms of the UK comparison, it can be difficult to make exact comparisons. All managing authorities across the UK have in place robust anti-fraud measures. Those include fraud risk assessments, mandatory checks on payments, fraud awareness training and regular referrals to OLAF where suspected fraud arises. We also support OLAF through the work of the designated UK anti-fraud co-ordinator, AFCOS, which is based in the City of London Police alongside Action Fraud. AFCOS continues to engage actively with OLAF and other member states to investigate and bring criminal proceedings against perpetrators of EU fraud. It would also be fair to say, looking at the ECA’s assessment of member states, that it samples member states’ activities; it is not intended to be a thorough audit of each and every member state to produce those numbers, so there is not a specific UK error rate on fraud, just as there is not for financial management errors.

[Kelvin Hopkins (Luton North) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Edward. Hon. Members may notice a sceptical note in my questions, but—[Interruption.] They are just very accurate. We are a very substantial net contributor to the European budget, and 4.4% of the budget going amiss is the equivalent of certainly £1 billion and possibly more. Should we not be more concerned than some of the large recipient countries, because it is our money that is going into the wrong pockets?

[Mr Gauke]

It is certainly right that we should be concerned about that money. That would be the case regardless of whether we were a net contributor, but the hon. Gentleman makes a fair point: we make a substantial contribution to the EU budget every year. The UK has traditionally played a leading role in ensuring budgetary discipline in the European Union, and I highlight the Prime Minister’s achievement in 2013 of a real-terms cut in the EU budget for the multi-annual financial framework. An important area for us is ensuring that money is spent wisely and that we do not spend too much money at an EU level. We are a strong advocate of sound financial management and are committed to ensuring that EU funds are safeguarded and managed well. The Commission has ultimate responsibility for the implementation and management of the EU budget, but all member states, including the UK, must take responsibility in terms of putting pressure on the Commission and ensuring that money spent by member states is spent well.

[Kelvin Hopkins]

No doubt there are particular budgets that are more vulnerable and particular countries where the budget is not as appropriately controlled as it might be. The Financial Secretary talked about simplification. Are the British Government targeting certain areas and do they have concerns about particular countries where the budget might not be appropriately spent?

[Mr Gauke]

In terms of the UK’s action in this area, we have in place comprehensive procedures to ensure that EU funds comply with UK and EU rules, including a role in programme audits and preventive anti-fraud measures. The hon. Gentleman raises concerns about particular areas. Structural funds, for example, which are a sizeable part of the EU budget, have to be focused upon. The Commission set up a high level group on European structural investment funds simplification last year, whose work is ongoing. Although the agenda is in its early stages, the UK continues to engage actively by advising on simplified costs and financial instruments.

In agreeing the terms of the 2014 to 2020 structural funds regulations, the UK actively pushed for and achieved greater use of simplified costs, reductions in document retention periods, and lighter and more automated annual reporting. In terms of good practices, DCLG’s work in improving public procurement procedures was highlighted in an ECA special report last year. The Department has set up an internal network to review public procurement issues, including the issue of guidance, case studies and reviews of public procurement checks and audits.

As I have said, the UK takes this matter very seriously. Although the Commission has ultimate responsibility for implementation and management of the EU budget, we have a role in taking responsibility to push for reforms.

--- Later in debate ---

[Mr Swayne]

The fact that 11% of our overseas development aid goes via the European Union is not inconsistent with the fact that 15% of what the European Union spends is accounted for by us. I am not quite sure how that works out mathematically, but I am confident that it is true. The issue of how much is spent—how much comes from us—is an assessment of our share of the European budget. My understanding is that that works on the same basis—[Interruption.] The seventh cavalry has arrived. The ratio of UK funds to the EDF is determined by our gross national income at the beginning of the period. Well, there it is.

[Kelvin Hopkins]

I have one or two questions for the Minister of State. I have attended many such European Committee debates over the past 19 years. There have been concerns in the past about the allocation of aid by the European Union, including that it is less efficient and less well-directed than British Government aid, but the Minister seems to suggest that that is no longer the case. There were two specific accusations: that the aid was not directed to those most in need—the poorest countries, such as sub-Saharan Africa—and that there was a bias towards the better-off Francophone countries around the Mediterranean. Can the Minister tell us whether that matter has been addressed?

--- Later in debate ---

[Rob Marris]

Please do not tempt me. I congratulate the Financial Secretary to the Treasury. The European Commission report came out on 31 July and he signed off the explanatory memorandum for Parliament on 24 August—during the holiday period. Clearly his family never get their holiday though, and I urge him to change that. Similarly, the Minister in the House of Lords, Baroness Verma, promptly signed off her explanatory memorandum on the European foreign aid report from the Court of Auditors on 10 December, and here we are having a fairly prompt debate.

The explanatory notes, as ever, are helpful—the Financial Secretary knows my penchant for reading explanatory notes carefully. Paragraph 2 refers us to the report:

“The report summarises and evaluates measures taken by the Commission and Member States to counter fraud and irregularities against EU spending in 2014.”

That is a major area of concern, as my hon. Friend the Member for Luton North mentioned. Page 2 of the document from the European Parliament refers to the amount of fraud, saying

“the Commission estimates that tax fraud in all its forms amounts to EUR 1 000 billion in the EU, or EUR 2 000 per European citizen.”

That is a huge amount of tax fraud.

The reports deal with the monitoring and auditing to see that there is not fraud—not only tax fraud, but fraud and irregularities in other spending. The Commission report on page 21 of the bundle refers to measures already taken and to AFCOS, to which the Financial Secretary to the Treasury referred earlier. It also refers to

“a draft directive on the fight against fraud by means of criminal law, proposed in July 2012,”

and goes on to refer to

“a draft regulation on the establishment of a European Public Prosecutor’s Office (EPPO), proposed in July 2013.”

The EPPO would be established under article 86 of the treaty on the functioning of the European Union. I hope that one of the Ministers present—I imagine the Financial Secretary to the Treasury—will be able to indicate what progress is being made on that draft directive and that draft regulation. With the passage of time, I hope that there has been progress.

There is a huge problem with fraud and irregularities, not just in terms of tax. What is meant by irregularities? Just as my father used to say—I do not know why he used this example—all St Bernards are dogs, but not all dogs are St Bernards, so all fraud is an irregularity, but not all irregularity is fraud. An irregularity can occur when a beneficiary is not in compliance with the EU rules, which could be down to a genuine mistake.

[Kelvin Hopkins]

Should we accept that the term “irregularities” is merely a euphemism for fraud and that we should use the term “fraud” when we mean it?

[Rob Marris]

That is not my understanding of how the term “irregularities” is used in Euro-speak. It could be that there is non-compliance with the rules, but the reason for that non-compliance is not fraud but, for example, laziness, misunderstanding and so on. It does not necessarily have what us lawyers would call the mens rea for fraud.

[Kelvin Hopkins]

It is perhaps the same as the difference between tax avoidance and tax evasion.

[Rob Marris]

That is perhaps not the greatest of parallels, but I understand where my hon. Friend is coming from. Of course, tax avoidance is not illegal, but tax evasion is. Nevertheless, some tax avoidance—by, for example, Google—raises serious questions that my hon. Friend and I would agree on.

There is a great deal of difficulty with the error rates, some of which, again, will be driven by fraud and some by non-fraudulent irregularity. Take, for example, funds for jobs and growth on page 382 of the bundle. The hon. Member for Wimbledon talked about chapter 3, but, as lawyers often do, I went to the back to get to the juicy bits. The explanatory memorandum dated 9 December that was submitted by HM Treasury refers to chapter five of the European Court of Auditors annual report. That chapter is on funding for jobs and growth, for which research and innovation accounts for 60% of spending. At paragraph 16, the explanatory memorandum states:

“The estimated error rate for this area of expenditure is 5.6%, an increase on 4.6% for the 2013 budget.”

It refers to the European regional development fund and the cohesion fund. It states in paragraph 20, on page 383 of the bundle:

“The overall estimated error rate is 5.7%, an increase on 5.3% for 2013.”

The bête noire, of course, is the common agricultural policy and the common fisheries policy. Paragraph 26 states:

“The ECA estimates that the overall error rate for this area of expenditure stands at 3.6%, the same as in the 2013 budget.”

There are considerable concerns about error rates. A company trading in Britain, for example, with an error rate of 3.6% in its accounts would be open to serious questions about whether it knew what it was doing. The situation is more difficult with the number of member states in the European Union and the number of disbursements that they make to the hundreds of thousands of individuals and organisations in the European Union, but that is quite a large error rate.

In paragraph 4 of the Financial Secretary’s helpful explanatory notes, he refers to

“the various initiatives taken by the Commission in 2014 to counter fraud affecting the EU budget”.

If you will forgive me, Sir Edward, I will, because I have questions on these points, read out quite a long quote from paragraph 4. It concerns a series of 10 different areas and, with your indulgence, it will be simpler if I just read those out. They will then be on the record in Hansard. The areas are:

“negotiations between the European Parliament and the Council on the proposed Directive on the protection of the EU’s financial interests by means of criminal law; ongoing negotiations concerning the proposal to set up a European Public Prosecutors’ Office”—

I referred to that earlier—

“a Commission proposal to partially revise the Financial Regulation to align it with the revised public procurement Directive; the 2014 Communication on fighting corruption in the EU; negotiations relating to four delegated and four implementing Regulations on the reporting of irregularities; actions concerning anti-fraud policy in customs; measures taken to fight against VAT fraud; negotiations to include anti-fraud provisions in international agreements; the entry into force of new public procurement rules; a Directive on protection against currency counterfeiting; and progress on the implementation of the CAFS and Hercule and Pericles Programmes.”

For those hon. Members who have temporarily forgotten, Pericles is a European Union exchange, assistance and training programme for the protection of the euro against counterfeiting, so it is not directly of interest to the United Kingdom, but is indirectly; and Hercule is the European Union programme to promote activities related to the protection of EU financial interests, which is very much of interest to the United Kingdom. I therefore hope that the Financial Secretary, either today or perhaps later in writing, can give me and the rest of the Committee an indication of what is happening as regards those 10 items of anti-fraud policy at European Union level, helpfully delineated in the Minister’s explanatory notes, and of how the European Union, in co-operation with the United Kingdom, is getting on in those areas.

The explanatory notes, at paragraph 7, say:

“The Commission considers that Member States have, in general, adequately implemented the recommendations in its 2013 report, for example, the designation of an AFCOS”.

I hope that the Financial Secretary can say a little more about what is going on in that regard.

The explanatory notes also say, at paragraph 14:

“The use of false or falsified documentation or declarations remained the most common type of fraud.”

The Financial Secretary will remember the debate that we had in Westminster Hall on 14 January regarding VAT fraud on online purchases. Online retail purchases in the United Kingdom have gone up by two thirds since 2010. It is a growing area and will continue to grow as an area of retail sales. One hopes that there will not be a commensurate growth in fraud, but that is of great concern.

The note from the European Parliament—this is on page 2—states:

“Two directives were also adopted in 2013, one on the common system of VAT concerning an optional and temporary application of the reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud, the other concerning a quick reaction mechanism against VAT fraud”.

Will the Financial Secretary indicate, first, what a reverse charge mechanism is in relation to supplies of certain goods and services susceptible to fraud, because I do not know, and, secondly, what is being done about it? Clearly the European Parliament thinks it is a problem, and so do the member states, because a directive was adopted in 2013, more than two years ago—perhaps three years ago.

The second directive is a quick reaction mechanism against VAT fraud. Will the Financial Secretary enlighten us on what the European Union and, indeed, the United Kingdom are doing about a quick reaction to VAT fraud? As he will remember, considerable concern was expressed in the Westminster Hall debate of 14 January on both sides of the House about VAT fraud in online retail. VAT fraud does not only happen in online retail, but online retail is perhaps more susceptible to VAT fraud, as it is more difficult to address. As I have indicated, online retail is a growing area of commercial activity, and it is very big in this country.

Paragraph 22 of the Financial Secretary’s helpful explanatory notes refers to four specific recommendations contained in the report from the Commission on financial interests:

“urging Member States to use their AFCOS to its full potential; encouraging Member States to put in place effective measures to tackle conflicts of interest; asking specific Member States to strengthen their detection and/or reporting of fraud against the EU budget; and inviting Member States to inform the Commission of measures taken to fight customs fraud.”

Can he indicate, either today or later in writing to members of the Committee, what is happening in each of those four areas in terms of both the United Kingdom and the European Union? The report has indicated that something should be happening in each of those areas.

The European Parliament report—this is on page 4 —states:

“Particular attention should also be paid to the development of mechanisms for prevention, early detection and customs transit monitoring”.

Can the Financial Secretary enlighten the Committee on what customs transit monitoring is? I suspect, perhaps wrongly, that it could be related to VAT fraud, which is of considerable concern on both sides of the House.

Paragraph 36 of the Financial Secretary’s helpful explanatory notes—he has repeated this today—states:

“The Government believes that the best way to reduce the level of irregularities and fraud is through a more preventative approach, such as greater simplification of the systems and regulations.”

I agree that simplification is desirable—he and I have discussed it many times over the years—but I draw his attention to paragraph 14 of his own explanatory notes, which I read out earlier, regarding the use of false and falsified documentation or declarations. Some of that might be addressed through simplification, but if false documents, et cetera, are the most common type of fraud, as he indicates in paragraph 14, I suggest that simplification, as per paragraph 36, although welcome, is not necessarily the best way to address false documentation. I hope he can enlighten the Committee as to what Her Majesty’s Government propose to do about false documentation.

[Kelvin Hopkins]

It is interesting to sit on one of these Committees for possibly the 19th time. I have debated in almost all of them, if not in every one. I was a permanent member when there was fixed membership of such Standing Committees, and for several years I have taken part in debate on the issue we are considering, as a member of the European Scrutiny Committee.

It is amazing that no one has said how unacceptable and astonishing it is that for 21 consecutive years the European Court of Auditors has failed to sign off the European Union budget. If the National Audit Office could not sign off the budget of a Government Department for 21 years, and up to 4.4% of the Department’s funding had gone missing through fraud or irregularities, there would be a scandal.

We should raise our concerns again. We cannot just roll over and say, “Oh, well, it’s the European Union. What do you expect?” We should say it is not right. People’s money is involved—that is particularly an issue for substantial net contributors, of which we are one. We should not accept fraud or corruption, especially when, as I suspect, it happens in particular countries, and is less likely to happen in the United Kingdom and some of the better regulated countries. Perhaps I am claiming too much, but I suspect that certain countries and budgets in particular are involved.

I remember, going back years, a report of a beef subsidy being paid to a resident of a tower block in Turin. I suspect that there were not too many beef cattle in his tower block flat. I hope that these more extreme cases have been dealt with; nevertheless, there are clearly still things taking place that should not be. I hope that the British Government will take issue with the European Union over the matter in the strongest terms, once again. As the International Development Minister said, this sitting may well be the last of its kind. Who knows? I would certainly vote for that—not, I may say, with all my Opposition colleagues. Some of us, however, do take that sensible view, as I would describe it.

The level of corruption is ridiculous. Because of my concern, I made a serious suggestion in previous Parliaments that I want to repeat now. Let us consider, setting aside aid that goes to countries outside the European Union, fiscal transfers between members of the European Union. They could be made to member states’ Governments, so that there would be a net contribution to the budget of Latvia, for example. I know that there is a substantial net contribution to Latvia, and that a high proportion of its gross domestic product comes from European Union transfers.

If the transfers were done on the basis of GDP per head, so that those with the lowest level of GDP per head received the most net transfers, and those with the highest made the biggest contributions, but it was done to and through Governments, I think we would overcome much of the problem. The Governments of those member states would have the job of sorting out how the money would be spent—whether they would subsidise agriculture or industry, or simply reduce taxes. Whatever they did, it would be their choice, and they would do it democratically through their own Governments.

That would be seen as fair because rich countries would be contributing assistance to poorer countries on a proportional basis.

[Rob Marris]

My hon. Friend raises the intriguing prospect of a European Union Barnett formula, such as we already have, of course, in the United Kingdom. Perhaps I may take him back a bit, to his reference to fraud of more than 4%, and contrast that with what I understood from the Minister. Perhaps this is a comparison between apples and oranges, but the Financial Secretary mentioned 0.02%. There is a big discrepancy between those two figures. From where did my hon. Friend get his figure—or are we talking about two different measurements?

[Kelvin Hopkins]

I took my figure of 4.4% from the Minister at the beginning, but I notice that the table on page 37—or 21; there are two figures—suggests that the actual amount involved is €500 million, as opposed to 4.4% of the budget, which would be much more. Nevertheless, substantial fraud is still going on, and substantial sums of money are still going missing inappropriately and sometimes corruptly, so we ought to take it seriously.

My suggestion for simplification is that even if we stay in the European Union, the budget should be allocated simply on a proportionate basis according to GDP per head, so that the fiscal transfers are from rich to poor and the countries themselves decide democratically how they allocate that budget. We would have the same privilege as well if we were in that position. If they want to subsidise their agriculture, they can; if they do not, they should not.

I was in Lithuania a couple of years ago with the European Scrutiny Committee. Lithuania used to be self-sufficient in food, but it is now being paid not to grow food, so thousands of acres in Lithuania are left fallow because the European Union does not want it producing too much food. That is nonsense. Lithuania ought to be able to decide for itself what it spends its income on. If it wants to stay self-sufficient in food, that is a sensible thing to do.

As I said, I put this particular suggestion in more than one previous Parliament, and the response—not to me personally, but in European documentation—suggested that people did not like it. The reason was clearly that it would weaken the glue holding the EU together, because there would be no European common agricultural policy—or fisheries policy; it would be very sensible to get rid of that. Instead, each country would get a fiscal transfer, or pay out a fiscal transfer, and expenditure would be decided democratically within member states.

That would make the European Union a very different place. If we must have a European Union with large fiscal transfers, it would be a much more sensible way to do it, and we would avoid all the problems with fraud. If there is fraud within countries, it would be their problem to sort it out. If they did not sort out their own fraud, it would in a sense be their problem, and it would be the problem of the democratic electors of those countries to ensure that their Governments did the right thing. Anyway, those are my thoughts. I think it is ridiculous that we have a vast amount of fraud every year, year after year.

I have one final question to the Minister. There is a table on page 129 showing the evolution of budgets and payments from 2010 to 2014. Interestingly, in the last four years, the payments made have been larger than the final voted budget in each case. The last time the payment was less was in 2010. Also, the amount spent on the budget increased substantially between 2010 and 2013, by 21% over those three years, which is way beyond inflation. Last year, because there was such pressure and such concern, it decreased, but payments made were still higher than the final voted budget.

Even over those four years, there is still a 17% increase in budget expenditure, at a time when we are supposed to be more concerned about reducing spending in the European Union. Can the Minister comment on that? He might be able to explain it simply to me as a problem that is not serious, but it looks serious in the table, given the calculations that I have suggested.

--- Later in debate ---

[Mr Gauke]

Indeed.

I thank the hon. Members for Luton North and for Wolverhampton South West for their questions, which I will attempt to address. I also thank other hon. Members who participated in the debate.

As the Committee is aware, the Government have taken an increasingly robust stance on financial management. Although the estimated European Court of Auditors 4.4% error rate from the 2014 EU budget shows a slight improvement in the estimated level of error, it is a marginal reduction from the 4.5% error rate in the previous year and remains well above the ECA’s acceptable threshold of 2%.

We want to see more ambition and progress in the area, so, as I confirmed earlier, the Government will vote against discharge of the 2014 EU budget at this month’s ECOFIN. That is the most public way for member states to take a tough stance on financial management and the Government continue to make that stand for UK taxpayers. None the less, we welcome the efforts of Vice-President Georgieva to manage the budget better and to focus on performance. The UK is taking a proactive role in driving that agenda forward.

The hon. Member for Luton North asked about the difference between fraud and error, which was touched on by his Front-Bench colleague. Fraud is the deliberate criminal misuse of EU funds. Financial errors are breaches of often complex EU regulations. Of course, the Government take a zero-tolerance approach to fraud. As I said earlier, only an estimated 0.02% of EU payments are established as fraudulent, according to Commission data. The “Fight against fraud 2014 Annual Report” shows that, across the EU, cases of suspected or potential fraud affected around 0.26% of EU payments and 0.8% of EU revenues. Of these, Commission estimates suggest that around 8% are likely to go on to be established as actual fraud. So I do not think we should consider that that 4.4% is all fraud.

[Kelvin Hopkins]

I thank the Minister for his explanation. However, the discrepancy between definitely defined fraud and the money that has been spent inappropriately suggests a relaxed attitude to expenditure—money splashing about and finding its way into the pockets of people who might be politically helpful and so on. It may not be fraud, but it leans that way.

[Mr Gauke]

First, where I would agree with the hon. Gentleman is that failures of financial management matter. Whether it is fraud or not, we should have stringent standards and take a robust approach. However, there is another context. We often talk about fraud and error, or error and fraud, in the context of welfare payments, and when politicians allow the percentages that refer to fraud and error to be described as simple fraud, those politicians tend to be criticised. Indeed, I have heard people make the case that we should refer to error and fraud, not fraud and error, because the larger part of the error and fraud budget relates to error and is not proven to be fraud. So I think that approach should also be borne in mind.

It is also the case that, as has been mentioned, much of the legislation governing the EU funds is complex, and the associated guidance does not always offer the necessary level of clarity. Some of the errors identified are systemic, recurrent, and affect various member states and EU institutions. It is therefore clear that the overarching rules governing these areas need to be addressed. I do not wish to downplay the importance of dealing with error or any kind of financial mismanagement, but it is not the same as fraud. It is not synonymous with fraud, and the element that can clearly be identified as fraud is a subset of the overall 4.4% number that we are talking about.

[Kelvin Hopkins]

rose—

[Mr Gauke]

I will give way again, but I am keen to make progress.

[Kelvin Hopkins]

Clearly, we must not confuse error and fraud. Nevertheless, if the vast proportion of the money that is inappropriately spent is described as error, it enables those who want to play it all down to be successful in reducing concern about the money that is misspent. There might be a penumbra somewhere between fraud and genuine, innocent error.

[Mr Gauke]

Yes. I do not in any way want to downplay that 4.4% number. It is too high and needs to be addressed. On the 0.02% that is identified as fraud, there may well be sums of money that in the end are not identified as fraud, but might be getting close to it. I recognise that point. However, I would not want us to consider that the two are synonymous.

The hon. Gentleman raised a point about expenditure levels. It is worth reiterating again that in 2013 the Prime Minister secured the first ever real-terms cut to the multiannual financial framework for the period 2014 to 2020, forcing necessary budget restraint. For example, both the 2014 and 2015 budgets represented cash and real-terms cuts compared with the 2013 budget, which was the last year of the previous MFF. From 2010 to 2013, we were still working on the MFF that had been agreed by the previous Government. Tempted as I am to debate the weaknesses of that agreement, I would rather focus on the successes of the 2013 agreement, negotiated by the current Prime Minister.

Turning to the detailed points made by the hon. Member for Wolverhampton South West, he first raised the directive on the fight against fraud to the Union’s financial interests by means of criminal law—the PIF directive. The UK supports the directive’s broad aims, but the draft text contained several unacceptable elements, such as the inclusion of VAT in the directive’s scope. While the Council’s general approach of 2013 removed many of the unacceptable elements, discussions are ongoing and the final text is yet to be agreed. As such, the UK has elected not to opt in to the PIF directive at this stage but continues actively to engage in EU negotiations and will consider the case for a post-adoption opt-in once the final text has been agreed. I will of course keep hon. Members informed of progress in that respect.

We of course continue to take VAT fraud seriously at both national and EU levels. In addition to working to tackle VAT fraud domestically, Her Majesty’s Revenue and Customs continues to work closely with other member states and international agencies to combat VAT and other cross-border fraud. Additionally, member states continue actively to work together to share knowledge and expertise through the Fiscalis programme and exchange information on potential missing trader intra-community fraud in the EUROFISC network. The UK has also successfully pushed for the increased use of multilateral control systems, involving a co-ordinated exercise in which two or more member states verify the tax liability of businesses, to investigate cross-border VAT fraud. However, the UK Government’s position on VAT fraud is that it should be dealt with at a national level, not an EU level, as it is primarily a national resource.

As for the other detailed points that the hon. Member for Wolverhampton South West raised, I will write to him on the specific policies outlined in the explanatory memorandum to the Commission’s “Fight against fraud 2014 Annual Report”, which, as he said, I signed on 24 August. I reassure him that it did not get in the way of the Gauke family holiday, much excitement though there would have been at the opportunity to run through the memorandum on a wet afternoon in north Wales. In the event, it did not interrupt us and I think we played Uno instead.

On missing trader intra-community fraud, it is worth pointing out that the estimates of attempted MTIC fraud have now decreased from some £2.5 billion to £3.5 billion in 2008-09, which I suspect we debated back then, to between £0.5 billion and £1 billion, which has held steady over the past four years. Nevertheless, we recognise that fraud poses a constant threat, but HMRC remains vigilant. HMRC has been in the vanguard of member states developing tools and arguments to deal effectively with VAT fraud, MTIC fraud in particular, and is active in EU forums to ensure the spread of good practice and greater co-operation between tax authorities.

Rather than attempt a definitive definition of the reverse charge this afternoon, I will include one in my letter. In short, it is about shifting the responsibility for reclaiming input taxes within a chain of transactions involving VAT. The reverse charge was something used by the previous Labour Government to counter MTIC fraud. I will write to hon. Members with a definitive definition.

On the European Public Prosecutor’s Office, the UK will not participate in the establishment of any European Public Prosecutor. Nevertheless, the Government retain a considerable interest in negotiations on the European Public Prosecutor, given its potential impact on us and bodies such as Eurojust in which we currently play a role. The Home Office leads on that matter.

The role of the anti-fraud co-ordination service varies across member states. The UK’s role includes investigating irregularities involving criminal behaviour—a function that the City of London police is well placed to perform. The AFCOS has attended EU conferences designed to facilitate the sharing of information and best practices across member states, enhancing co-operation on the important issue. The UK’s AFCOS actively supports OLAF in investigations in Brussels through facilitating interviews, statements and visits to the UK.

On structural funds, the ECA has indicated that a significant proportion of errors in its audits are related to public procurement procedures, which is partly due to the complexity of the rules. The ECA acknowledged in a recent special report on public procurement issues the good practices introduced by the UK since the errors in 2009-10. The UK authorities are aware of the need to continue improvement of public procurement procedures in structural funds programmes for the 2014 to 2020 period.

The UK welcomes the fact that the ECA recognised the different definitions of customs audit applied across member states and revised its assessment accordingly. The hon. Member for Wolverhampton South West raised a further point about preventing the falsification of documents—one of the primary ways in which fraud is committed. The UK has a number of policies in place. The Government support efforts to reduce fraud in the EU, including the work of the European anti-fraud office, OLAF, in detecting and tackling fraud, and in seeking financial redress for the EU budget when it is found.

Finally, the hon. Member for Kirkcaldy and Cowdenbeath raised the issue of different countries’ practices in ensuring compliance with EU aid spending. Member states are responsible, but ultimate responsibility lies with the Commission, which needs to ensure compliance across the EU by issuing clear guidelines and ensuring that effective control systems are in place.

I hope that those points of information and clarification are helpful to the Committee. I thank hon. Members for their ongoing engagement with the issues and for their continued support of the Government’s strong position on financial management and fraud.

Question put and agreed to.

Resolved,

That the Committee takes note of European Union Document No. 11470/15 and Addenda 1 to 6, a Commission Report: Protection of the European Union’s financial interests—Fight against fraud 2014 Annual Report, and unnumbered European Union Documents, the European Court of Auditors’ 2014 Annual Reports on the implementation of the budget and on the activities funded by the 8th, 9th, 10th and 11th European Development Funds; agrees that budgetary discipline and robust financial management at all levels remains crucial, and that EU taxpayers must have confidence that their funds are being effectively managed and implemented at an EU level; expresses disappointment that the error rate for EU budget payments shows only a slight improvement on last year; supports the Government’s efforts to continue to engage with the Commission and Member States to drive improvements to reduce the error rate, in particular, advancing the simplification agenda; stresses the importance of the EU budget achieving results as well as being compliant; and presses the Commission for a clear action plan to address the European Court of Auditors’ recommendations relating to the European Development Fund in order to improve its error rate.

Bank of England and Financial Services Bill [Lords]

Kelvin Hopkins Excerpts

Monday 1st February 2016 Commons Chamber

[Harriett Baldwin]

The hon. Gentleman is right to highlight the importance of auditors. Others in this place will consider the role of auditors in the crash, but I think what he will welcome in the Bill is the fact that the National Audit Office, for the first time, will have the ability to do value-for-money studies within the Bank of England.

[Kelvin Hopkins (Luton North) (Lab)]

Following on from my hon. Friend’s intervention, does the Minister not agree that one of the fundamental problems with auditors is that they are always employed, effectively, by the managers of banks or companies when they should be representing shareholders? If they want their contracts renewed, time and again private auditors provide a soft option for managers so they get the contract next time. As she says, the great thing about the National Audit Office is that it is independent and in the public sector.

[Harriett Baldwin]

The hon. Gentleman is absolutely correct that the Bill focuses specifically on the role of the National Audit Office, one independent arm of government, and the Bank of England, another independent agency. The Bill does not particularly focus on the role of auditors in private companies, but I am sure other parts of Parliament will consider that in this Session.

I turn first to the reforms that the Bill will make to the Bank of England. It introduces evolutionary changes to its governance, transparency and accountability to put it on the best possible footing to discharge its expanded responsibilities. These changes complement those taken by the Bank itself as part of its “One Mission, One Bank” strategic plan. The Prudential Regulation Authority will stop being a subsidiary of the Bank and instead be run by a committee of the Bank; another deputy governor will be able to join the court, the Bank’s governing body; and the Treasury will be able to send a remit letter to the Prudential Regulation Committee.

To strengthen the Bank’s transparency and accountability to Parliament and the public, we will give the National Audit Office the power to conduct value-for-money studies. Following debates in the other place and with the NAO and the Bank, we have made sure that that important change is implemented in a way that protects the independence of the Bank’s policy-making functions and of the NAO.

[Kelvin Hopkins]

I welcome the fact that the NAO will be looking at the Bank, but it will need extra resources to do that big job. Will the Minister guarantee that the extra people employed will represent the shareholders—us and the people we represent—and will not simply come from the banking sector and be soft on banks?

[Harriett Baldwin]

The hon. Gentleman rightly points out the importance of the NAO’s having the right resources. I have not had any representations about this particular move, but I am sure it will make its feelings known, should it require those resources.

The Bill also makes changes to the court. We will simplify and strengthen the governance of the Bank by transferring to the whole court the powers previously given to the oversight committee to oversee the Bank’s performance. Following discussions in the other place, to help guard against group-think, we have amended the Bill so that a majority of non-executive directors on the court will still be able to initiate reviews of the Bank’s performance without needing to secure the agreement of the whole court.

We will integrate prudential regulation more fully into the Bank by ending the PRA’s status as a subsidiary of the Bank. The PRA board will be replaced by a new Prudential Regulatory Committee with sole responsibility within the Bank for the PRA’s functions. That is modelled on the Monetary Policy Committee and the Financial Policy Committee. We will make these changes while still protecting the PRA’s operational independence, and we will continue to ensure transparency on the amounts raised by the levy and what the Bank spends in relation to its functions as the prudential regulator.

In order to strengthen governance and make the structures of the Bank more consistent, the Bill harmonises the legislation underpinning the Bank’s three policy committees: the MPC, the FPC and the proposed PRC. It moves the MPC to a schedule of at least eight meetings a year, from the current 12, and updates requirements for the timing of MPC publications, implementing the remaining recommendations of the Warsh review, entitled “Transparency and the Bank of England’s Monetary Policy Committee” and published in 2014.

Alongside these changes, the Bill builds on the existing arrangements and the strong working relationship between the Bank and the Treasury by updating the formal framework for how the Bank and the Treasury should engage with each other on the public funds risks and the financial stability risks of firm failure. These changes will improve co-ordination while maintaining the existing clear and separate roles of the Bank and the Treasury in the event of a crisis.

[Harriett Baldwin]

The hon. Gentleman is right to highlight the importance of the Bank’s operational independence, which Gordon Brown introduced in 1997—it was his greatest legacy to our country—but he will note that his colleagues’ motion calls for a stronger role for both the Treasury and Parliament and arguably for less independence for the Bank. It is popularly known as the people’s quantitative easing, and I hope that the hon. Gentleman will not support his Front-Bench team on the reasoned amendment.

[Kelvin Hopkins]

Following the point made by my hon. Friend the Member for Huddersfield (Mr Sheerman), it would be even more worrying if there were a cosy relationship between the NAO and the Treasury. The NAO should be responsible to this House, and the Treasury should not be able to get its tentacles on the NAO.

[Harriett Baldwin]

The hon. Gentleman is right to recognise that the NAO is completely independent of the Treasury. Although I have a nominal role on the Public Accounts Committee, the NAO is rightly accountable to Parliament.

--- Later in debate ---

[Kelvin Hopkins]

My hon. Friend is making an excellent speech and I strongly agree with it. Was it not astonishing that before 2008 those in the private banking sector did not appear to spot the crisis that was coming? They were too busy making money hand over fist for themselves.

[Richard Burgon]

I thank my hon. Friend, who has extensive experience in these matters, for that. Troublingly, the people who now say there is no risk of a financial crisis ever again were the very same people in the very same sector who were saying before 2008 that everything was fine and there was no risk of disaster at the time. Sadly, how wrong they were! Despite what the bankers did to our economy and our society, about which there was entirely justified anger among the population, the Chancellor has cunningly turned the bankers’ crisis into a crisis of public spending, and has adopted a policy of spending cuts to vital services to which there seems to be no end in sight. In looking at this Bill, it appears that the Chancellor believes that he can now turn back the clock in the banking and financial sector.

Under this Chancellor, things are going in the wrong direction. For example, he sold off shares in the Royal Bank of Scotland at a very significant loss to the taxpayer; he appointed Angela Knight, who was head of the British Bankers Association during the financial crisis and who defended the top bankers during the crisis, to head up the Office of Tax Simplification in the Treasury; and he decided he could do without the continued services of the respected chief executive of the Financial Conduct Authority, Martin Wheatley. I am sure that he is delighted with the new appointment, as we have been told by the Minister that Mr Wheatley’s successor is fine with the abolition of the reverse burden of proof. I wonder whether Martin Wheatley, who departed prematurely, would have said the same.

The FCA’s planned public review into banking culture has now been cancelled, and its investigation into the promotion of tax evasion by HSBC has been brought to a premature conclusion. I know that we will be hearing more about the FCA in another debate this evening.

The Bank of England and Financial Services Bill was originally drafted, according to the Chancellor at a Treasury Committee meeting, to make changes to the Bank of England’s structure. One important concern is that it includes a major change to the regulation of senior bankers, undoing a key measure taken after the bankers’ crisis to change senior bankers’ conduct and to deliver transparency and accountability to financial decision making. I am talking about the presumption of responsibility—or the so-called reverse burden of proof.

We welcome the extension of the senior managers regime to senior managers across all regulated financial firms, but we do not accept the Government’s case for ending the presumption of responsibility for the top managers in banking.

The presumption of responsibility, as currently set out, applies to senior managers. It means that, to avoid being found guilty of misconduct when there has been a regulatory contravention in an area for which they are responsible, they will have to prove that they took reasonable steps to prevent that contravention. This Bill removes that onus on senior bankers. The onus is entirely reasonable, proportionate and, as bitter experience tells the British people, entirely necessary. Misconduct and misdemeanours in financial services are not merely a tale from history. In 2015, for example, the FCA had to fine firms more than £900 million. There was also a LIBOR scandal, foreign exchange fines and the mis-selling of payment protection insurance to the value of up to £33 billion.

Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 19th January 2016 Commons Chamber

[Mr Gauke]

I am sure that will be one of the issues discussed at length during the referendum debate. The point is that under this Government the British people will have an opportunity to express their views on where our future lies.

[Kelvin Hopkins (Luton North) (Lab)]

Britain has been a significant and, in recent years, a substantial net contributor to the EU budget. For over 40 years, this has had a negative impact on UK economic growth and GDP, the cumulative effect of which has been very large. Would leaving the EU not take that particular brake off UK GDP growth?

[Mr Gauke]

One point I would make is that thanks to Margaret Thatcher’s renegotiation of the rebate and thanks to the current Prime Minister’s negotiation of the EU budget resulting in a real-terms cut, we are paying less than we otherwise would have done.

House of Lords Reform

Kelvin Hopkins Excerpts

Thursday 14th January 2016 Commons Chamber

[Martin John Docherty (West Dunbartonshire) (SNP)]

I beg to move,

That this House has considered House of Lords reform.

Not since 2011, when the then Deputy Prime Minister presented the case for reform, have Members of the House of Commons been offered the opportunity to debate and discuss the House of Lords on the Floor of this House. Therefore, before proceeding any further, I wish to extend my grateful thanks to the Backbench Business Committee, and to the hon. Member for Harrow East (Bob Blackman) especially, for agreeing to this debate and for some sage advice, which was critical, given my novice plea.

During the general election there were various mentions of House of Lords reform. Critically, the Conservative party limited its vision in its manifesto to addressing only the size of the House of Lords, for clearly size matters to the Tory party. At its present velocity of expansion, the House of Lords will soon exceed the National People’s Congress of China. It has already exceeded the size of the European Parliament, which is elected by over 400 million European citizens. Clearly, Parliament envy will soon see even this House displaced by the Prime Minister’s expansionary tactics.

I know that at the previous general election the British Labour party took a more pragmatic view. I give credit where credit is due by recognising the work the previous Labour Government did to limit the hereditary peerage, although that work was sullied by the cash for honours scandal uncovered by my hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil). I wonder where my Labour colleagues are today.

At least on these Benches we have spoken with one voice. At the general election the Scottish National party placed our proposal before the entire community of Scotland: “Abolish it!” If this Parliament is to work as an effective and legitimate legislature in the British state, its upper Chamber should resemble less the congress of a communist state and more the revising and advisory role of a Parliament of a 21st century liberal democracy.

[Kelvin Hopkins (Luton North) (Lab)]

I agree with the hon. Gentleman about abolition, which is a theme I wish to speak about later. Does he agree that the power of patronage of Prime Ministers to appoint people they choose to the House of Lords is even more pernicious than having hereditary peers, who at least have the advantage of being independent?

[Martin John Docherty]

I am grateful to the hon. Gentleman for that intervention. He need not worry, because I will get there.

Let us return to the hope of many Members of this House—a hope that is shared, in particular, by my hon. Friend the Member for Perth and North Perthshire (Pete Wishart), who cannot be here today—that any future reform of the upper Chamber should not only consider its size, but limit it and remove with haste its ability, as an unelected and unaccountable Chamber, to generate legislation. That is an affront to my constituents and an aberration at the heart of the British political system.

Only a few months ago the Government were keen to play down any reform agenda. Their latest antics have the right hon. Member for Tatton (Mr Osborne) as Citizen Camembert rather than Chancellor of the Exchequer, and the Prime Minister playing the good cop and leading man as the Black Fingernail. This is indeed a farce, if not a “Carry On”.

While many Members across this Chamber would seek a long-term resolution of the undeniable illegitimacy of the upper Chamber in its present form, the Government tinker at the edges with the Strathclyde review, a botch job done in jig time for Christmas. Although the review offers a way forward, it seems to confuse the role of the House of Lords. Is it to be a mere stamper of Government policy, or is it a revising Chamber that tackles the Government on the tough subjects of the day? Critically, all options would offer an additional burden on the workings of this House and highlight the behemoth that is the Palace of Westminster. If the report were at least linked in some way or form to improvements in working practices such as electronic voting, which would allow us in this place to deliberate more robustly, in more depth, and with reduced recourse to statutory instruments, it would have been a slightly more useful document. For the record, however, I wish to commend Lord Strathclyde and all those involved for seeking to overcome the Government’s obstacles.

While the report is welcome, it highlights the Dickensian, if not medieval, machinations and dubious working practices of this Parliament. It accidentally shows the Alice in Wonderland antics of the so-called liberal democratic practices of the mother of Parliaments. If the review was worth the paper it was written on, it would be my hope, and that of my hon. Friends, that it would seek to uphold the nature of our polyarchy and at least promote its first pillar, namely that control over Government decisions about policy should at all times constitutionally be invested in elected officials—Members of this House elected by their constituents, from whom they derive their political mandate.

--- Later in debate ---

[Martin John Docherty]

My very hon. Friend has given the answer from a sedentary position: Wales does not have a separate jurisdiction. That in itself is a disgrace and one of the main concerns for my hon. Friends in Plaid Cymru.

As I said, all this could be seen as pure Celtic hyperventilation about the unaccountability of the House of Lords, yet there are Members from beyond the Celtic fringe—although I wonder where they are today—who find the unelected and unaccountable nature of the House of Lords an affront to liberal democracy.

[Kelvin Hopkins]

May I inform the hon. Gentleman that there are some English people—I am English from generations back on all sides—who believe we should have one democratic Chamber, not an unelected Chamber full of place persons and hereditaries?

[Martin John Docherty]

I am grateful to the hon. Gentleman. I do, of course, count Cornwall in the Celtic fringe.

Any debate that links the Government and Her Majesty’s Opposition to some of the most damning political consequences and incompetence, as highlighted in the last Parliament by my hon. Friend the Member for Na h-Eileanan an Iar, will fill even those Members—those hardy souls—with dread. Cash for honours sends a collective shiver down the spine of this House and, indeed, our parliamentary system. I seriously doubt that we have seen the last of it, not only in the upper Chamber but even here. The appointment process exposes beyond doubt the privileges of those Members of the House of Lords. In reality, there is no substitute for democracy and direct election.

--- Later in debate ---

[Martin Vickers]

It is certainly true that there are now fewer practising Christians throughout the UK than there were in the past. As the hon. Gentleman rightly says, however, our heritage is of a Christian nature and the eternal virtues taught by the Christian Church are the basis of our society.

[Kelvin Hopkins]

The hon. Gentleman may have noticed that, in the last census, some 31% of the population said that they had no religion and that they do not feel that they would be represented be people of faith. I am a vice-chair of the all-party humanist group. Does the hon. Gentleman not think that humanists should also be represented?

[Martin Vickers]

Humanism has always seemed to me to be the absence of faith. We could debate the hon. Gentleman’s rather philosophical point endlessly, and I would be very happy to do so some time.

The hon. Member for West Dunbartonshire referred to a unicameral system. It would be a mistake to move to a system with only one Chamber. However, I would point out that, with devolution, Scotland is almost a unicameral Assembly; I will leave that matter to Scottish National party Members.

--- Later in debate ---

[Steven Paterson]

I will let the hon. Member for Clacton (Mr Carswell) speak for himself on that one. My own view is simply that, whatever the country, people should get the representative Government they vote for. Whether I happen to agree with the hon. Gentleman’s party or not, if people vote for it then that is who they should get as a Government—that is what I believe in terms of democracy.

How does the crooked, anti-democratic nature of the House of Lords manifest itself? To answer that, let us consider for a moment the curious case of the quite inappropriately named Liberal Democrats. The Liberal Democrats were hammered at the ballot box—not before time, many of us would say. That happened first in Scotland in the 2011 Scottish Parliament elections, when they were reduced to a rump of five MSPs out of 129, and was followed up at the UK general election last year when they were reduced to a rump of just eight MPs out of 650. In a democracy, the people speak and the message is sent. That is not the end of the story, however. The Liberal Democrats defy democracy thanks to the House of Lords. There are an incredible 111 of them along the corridor there sitting—or sleeping—on the red benches, grazing, collecting their tax-free £300 when they pass go, occasionally contributing to the debates and maybe even voting. They are down at the other end of that corridor, unelected and unaccountable. They are Westminster’s own political zombies. We really have to move forward. They are not elected and the people’s views must be paramount.

Some would say that the House of Lords provides access to expertise that cannot be found among MPs in the House of Commons. I acknowledge, because I have met some, that there are some Lords who certainly have expertise, but there are many hon. Members in this place and it cannot be beyond the wit of this place to find experts on a range of issues.

[Kelvin Hopkins]

The hon. Gentleman talks about expertise. It would be possible to have an advisory body of experts. The Lords have legislative power—that is the difference.

[Steven Paterson]

Indeed. The hon. Gentleman is absolutely right. There are a number of things we could do and that suggestion is certainly one of them.

One of the many problems with the House of Lords is that it is stuffed to the gunnels with former politicians who failed to win seats but are none the less looked after by the powers that be. One of my predecessors as MP for Stirling is one such. Michael Forsyth has not won an election since 1992. In his 14-year career as MP for Stirling, he was democratically chosen by the people of the constituency to serve in that role. He has now spent 17 years in the unelected Chamber along the corridor. This illustrates a fundamental problem. There is a long, long list of such former political big beasts out to pasture at the end of the corridor; former elected politicians of such inestimable stature as Jeremy Purvis, for example. There are then those apparently picked at random, perhaps for saying the right things at the right time to help the party in government, or making the requisite donation to their political party.

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[Kelvin Hopkins (Luton North) (Lab)]

It is a pleasure to speak in this debate, which I greatly welcome. I particularly enjoyed the speech by the hon. Member for West Dunbartonshire (Martin John Docherty). It was entertaining, but also serious, making many important points. The House of Lords has, of course, been in the news again recently, and the Government are clearly threatening change to rein in our allegedly noble colleagues. Yesterday’s debate in the other place seemed to suggest that even Conservative peers were not entirely happy with what the Government want to do. My interest in speaking today is to argue for a unicameral Parliament. The majority of legislatures across the world are unicameral, and some European nations—Sweden, for example—have chosen to become unicameral. We should at least discuss that possibility and, I hope, move towards that system in time.

When I first entered the House in 1997, the New Labour Government—I emphasise New Labour with a capital N—established a royal commission to consider possible reforms to the House of Lords. Shortly into my time here, I attended a Labour party so-called regional policy forum—I am sure that Mr Deputy Speaker would understand what regional policy forums were like. It was in Watford on a Saturday afternoon with about 25 to 30 party members attending. A chairman had been allocated by the party machine, and we were addressed by a learned professor from the royal commission.

The terms of reference set out by the Government for the royal commission made no mention of abolition of the House of Lords as a possible option. I asked why that was, and suggested that abolition should be a possible option for discussion. Another member suggested that we should have a show of hands to test opinion and see how many members at the meeting favoured abolition—an innocent little test of opinion. At this, the chair became very agitated and said, icily, that there would be no votes. Clearly, not even a show of hands in Watford among a small number of Labour party members on a Saturday afternoon—it was no doubt raining outside—was allowed to express a majority view that we should abolish the House of Lords. I suspect that there was probably a majority for abolition in that room, but it was not to be discussed. It was clear that our leaders wanted to keep the House of Lords in some form and that discussing possible abolition was not to be tolerated. It was most interesting.

Some reforms were later enacted by the Blair Government, and remain in place, but abolition is still not being discussed. Some longer-standing Members may recall the later discussions and debates on reform, and the series of votes on possible alternatives that took place in March 2007. One Division effectively permitted a test of opinion on possible abolition of the House of Lords. Among Labour Back Benchers, 169 of my hon. Friends voted for a bicameral Parliament, but 155 of us voted against that, effectively in favour of a unicameral Parliament and the abolition of the House of Lords. That was almost half of the Labour Back Benchers, showing a substantial body of support for a unicameral Parliament. The fact that this option was deliberately excluded from consideration by the earlier royal commission was, I think, a scandal and clearly a political fix.

I tabled an early-day motion to that effect at the time, which received the support of 50 Labour Members, some 14 of whom are still Members today. It was clear that that was due to the simple fact that the Prime Minister at the time wished to retain his power of patronage to appoint Members to the Lords, for a number of reasons. I might add that, subsequently, many argued strongly for an appointed House of Lords, and for retaining a substantial proportion of appointed Members even if it became democratic.

One of those reasons was obviously the ability to offer Members of the House of Commons the prospect of elevation to the Lords, both as a means of keeping control and reducing the potential for rebellion in the Commons and, possibly, to help to persuade older Members with safe seats to agree to retire at a convenient time for the party machine to slot leadership supporters into those safe seats.

[Peter Grant]

I do not know whether the hon. Gentleman recalls that, last time there was a major review of the boundaries in Scotland, the Kingdom of Fife was reduced from five parliamentary constituencies to four. The then Member of Parliament for Dunfermline, East, by the name of Gordon Brown, found himself without an obvious successor seat. The MP for Kirkcaldy agreed to retire from the House, Mr Brown became the MP for Kirkcaldy and Cowdenbeath, and very shortly afterwards the former MP for Kirkcaldy became a Member of the House of Lords. Is that the kind of democratic process to which the hon. Gentleman was referring?

[Kelvin Hopkins]

I do not wish to mention particular examples, because there are still hon. Members here who may or may not have experienced this process, but in my party I want individual Members to have the power, rather than party machines, and I certainly do not want leaders to have the power to select candidates.

I used the word “possibly” about selections of this kind because I cannot prove that such things occurred, and I do not wish to imply any criticism of other hon. Members who may have been selected in strong party seats. That may, of course, occur in other parties as well. It is clearly the case, however, that successive Prime Ministers, before and since, have jealously guarded their powers of patronage. I want to see those powers taken away in the interests of a more vigorous, intensive democracy in this House and outside, and to rein in the excessive power of the Executive.

I think that this is a serious matter, and I hope that, as and when we come to discuss the possible future of the House of Lords, the possibility of a unicameral Parliament and getting rid of this patronage will be raised again.

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[Patricia Gibson (North Ayrshire and Arran) (SNP)]

When I first wandered into the Chamber today, I thought I had come into the wrong debate, because the Annunciator shows the title of the debate as “House of Lords reform”. Neither my colleagues nor I believe that there can be any reforming of something that is so deeply undemocratic and rotten to the core.

There is no doubt that the general public across the UK are deeply disengaged from and alienated by much of what goes on in this place. It is dangerous for democracy when the very people it is intended to serve lose so much interest and faith in it. We can come up with warm words and grand ideas about how to tackle that, but perhaps the single most important thing we can do to repair some, although not all, of the damaging rift between those of us who serve and those whom we seek to serve would be to hear the calls—a deafening din in Scotland—to abolish the House of Lords. It is no better than a carbuncle on the face of democracy across the United Kingdom, and there is a deep sense of frustration with it across communities in Scotland. It has already been pointed out that this archaic, outdated and medieval and anachronistic institution has no place in any state that purports to be a modern, enlightened and forward-looking democracy. Just to be clear, we do not simply object to the personnel in the House of Lords, although we do; we do not recognise its legitimacy or its right to legislate over the citizens of the UK.

[Kelvin Hopkins]

I agree very much with what the hon. Lady is saying. The hon. Member for Spelthorne (Kwasi Kwarteng) suggested earlier that this subject never came up on the doorstep. Does she agree that that is because people’s first concerns are jobs, housing, poverty and the health service? However, if people are asked about the House of Lords, many would say that we should abolish it.

[Patricia Gibson]

I absolutely agree with what the hon. Gentleman has just said. When people talk to us on the doorstep, their priorities are of course job security, benefit sanctions and putting food on the table, but if we scratch the surface, we find that the House of Lords is universally hated, across the UK in my view. There might be small pockets of support among what might be called traditionalists, but for the ordinary man and woman in the street, the House of Lords is an affront to modern democracy.

What I am about to say has already been mentioned earlier in the debate. That is one of the disadvantages of being so far down the speaking list. It is bad enough that the House of Lords is unelected, but it really is quite incredible to think that we are the only state in the world apart from Iran that has clerics pontificating on legislation. That further illustrates the absurdity of this relic.

Despite all the plaudits and feeble attempts to justify the other place, perhaps by those who have pals or cronies there or those who seek to retire there themselves when the voters reject them, it cannot be justified to retain those who are unelected. They have often been actively rejected by the voters. It is arguably worse that some of them have shied away from presenting themselves to the voters at any time at all, despite having political ambitions. That really makes the House of Lords a laughing stock in the eyes of the rest of the world.

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[Peter Grant]

I am very grateful indeed, Madam Deputy Speaker, not least because I intend to quote the bard later on.

I find it astonishing that when we started the process of review of and consultation on how to repair the fabric of this undoubtedly magnificent and historic building, it was based on the assumption that Parliament would continue to operate in exactly the same way as it presumably always has done. May I suggest that a golden opportunity was missed to start to reform the processes of not only this Chamber, but the second Chamber?

Indeed, this might be an opportunity to ask ourselves why we need a second Chamber at all. Other modern, inclusive, democratic countries manage perfectly well with one Chamber. If we think about it, the argument that the second Chamber is good at scrutinising and checking the actions of the first Chamber suggests that we are saying that the first Chamber is not doing its job, so perhaps we should literally get our own House in order and then consider whether we want another House just down the road.

[Kelvin Hopkins]

I agree with what the hon. Gentleman has said. In my speech I mentioned Sweden, which has abolished its second Chamber. Does he appreciate that Sweden has not become undemocratic as a result? It is as democratic as it was before.

[Peter Grant]

The hon. Gentleman makes a valid point. Imagine that this Parliament had historically consisted of a single, elected Chamber. Then imagine that someone comes along and suggests that we need a second, unelected Chamber in order to become more democratic. They would be laughed out of court.

I think that there are options available to us if we are prepared to look at having a second elected Chamber, assuming that we need a second Chamber at all. That would give us a chance to elect the House of Lords on a different electoral cycle from that of the House of Commons, in order to avoid the temptation for Governments to time their announcements and legislation with a view to getting re-elected in a few years’ time. It would give us the chance, importantly, to elect a second Chamber by a different electoral method to help even out some of the undoubted inequities that exist in the first-past-the-post system. Yes, the SNP benefited from that system at the general election, but the system was not fair when it worked to our disadvantage, and it is no fairer when it works to our advantage.

Comments were made earlier about the place of the representatives of the Church of England in the House of Lords. I will defend and warmly commend the actions of a number of Churches and faith groups in helping to act as a social conscience of our nations. I think of the important work that various Churches have done in critiquing benefit sanctions and nuclear weapons, or in reminding us that the refugee crisis is about human beings, not burdens on our benefits system. I hope that faith groups, including humanists, who in my view are a legitimate faith group, will continue to do that. However, in this day and age should they have an automatic right to make laws that apply to the majority of citizens in these islands who choose to follow a different interpretation of their faith? I fully appreciate that that will be a difficult conversation for many, but it is one that we really cannot shy away from for very much longer.

It can be argued that there is a benefit in allowing people from all walks of life to play a part in scrutinising legislation, rather than just the relatively narrow “political elite”. There are two problems with that argument. First, the House of Lords is not a representative sample; if anything, it is more dominated by the political elite than the House of Commons. Secondly, the House of Lords does not just scrutinise legislation; it can block it. It can even initiate legislation and ask us to scrutinise it.

As the hon. Member for Luton North (Kelvin Hopkins) mentioned, if there are benefits in having experts who are not Members of Parliament, or lay people, advising and scrutinising legislation, why not set up a system that allows appointed people to scrutinise and examine, but not to legislate or to overrule the will of the democratic Chamber? That is an option that I think is well worth further investigation.

There will be those who appeal to a deity called tradition, as if tradition was always a good thing. I think that tradition is important. Our traditions are what make us who we are, and if we lose sight of who we are, then we really are in trouble. But if we allowed tradition to be the judge of what happens in future, we would still be sending children up chimneys and down mines, and we would still be exploiting slaves from other parts of the world. More topically, if we continued to judge things according to the traditions that applied in this Chamber for so long, the right hon. Gentleman the Secretary of State for Scotland would have had to resign this week. Thank goodness we have moved away from traditions that were indefensible 300 years ago and are no more defensible today.

What does it say about democracy in this Parliament when the only organisation that consistently blocks any kind of proper reform of the House of Lords is also the one with the biggest vested interest in not reforming it? Most people in these islands simply cannot understand that. Even those who are not 100% convinced that the Lords should be abolished cannot understand why, when what is supposedly the sovereign Chamber in Parliament takes a decision to reform the House of Lords, the Lords itself can block any attempts to do so.

Even without legislation that can still be blocked or delayed indefinitely by the Lords itself, party leaders could give commitments that would get rid of some of the potential abuses, which, let us face it, we all know have happened. Although it is not possible to point to an individual appointment and know for certain that it was based on financial transactions, or on a deal made when somebody was still a Member of Parliament, the fact that the system can be vulnerable to that kind of abuse means that in the eyes of the public it very probably has been abused in that way in the past.

Let us look at the three worst abuses, which cause a lot of concern. I invite the Minister not to commit to dealing with them but at least to give serious consideration to how the parties could, right now, start to make the appointment system of the House of Lords a bit more acceptable, pending a proper and rapid review sometime in the next two or three hundred years. First, politicians who get kicked out by the democratic process can come back, arguably better off than they have been here, by being appointed to the House of Lords. Why not ban appointments of former MPs to the House of Lords, at least for a period of five or 10 years afterwards?

Secondly, there seems to be a high correlation between new appointments to the House of Lords and previous donors to party coffers. I am told that about 25% of all recent appointments by the Prime Minister were of people who had made substantial donations to the party coffers. I do not object to people giving money to causes they believe in, but there is an issue there that damages the reputation of this place in the eyes of the public. Why not set a limit and say that anybody who has donated above a certain amount to a political party cannot then take a place in the House of Lords, again possibly with a five-year or 10-year cooling-off period?

Finally, there is an abuse of the system that we have seen here. Page after page of improvements to the Scotland Bill put forward by the people who were elected to represent Scotland were rejected by MPs who have no mandate to represent Scotland, and then promptly reintroduced by those same MPs through their friends in the House of Lords. When the amendments came back to the House of Commons a short time later, the people who had voted against them trooped through the Lobby to vote for them. That is a wrong use of the process. Why not invite the Government to consider the possibility of putting themselves under a voluntary ban whereby they will not introduce major legislation in the Lords unless it has been passed by this Chamber first, and will not introduce large numbers of significant amendments in the Lords when they have had the opportunity to have them considered in this place first?

Even those changes would not go far enough for me, or for a lot of people, but they would at least start to show the people of these islands, in good faith, that the Government are serious about tackling an appointments system, in particular, that has no place in a representative democracy.

Earlier, someone referred to Westminster as the mother of Parliaments. I have heard the story that once, during a hustings debate probably somewhere north of the border, somebody announced in a very pompous manner that he was proud to serve in the mother of all Parliaments, and a voice from the back asked him if he had any idea who the father was. I am not going to say which of those comments I prefer.

I started by quoting the greatest poem, or song, that Robert Burns ever wrote, but I think that the greatest piece of writing by Robert Burns is, surprisingly, not a poem or a song, but a piece of prose:

“Whatever mitigates the woes or increases the happiness of others—this is my criterion of goodness. And whatever injures society at large, or any individual, in it—this is my measure of iniquity.”

The way that Members of the Lords are appointed right now means that we have an iniquitous situation in this Parliament. If the Lords is not prepared to accept fundamental reform, then it can, will and must be abolished.

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[Wayne David (Caerphilly) (Lab)]

I genuinely congratulate the hon. Member for West Dunbartonshire (Martin John Docherty) on opening the debate and on his very colourful and well-informed speech. I must say that many good points have been made. I emphasise the point made by the hon. Member for North Ayrshire and Arran (Patricia Gibson), which is that we must have a debate. It is very important to recognise the complexity and difficulty of reform, and we must begin by having an honest debate.

I congratulate Scottish National party Members on the consistency and uniformity of their arguments, by and large. They showed discipline. The number of times I heard reference to China’s National People’s Congress, I would not like to say. The hon. Member for Inverclyde (Ronnie Cowan) did talk about reform, rather than abolition. I welcome that because it is healthy to have a difference of emphasis within a political group, if not a complete difference.

Few people would genuinely say that our parliamentary system does not need fundamental change. It is important to remember that the biggest change to the composition of the second Chamber came under a Labour Government, when we secured the abolition of most of the hereditary peers. That was the start of a reform that we must complete as soon as is practicable, and it must be a radical reform. I say radical reform, rather than abolition of the second Chamber, because I am not convinced that we should move away from a bicameral parliamentary system.

[Kelvin Hopkins]

Clearly we have a difference of view on this. My hon. Friend says that there has not been enough discussion about reform. There has been a lot of talk about reform, but there has not been much of a debate about the alternative of having a unicameral Parliament. That is what I want to see.

[Wayne David]

I respect my hon. Friend’s view. That is one of the discussions that we need to have in this Chamber. He is perfectly right that we need to discuss not just how reform might be brought about, but whether we even need a second Chamber. I am of the view, although I am willing to take part in a debate, that we should have a bicameral system. There is a need for a second Chamber to scrutinise, modify, suggest amendments to and delay legislation, although I think that legislation should always emanate from this House.

It is deplorable that we are seeing two sustained attempts not to introduce more democracy into the second Chamber, but to exercise control over the second Chamber’s ability to hold the Executive to account. It is important to remember that this Government have appointed more Conservative peers than Margaret Thatcher did in her 11 years as Prime Minister. There is also a debate taking place about Lord Strathclyde’s report, which I would argue is all about undermining the ability of the other place to hold the Government to account.

We know why the Government are trying to control and weaken the Lords. It is not because they believe in democracy or because they have accepted the arguments of the SNP, but because they do not like to be scrutinised or challenged, no matter where it comes from. The issue is not the primacy of the House of Commons over the House of Lords; this is about the Government trying to minimise challenge and push aside opposition.

In the last Parliament, a great deal of time and effort was spent on debating reform of the House of Lords. Sadly, it came to nothing because the Liberal Democrats refused to have a constructive dialogue with reformers on the Opposition Benches and because—it is important to remember this—the Prime Minister did not deliver on his promise and Conservative Back Benchers defended the status quo.

What is needed now is a nationwide debate about the kind of democracy we need for the 21st century. The 19th-century, highly centralised nation state based on London is surely a thing of the past. Decentralisation must be the order of the day, not just to Scotland, Wales and Northern Ireland, but to the regions, cities and localities of England. There is therefore a strong case for a second Chamber—call it a senate if you like—made up of representatives of the nations and regions of the UK, possibly with people drawn from local government as well. Such a second Chamber might be made up of indirectly elected representatives or directly elected representatives. It would have the advantage of providing informed scrutiny by individuals drawn from all parts of the United Kingdom. It is a shame that most Members of the other place are either drawn from, or have a focus on, London and south-east England. That cannot be acceptable.

When we talk about fundamental change to our constitution, it is important to remember three things. First, there must be debate and dialogue between all political parties and, if possible, a high degree of consensus about what kind of changes are needed. If it is believed that political advantage is a motive behind any constitutional change, that change will not work effectively and will ultimately fail. Secondly, it is important not to see Lords reform in isolation from other changes that are needed for our democracy. I have already referred to devolution, but I believe that in our country there is a widespread thirst for popular engagement. No longer are people prepared simply to sit back and allow those who are unelected to make important decisions. It is therefore important to have a broad perspective when considering changes to our democracy.

Thirdly, we must not believe that there can be a top-down approach towards political reform, or that we are the repository of all knowledge on these matters. The people of our country need to be fully engaged in the debate on democratic renewal, and that is why we believe that there needs to be a people’s constitutional convention. Such a convention ought not to be made up of the great and good; rather, it should draw in people from all walks of life and all parts of the country. It must be focused in its discussions, and it must also inspire and enthuse people so that we give our democracy fresh life and inspiration.

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[John Penrose]

Many of them are in the House of Lords. They are reduced to a small number of MPs, and none of them is here today. I regard that as a real tragedy because in the last Parliament, and in previous Parliaments, they—they have not been the only ones—were pressing the case for reform of the Lords and other constitutional reform. All of a sudden, when they are hugely over-represented in the House of Lords relative to their representation in this House, they are nowhere to be seen. They are Macavity’s cat when it comes to reform of the Lords and this debate. That is a tragedy, and people will draw their own conclusions about their relative levels of interest.

The hon. Member for West Dunbartonshire encapsulated a series of criticisms about the Lords, which have been widely echoed by many Members. I will not go through them all in huge detail when summing up the debate, but broadly speaking he made the point in a variety of different ways that the level of democratic legitimacy in the House of Lords is incredibly low. The only group that are elected are the 92 hereditary peers, and they are elected from an electoral college.

There are other criticisms—that the House of Lords is very large, and the bishops and hereditaries should not be there—that buttress the central charge of a lack of legitimacy and democratic principle in the Lords as it is currently constituted. I agree and that is reflected in my personal voting record on the issue. The hon. Member for Luton North (Kelvin Hopkins) mentioned the series of votes on the issue in the 2005 Parliament. It was my first Parliament and I voted consistently for anything that would increase the level of democratic involvement in the House of Lords. In the 2010 Parliament, we had an incredibly long and drawn-out attempt to reform the House of Lords. I do not think that anyone could claim that there was not a determined attempt—probably the most determined attempt for several generations—to reform the House of Lords and to make it more democratically legitimate. I voted consistently throughout for those reforms, even though the form of election might not necessarily have been to everybody’s taste—even mine. They were a step in the right direction, however, or at least they would have been had they been passed. I cannot argue, therefore, either from a personal or Government point of view, that the central charge is not valid. That is why the Conservative party’s election manifesto said we remain committed in principle to reform. Our approach is not driven by an opposition to the central charge made by the hon. Member for West Dunbartonshire and echoed by many other hon. Members today.

[Kelvin Hopkins]

The Minister talks about making the House of Lords more democratic, which is second-best to abolition. How will he deal with the real problem: prime ministerial patronage?

[John Penrose]

If I can ask the hon. Gentleman to hold his horses, I hope to come back to that later. I am sure he will pick me up on that if I do not address it sufficiently.

At this point, I should declare a small, non-financial family interest. A couple of years ago, my wife was appointed to the House of Lords. When she was appointed, I had to point out to her that I had a long track record of voting multiple times to abolish her, and anybody like her, from the House of Lords in due course. She has forgiven me and I am sure the House will be delighted to hear that relations over the family breakfast table are not too strained. However, I can reassure hon. Members that my personal views have not changed, despite the family involvement. Given the chance, I would vote to make them far more democratically legitimate.

I started by assuming, I think not necessarily entirely correctly, that the SNP was exclusively and purely a unicameralist party. I think we have heard support for that view during the debate from many SNP Members, the hon. Member for Luton North and, to some degree, my hon. Friend the Member for Cleethorpes (Martin Vickers). I hope I am not putting words in anybody’s mouth, but I think I heard some degree of qualified willingness to at least consider a more democratically legitimate second Chamber as an alternative to the perhaps favoured unicameralist view.

HMRC Office Closures

Kelvin Hopkins Excerpts

Tuesday 24th November 2015 Commons Chamber

[Hannah Bardell]

I could not agree more with my hon. Friend. It is yet more evidence of this Government’s lack of respect for Scotland and for Scottish workers.

Following the announcement, the BBC reported that more than 2,000 jobs could be lost in Scotland. As yet, we have no detail. With your indulgence, Madam Deputy Speaker, I will list the offices that are set to close across Scotland to highlight the scale and impact of the decision: one office to close in Aberdeen by 2021; one office in Bathgate and Livingston, my own constituency, by 2020; one office in Cumbernauld by 2020; two offices in Dundee; three offices in East Kilbride; three offices to close and consolidate into one large office in Edinburgh; and two large offices to close and consolidate into one large office in Glasgow.

[Kelvin Hopkins (Luton North) (Lab)]

I am pleased to say that I support the motion. The motion also refers to HMRC offices throughout the UK. Does she have statistics for the whole of the UK as well as for Scotland?

[Hannah Bardell]

I do not have them to hand, but I would be happy to hear the hon. Gentleman’s specific views and discuss them with him.

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[Mr Gauke]

My hon. Friend is right to say that our record is strong, and we remain absolutely committed to that priority.

[Kelvin Hopkins]

rose—

[Mr Gauke]

If I may, I will make a bit of progress. I am conscious that I am being generous to the people who wish to intervene, but I should also be generous to those who wish to take part in the debate.

Royal Bank of Scotland

Kelvin Hopkins Excerpts

Thursday 5th November 2015 Commons Chamber

[Jeremy Quin]

I understand the attraction of that argument. The hon. Gentleman is an economist of fine standing, and his point, which was also made by the hon. Member for Edmonton, is one to which we would all like the answer yes, but it is not as simple as that. The reality is that the value of a share is what people are prepared to pay for it. We know what the value of RBS is at present. A lot of actions were taken within RBS that might have been right for the UK economy but not have added to the value of the share price. If we are expecting RBS to act in the interests of the UK, that may not always be right for their share price.

[Kelvin Hopkins (Luton North) (Lab)]

Will the hon. Gentleman give way?

[Jeremy Quin]

I will, but let me make one final point in rebutting the point made by hon. Member for East Lothian (George Kerevan), and then I am sure the hon. Gentleman will have another go. The Rothschild report is thorough—it is bigger than the two pages produced by the Governor of the Bank of England—and sets out why the taxpayer can expect to at the very least break even and probably make an overall profit on their investment in the banking system. That is a remarkable achievement, given that back in 2009, when the Labour party was in government, the Treasury was talking about a £20 billion to £50 billion loss.

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[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I congratulate my hon. Friend the Member for Edmonton (Kate Osamor) on securing this debate. I totally agree with her that, given the fact that RBS is a major public asset and that its proposed sale is of huge significance, the level of both public and parliamentary debates has been very limited. This debate will at least go some way towards addressing that.

I will not labour that point, but I will start from the perspective of the taxpayer, who has a huge interest in the issue. There are two specific but overlapping interests. The first, which has already been debated, is the issue of recouping the money the taxpayer has invested in the bank. The second is the need to ensure that, even if the bank is sold, it supports the wider community interest and the overall economy in a way that will boost the economy and future tax receipts. The sale as mooted does not seem to do either of those things.

I am grateful to the New Economics Foundation for some of the figures I will mention. From February 2014 to February 2015, RBS traded at an average of 349p per share, way below the UK Financial Investments assessment of the 482p per share needed to recoup the taxpayers’ investment. If we also consider the additional uncertainties about the costs of fines and litigation related to the mis-selling of products and the manipulation of LIBOR, we will see that there is a big question mark over what the market will stand.

Failure to recoup taxpayers’ money might, in certain circumstances, be justified if the returns from the capital receipt contributed substantially to public finances. The Government have committed themselves to using the money raised from the sale to pay off public debt, but, as things stand, interest rates are low and the amount that would be paid off would be modest. It is reasonable for the House to ask for an exercise to be completed calculating the amount that would be paid off compared with the amount the taxpayer may get as a result of restructuring the bank and of the investment in our wider economy and the increased tax receipts that would generate. That would not be a simple exercise, but, given the significance of the proposed sale of the bank, it is reasonable to expect the Government to perform it and to put it before the public and Parliament before they justify their decision.

I will make a few comments about the financial services industry in general. Britain is a world leader, and I would not wish in any way to detract from the industry’s crucial position in the economy. However, in fulfilling its secondary objective of underpinning growth in the rest of the economy, it has been much less successful and lags behind many of the banking services of our key international competitors. UK banks have increasingly favoured lending to other banks and for real estate, rather than to production sectors of the economy such as construction, manufacturing, transport, communications and retailing.

That has really been brought home to me by recent events. It is ironic: we have a Government who talk about the status of our financial services industry and are philosophically and ideologically committed to the free market and the capitalist process of wealth creation, yet when we need major investment in infrastructure and regional development, they have to cosy up to China, the foremost communist country on the globe. I do not think that there can be any clearer demonstration of the total dysfunctionality of our financial services market.

[Kelvin Hopkins]

It is ironic that the Government are intent on privatising, yet when they privatise they often sell off British assets to foreign Governments. Nationalisation is all right so long as assets go to a foreign Government, not to the British Government.

[Mr Bailey]

I take my hon. Friend’s point.

--- Later in debate ---

[Mr Bailey]

The hon. Gentleman’s intervention reinforces the sheer incoherence, inconsistency and irony of the Government’s policies towards the financial sector.

I want to speak for a few moments about small and medium-sized enterprises. The Government talk about rebalancing the economy, first from service industries to manufacturing and then from London and the south-east to other regions. If we look at the economy, we see that that must be done through SMEs. They constitute 90% of our businesses, 60% of employment and 50% of output. Although those in manufacturing may represent only 12% of our total GDP, they are hugely significant and crucial to driving up productivity and in our export performance, which are key pillars in driving forward our economy.

It would be reasonable to look at our financial services sector to see what it delivers to help to drive forward the economy. Finance and investment are the fuel for this engine of growth, but the problem is that the fuel is flowing in exactly the wrong direction. Despite Government schemes to boost investment loans to small businesses, the number of such loans has declined. The level of lending is highest in London, which has the smallest manufacturing sector and the largest service sector, and lowest in the regions, where there is a higher proportion of manufacturing. Take my own region of the west midlands, the region with the highest manufacturing output: it receives 9% of investment while London receives 20%.

As was articulated by my hon. Friend the Member for Edmonton, one of the reasons behind the situation is the decline of branch banking. We have an over-centralised system. The demise of local banking and the growth of digitalisation have led to a consequential reduction in the local knowledge and insight required to understand the needs of both local communities and local business.

[Kelvin Hopkins]

Will my hon. Friend give way?

[Mr Bailey]

I will, but I am conscious that other Members wish to speak.

[Kelvin Hopkins]

It is tragic that Britain’s manufacturing as a proportion of GDP is about half that of Germany’s. Germany has used its banks properly; we have not. We now have an absolutely enormous balance of trade deficit simply because we cannot produce enough for our own use.

[Mr Bailey]

That was a well-timed intervention because my next comment was going to be that the opposite is true in countries such as Germany, where there is a tradition of regional banking, local engagement and long-term support for small businesses.

We would reasonably expect the Government, given their stated policy objectives of rebalancing the economy and boosting our exports and productivity, to look at the banking system as a whole and, given their ownership of RBS, to consider what they could do to address the gap in the market and achieve their policy objectives. Even their flagship British Business Bank seems to be replicating the sort of business-support models that have not previously worked. That market failure has led to the growth—I might add that that growth is very welcome—in community finance companies and peer-to-peer lending. They are playing a vital role in providing sources of finance in ways not addressed by the major, highly concentrated banks in this country. We would reasonably expect a Government who own RBS to look at its potential to support businesses.

The alternative Government policy seems to be to correct market failures through local enterprise partnerships and the regional growth schemes, some of which have been quite successful. One of the most successful schemes, operating through a community development finance institution under a £60 million regional growth fund programme, has outperformed nearly all other RGF schemes. What will happen? Nobody knows, because there is no commitment to fund it after 2016. The Government are selling off a bank that they control to the private sector, which has no record of supporting the very areas of business we most need for economic growth yet they are neglecting the sector that can deliver such investment.

In February, the British Business Bank commissioned a report on the community development finance sector. The report was supposed to be ready in time for the comprehensive review, but there has been a four-month delay and no report has yet been made. The sector therefore has no idea what its future funding support will be in continuing very effectively to deliver investment for small businesses that are being neglected by the existing banking sector.

To summarise quickly, we have a banking sector that is brilliant at making money, but fails to use its strength for the rest of the economy. The sector is over-centralised and fails to reflect the diversity of provision needed to meet the wider demands of our economy. Government schemes have failed to reach their full potential because they use existing banking structures. Where alternative structures exist, banks do not engage as they should. That is a major obstacle to delivering the Government’s policy objectives on exports, productivity and regional growth. In that context, the Government have a window of opportunity to make a change, and they have an enormous investment in a significant bank with the potential to drive such a change.

As it currently stands, the policy decision is based on political expediency, rather than the needs of the economy or the stated objectives of Government policy. Indeed, it actually contradicts elements of Government policy. I support the motion because it is time to think again.

[Mr Steve Baker (Wycombe) (Con)]

Some lessons of history are so well established as to virtually be axioms: the Government ought not to own banks and private enterprises ought not to be bailed out by the taxpayer. Unfortunately, the Government do own banks and those banks were bailed out by the taxpayer. I think that the taxpayer bail-outs, which involved the privatisation of profit combined with the socialisation of risk, together with all the conduct issues that we all know so well, have done a great deal to undermine faith in the market economy, which we know is the only way to sustain billions of people on the face of the earth.

Some of the issues that have come up today go to the heart of how we should structure a market economy. In my view, in a market economy there should be a plurality of ownership models for banks. One of the great mistakes of the 1980s was the demutualisation of building societies. [Interruption.] I see my hon. Friend the Member for Horsham (Jeremy Quin) nodding furiously in agreement, for which I am grateful. As a teenager, I knew instinctively that the mutual model aligned interests in a way that the shareholder model did not. I was opposed to the demutualisation, or carpet-bagging as it was called, that went on then. These days, I have more theoretical grounding for my views and I certainly believe that we should have a more diverse banking sector, with more mutuals and co-operatives.

I should say briefly that the systemic problems that have affected the entire banking system around the world, irrespective of ownership models, are symptomatic of far deeper problems in the institutional arrangement of money and banking, which I have talked about at great length on other occasions.

[Kelvin Hopkins]

The problems around the world derive from the fact that we have a globalised financial system with no boundaries between countries, so money can flow freely around the world. Had we been insulated from what happened in America, we might have survived rather better.

National Insurance Contributions (Rate Ceilings) Bill

Kelvin Hopkins Excerpts

Tuesday 15th September 2015 Commons Chamber

[Kit Malthouse]

My hon. Friend has made a powerful point. Some of the sectors that are the most critical to the UK’s future success—aerospace, technology and life science, in which I have a particular interest—are international businesses that make huge bets on countries on a regular but long-term basis. Some predictability is therefore absolutely key.

My final point is about inflation. We are living in a financial atmosphere in which inflation will be of concern over the next five to 10 years, and we need to be careful to ensure that it does not get out of hand. We have been extremely successful in doing that so far. As I have said, national insurance forms a large part of prices. The Government—any Government—must bear in mind that if taxes rise, so do prices, over time. By injecting an element of freeze into the national insurance bill, we are also doing our bit to relieve whatever inflationary pressures may be generated in the economy.

[Kelvin Hopkins (Luton North) (Lab)]

The hon. Gentleman talks about inflation as if it were the danger, but the real danger at the moment is deflation. Japan has been struggling with deflation for a decade and more. There is a serious problem across the world caused by prices rising below the threshold deemed appropriate by central banks, especially in Britain, and in America, the threat of rising interest rates is terrifying the world that we may be plunged into another economic crisis. It is deflation that is the problem; inflation is not even on the horizon.

[Kit Malthouse]

The hon. Gentleman may have a point at the current time, but some of us are of an age to remember the destruction that was wreaked on the last generation by inflation. My grandparents’ pensions were destroyed by it. I hope he will forgive me for having an atavistic fear of it, a fear that it may, at any point, appear over the horizon. Anything that we can do to defray that fear, either now or in the future, will be welcome.

I support the Bill. I think that it is a good idea. I will vote for it first because of the certainty that it will bring for business, secondly because of the international signal that it will send, and thirdly because I think that anything we can do to bear down on any inflation, either now or in the future, will be extremely welcome.

[Stewart Hosie (Dundee East) (SNP)]

As the Minister said, the Bill will prevent any increase in the current rates of class 1, class 1A and class 1B national insurance contributions paid by employees and employers for the duration of the current Parliament. It will also provide that, for each year, the annual upper earnings limit cannot exceed the higher-rate threshold, which is the sum of the personal allowance and the income tax basic rate. All that is very sensible. There is nothing wrong, in principle, with any Government’s providing certainty in the tax code for the duration of their term in office. However, we clearly do not need legislation to do that.

As has already been said—so I shall say it only once—the Bill is a gimmick. It also demonstrates, in many ways, a lack of confidence. I shall say more about that shortly, but the key point is that placing such an arbitrary and unnecessary restriction on the Government’s ability to respond to unforeseen events may yet come back to haunt them.

The Bill results from the Finance Bill, which was published in July, and which provides for the tax lock on national insurance contributions, income tax and VAT. As was said earlier, it is intended to apply to a tax year that comes after the date of the Bill’s Royal Assent and before the first general election after that date. The time scope is therefore rather limited. There is also a technical issue. This is a separate Bill; the measures are not in the Finance Bill because statutory provisions for NI cannot be included in it.

However, none of this should be any surprise to us. The Conservative manifesto said that in government the Tories would not increase the rate of VAT, income tax or NICs in this Parliament. That should have been enough; the legislation is not required. In a speech ahead of the general election the Prime Minister confirmed that the tax lock also meant there would be no extension to the scope of VAT or any increase in the ceiling set for the main rate of NICs for employees.

[Kelvin Hopkins]

The hon. Gentleman mentioned VAT and the lock that the Government propose. Does he agree it would have been more impressive if they had had that lock before they raised VAT from 15% to 20% rather than after?

[Stewart Hosie]

That is the kind of thing any Opposition politician should say about any set of Tory policy decisions that ends up with the kind of outcomes the hon. Gentleman describes.

The Government also committed to legislating within 100 days of the election to rule out increases in the rates, which is what we are seeing today, but of course serious unintended consequences for spending and for other taxes may flow from this measure. Let me explain. The Government laid out in the summer Budget discretionary consolidation—that is, cuts and tax rises to you and me—amounting to £97 billion in this Parliament. Of that, new draconian cuts to welfare amounted to a full third—£33 billion—but the entire spending plan was predicated on, among other things, NICs bringing in £115 billion this year, £126 billion next year, rising to almost £152 billion in 2021. That is a forecast rise in revenue yield from NICs of 9.6% this year to next, 4.3% the year after, 4.7% in 2017-18 to 20118-19, and a rise of over one third—£37 billion—between last year and the end of the forecast period.

One of the questions the Minister has to answer today is this: given the arbitrary freeze on NICs and some other rates, should the forecast yield be significantly less than expected, will other taxes rise and if so, which ones; and will the Chancellor take the axe to yet further spending, perhaps on pensions, or will borrowing rise and deficit reduction forecasts simply be abandoned, delivering exactly the same failure on debt and deficit we saw in the last Parliament?

--- Later in debate ---

[Stewart Hosie]

The £1.5 trillion black hole, which is the UK national debt, is of rather more significance than any cyclical deficit any country may have, but then I suspect the hon. Gentleman probably knew that already.

Returning to the scope of the Bill, it is important that the Minister says what will happen should the yield forecasts be less than planned. That is important for his Government, too, because their rationale, as stated in their manifesto, was focused on

“reducing wasteful spending, making savings in welfare and continuing to crack down on tax evasion and aggressive avoidance.”

That allowed them to commit to no increases in VAT, income tax or NICs. They argued:

“Tax rises on working people would harm our economy, reduce living standards and cost jobs.”

I have no problem with tackling genuinely wasteful spending, such as Trident, or clamping down on tax evasion, but it is this Government’s attack on welfare which is harming the economy, reducing standards of living and threatening the growth needed to ensure the forecast yield from NICs is maintained in the way the Red Book forecasts suggest.

[Kelvin Hopkins]

I have a great deal of sympathy with what the hon. Gentleman has been saying. He mentioned the tax rises that have taken place which have brought the Government considerable increases in revenue, but does he agree that those taxes tend to be regressive and the one thing the Government are protecting is the progressive tax, which is much fairer, called income tax, which they have sought to reduce for high income earners?

[Stewart Hosie]

It is certainly the case that during the downturn the decision to remove the 50p rate of tax was wrong. We would certainly argue that in the current climate that 50p rate should have been maintained. In that respect at least, I agree with the hon. Gentleman.

I wish to raise at this point the Conservatives’ future plans to replace national insurance because that is pertinent to the measure under discussion. In July, the Financial Secretary commissioned the Office of Tax Simplification to review the interplay between income tax and NICs. He said:

“I would like the Office of Tax Simplification to look at what the impacts, costs and benefits of closer alignment would be and to set out what the necessary steps would be to achieve closer alignment. We believe greater integration of the two systems has the potential to remove economic distortions, reduce burdens on business, and improve fairness across individual earners.”

These are all sensible objectives, and I assume this is still a longer-term Government objective, so let me ask the Minister how this Bill assists in the delivery of that aim.

I said earlier in my contribution, and also in a debate on the financial statement in July, that the Chancellor promised a tax lock but that legislation to stop tax rises was

“just a gimmick and no one is going to buy it”—[Official Report, 8 July 2015; Vol. 598, c. 348.]

Indeed my hon. Friend the Member for Edinburgh East (Tommy Sheppard) made the same point:

“If these provisions are included in what”

is now this Bill today

“it will only take a clause”

in future legislation

“to overturn them. They are therefore literally not worth the paper on which they are written.”—[Official Report, 21 July 2015; Vol. 598, c. 1441.]

He was right, of course, and that ties in with what I said earlier about a lack of confidence.

Of the Bill that became the Labour Government’s Fiscal Responsibility Act 2010, where levels of debt and deficit were planned but there was no sanction if they were broken, the current Chancellor said that it would achieve

“a constitutional first of imposing no legal sanction on the person who is likely to break it. No other Chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own Budget”—[Official Report, 26 November 2009; Vol. 501, c. 708.]—

until now.

Let me reprise that for this Bill. This is a constitutional second. Only one other Chancellor has felt it necessary to bring legislation before this House in order to convince people that he has the confidence to implement his own Budget. We saw Gordon Brown go from Joseph Stalin to Mr Bean; I fear the First Secretary may be reverting to a rather rusty clunking fist.

As has been said, a large number of stakeholders have contributed to this debate, and key from our point of view are the words of Howard Archer, chief European and UK economist at IHS Economics, who said that such a move would restrict the Chancellor’s ability to achieve his targets:

“In particular, if the public finances fall markedly short of their targets, the chancellor would have to face making even more spending cuts and/or raising other taxes. Or just accepting the missed targets. There really still needs to be a lot more clarity on the whole Conservative fiscal policy”.

That is absolutely right.

It is also worth noting the comments of Jonathan Portes from the National Institute of Economic and Social Research. He said the pledge not to increase the main taxes

“considerably reduces our flexibility if things turn out different from expected. This is why I have absolutely no doubt that Treasury and Bank of England officials were tearing their hair out at this.”

What discussions, if any, have the Minister, the Chancellor or the Treasury had with the central bank about these proposals and the inherent lack of flexibility that they generate?

Let me turn now to some of my final questions. I ask Members to bear with me as I describe some of the complexity of the current NICs regime. Employees pay NICs on their earnings if they exceed the lower earnings limit, which is set at £112 a week. A zero rate of NICs is charged on earnings between the lower earnings limit and the primary threshold of £155 a week. Earnings above the primary threshold are charged NICs at a rate of 12%, subject to a cap on the upper earnings limit, which is set at £815 a week. Earnings above that are set at 2%.

Employers pay NICs on employee earnings at a rate of 13.8% on earnings above the secondary threshold, which, at £156 a week, is a difference of £1 from the primary threshold for employers. There is no ceiling on secondary class 1 NICs.

As everyone in the Chamber knows, self-employed people pay a weekly flat rate class 2 NIC. They may apply for an exemption from paying class 2 contributions if there are no profits, or if their profits are less than, or expected to be less than, £5,965 for the year. This replaced a small earnings exemption from April this year. In addition, they may be liable for separate class 4 earnings, and on it goes.

Tax simplification is a great idea, and we can see precisely why. Will the Minister explain how these proposals will make the NICs regime more straightforward? In addition to those categories, individuals may be entitled to make voluntary class 3 contributions to avoid or fill gaps in their NI record to ensure that they qualify for basic retirement pension and bereavement benefits. Does the Minister expect more or fewer people to make additional voluntary contributions as a result of the tax lock to the NICs described in the Bill, and will there be any encouragement for them to do so?

The majority of NICs receipts are paid into the national insurance fund, which is separate from all other revenue raised by taxation. The fund is used exclusively to pay for contributory benefits. If the revenue yield from national insurance does not rise in the planned heroic way that I described earlier, can we expect to see cuts directed at the contributory benefits that people have already paid for? There is often unintended consequence from any legislative change—and sometimes perfectly foreseeable behavioural change that may affect yield forecasts. That is an argument that Treasury Ministers have, from time immemorial, fallen back on when they are implementing bad decisions. What assessment have the Government undertaken to predict whether any negative behavioural change is likely to result from these measures, particularly given the differential in rates and thresholds between employee, employer and self-employed national insurance contributions?

Finally—this is really my most important question and at the heart of our disquiet over a legislative attempt to provide certainty over this Parliament—as the majority of NICs receipts are paid into the national insurance fund and that fund is used exclusively to pay for contributory benefits, may we have a cast-iron guarantee from the Minister today that this Bill is not and will not be the start of an attack on, or an erosion of, the contributory principle that applies to national insurance contributions?

--- Later in debate ---

[Kelvin Hopkins (Luton North) (Lab)]

I apologise, Madam Deputy Speaker, for having to leave the debate for a short while, but I managed to catch the major part of the speech by my hon. Friend the Member for Bishop Auckland (Helen Goodman). It was an excellent speech and I agree with every word of it, but I did not know that she was half Danish. I want to say something about Denmark, a very sensible country with a more appropriate taxation system than we have. As the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) said, would Members prefer to live in Denmark or Mexico? I know which I would choose; Denmark is clearly a more sensible country.

I have been to Denmark on a couple of occasions and it does two very sensible things. First, the Danes have retained their own currency, which is sensible, but they also seek to manage its value, which we do not, and that is also sensible. One result of the Danes’ sensible taxation system is that they can sustain students without fees but with grants until the age of 25. A few years ago, I understand, the average class size in schools in Denmark was 15. No wonder they have advantages that we do not; they are prepared to pay for them—[Interruption.] I shall talk about national insurance, but I wanted to mention the sensible country of Denmark, which I so admire, before I started.

The lock on the taxation system is a gimmick, as my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) has said from the Front Bench. Surely a promise from the Chancellor of the Exchequer would be appreciated, understood and believed by the business sector. A Conservative Chancellor making a promise is enough. This Bill is like saying, “I promise not to rob the bank any more, but do put the handcuffs on me.” He is clearly not a bank robber, but does he need to have those handcuffs on him just to do what he believes to be the right thing? He has given away flexibility in any case, and I certainly would not do that, because we cannot foresee what will happen.

There is a real possibility, for example, of another financial crisis coming down the road. I mentioned in my speech on the Budget forecasts that there will be another serious economic crisis in the not-too-distant future. Precisely when that will happen, we do not know, but we ought to retain flexibility with all the economic levers at our disposal to ensure that Britain is protected if that happens.

In the previous crisis, the British Government, led by Gordon Brown, persuaded the world to recapitalise the banks. If we had not done that, the whole financial system might have collapsed and we would have been in a much worse situation. I am not saying that I agree with everything that my former right hon. Friend did, as I was often a critic of our policies. Nevertheless, that had to be done, even though in a sense it rewarded the gamblers who had gambled away our future and made our lives so much more difficult. Those difficulties continue today, but it was the bankers gambling on the free financial markets who caused the problem. It was nothing to do with the Labour Government, and, indeed, all sorts of economists say that Labour did the right thing when the crisis happened.

[Kwasi Kwarteng]

We are wandering rather further from the topic of the debate than I would like, but how would the hon. Gentleman explain the consistent deficits we ran from 2001, as the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) suggested? We were in deficit every single year for the last nine years of the Labour Government.

[Kelvin Hopkins]

I can only refer the hon. Gentleman to the excellent article by the economist Ben Chu, which goes into detail showing why Labour was not to blame and was not responsible. The crisis caused the deficits, but if we had not recapitalised the banks, where would we be now?

Let me go back to the instability mentioned by the hon. Member for North West Hampshire (Kit Malthouse), who is no longer in his place. He talked about businesses wanting stability. Instability arises because of the globalisation of financial markets. Before 1979, we managed financial markets with exchange controls. The breakdown of the Bretton Woods agreement is what caused the problems.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The hon. Gentleman is completely right to say that this is purely a gimmick by the Government. There is no need for a legislative vehicle to enact this policy; the announcement could be made in a Budget statement or an autumn statement, as appropriate. Does he agree that, if the Government were serious about helping working people, and people on low incomes in particular, they would increase the threshold at which national insurance contributions kick in to the level of personal allowances for income tax, rather than implementing the pure gimmick of this Bill?

[Kelvin Hopkins]

That would certainly be one way of dealing with it, but I think that not cutting tax credits, which are coming up for debate this afternoon, would be a much more important way of helping people on low incomes. We should certainly do that.

[Graham Stuart (Beverley and Holderness) (Con)]

The hon. Gentleman, as ever, is gracious in giving way. He suggests that the Labour Government were not responsible. Surely, bankers are driven by the incentives in the global markets he described to make money and the job of Government is to regulate those markets so that they benefit the public and do not poison the public well. On that fundamental duty, including the dismantling of the previous Bank of England supervision regime, the Labour Government failed.

[Kelvin Hopkins]

I have to agree with the hon. Gentleman, but the great deregulation occurred in 1979 with the abandonment of exchange controls. During the period of the New Labour Government, I was one of those who called constantly for reregulation rather than deregulation. I was out of step with my colleagues at the time, but I think we have now learnt a lesson and believe in more regulation. I certainly look forward to a more regulated economic world in the future, and if we have another crisis, I believe that regulation will come back.

I ought to get on to the question of national insurance contributions, as those comments were by way of a preamble to my speech. The suggestion has come from the Conservative Benches that we should abandon national insurance contributions and merge them with the tax system. That has been discussed over some time and I have flirted with the idea myself, but I have come down against it. I believe that although there should be a threshold so that people on very low incomes do not pay national insurance contributions, they reinforce the sense of all of us paying into a system and having a sense of entitlement to what the system can do for us when we are in need.

Tying us all into a system on a relatively equal basis for at least part of the income revenues is important. We pay national insurance contributions and we therefore have a right to pensions, the health service and so on. There is clearly not enough and much more has to be paid out of other forms of taxation. I prefer the more progressive forms of taxation, income tax being the most important, and I regret that income tax rates at the higher end have been cut pretty savagely since 1979. I remember the 1988 Budget, when Nigel Lawson cut the top rate from 60% to 40%. I had lunch in the City shortly afterwards with a number of City people, and they were amazed by it. They had watched the Budget on television and asked, “Why has he done this? We don’t need the money.” That is what people in the City were saying about the cut in the top rate of tax. I have no doubt that there are some people in the world who are so greedy that they want even more money, despite having millions already, but most people think that having a high rate of tax for the very highest earners is a good and progressive thing.

[Graham Stuart]

The hon. Gentleman must have seen the figures. Every time the higher rate of tax was cut, the amount paid by the richest, in both absolute and relative terms, went up. The truth is that Governments receive more money when they impose fair taxation and less when they follow the policy that he is advocating.

[Kelvin Hopkins]

I thank the hon. Gentleman for that intervention, but the fact is that successive Governments have failed to ensure that the rich pay their taxes properly. We have a tax gap of £120 billion a year. The fact that fewer people might fiddle their finances is not an argument for reducing the top rate of tax. We ought to have a proper regime for enforcing tax payment by those who get away with it: the corporates and the billionaires who manage to avoid and evade tax on a massive scale. If we collected only a third of what is fiddled every year, we would have another £40 billion a year to spend. I think that we have failed on that because all Governments have opted for a light touch on the rich. That is the truth.

[Simon Hoare]

The hon. Gentleman obviously has the inside track on the voice of the City—he has referenced lunches he has had in the square mile—so could he illume the House on what the City’s view is on the new policies of his right hon. Friends who now occupy the Opposition Front Bench?

[Kelvin Hopkins]

I must say that I have not had lunch in the City recently. Indeed, my contacts with City people have not been of the highest order since 1998. I once had lunch with the Governor of the Bank of England, shortly after being elected, and very enjoyable it was too. That was when “steady Eddie” was in charge—he was a splendid Governor and I am sorry that he is no longer with us.

I believe that there are ways of ensuring that we collect the taxes that are due from the rich. Personally, I believe that I should pay more income tax, along with everyone else on my kind of salary—I earn £74,000 a year. Indeed, the majority of the population have said that they would be happy to pay a little more tax in order to help our health service, which is still seriously underfunded.

I believe that national insurance contributions set at a modest level are an important part of our tax and revenue-colleting system. It gives us all a sense of collectivity, which I think is right. We call that the contributory principle. It means that we have a sense of duty in paying taxes as well as a sense of entitlement in receiving what they pay for. I agree with my hon. Friend the Member for Bishop Auckland, who is no longer in her place, on the upper earnings limits.

VAT is a regressive tax. It was noticeable that Gordon Brown, when Prime Minister, cut VAT from 17.5% to 15%, which boosted demand at the moment that was needed and, together with a substantial depreciation of sterling, helped to keep the economy relatively stronger than some other economies. We have since survived, but I think that we are now making a mistake in allowing sterling to appreciate. It has moderated a bit in recent weeks, but it is still far too high, and manufacturing is suffering as a result.

I understand that the Opposition are going to acquiesce in what the Government are proposing today, but I agree entirely with the view put forward by my hon. Friend the Member for Bishop Auckland. I look forward to my party coming into government next time around with our new leader committed to ensuring that the rich, the corporates and those who have been getting away with it for years pay their taxes so that we can build a decent society on the revenues that they should provide.

[Kwasi Kwarteng (Spelthorne) (Con)]

I am pleased to follow the hon. Member for Luton North (Kelvin Hopkins), although I felt as though I was entering a time warp when listening to his speech; it is a long time since I have heard anyone defend exchange controls. I believe that the limit on the amount of money that someone could take out of the country was £50, and they had to declare everything else. Given the current political climate, it is very interesting to hear a Labour Member advocate such a policy.

[Kelvin Hopkins]

rose—

[Kwasi Kwarteng]

I am happy to give way this once.

--- Later in debate ---

[Kelvin Hopkins]

It was a temporary limit imposed on holidaymakers by Harold Wilson, but most had no problem spending money abroad. What we did was ensure that the bankers and international speculators did not have free rein.

[Kwasi Kwarteng]

I am glad to hear that everything was all right because it was Harold Wilson who imposed the limit, which I think was £40.

Of course this is a sensible Bill. Of course it makes sense to limit national insurances contributions, because they are, after all, as has been pointed out, a tax on jobs. My hon. Friend the Member for North West Hampshire (Kit Malthouse), who is no longer in his place, made an excellent point about the things we do here being a signal to people outside, such as investors, potential entrepreneurs and people who want to set up businesses. If the Government get the Bill through, I am confident that it will send a very good signal to people who want to invest in the British economy and in our constituencies and who want to set up small businesses.

My constituency of Spelthorne is very near Heathrow airport and lies on the Thames, and it is a case in point. It is an area where small business and private enterprise is at the core of people’s way of life. It is the basis on which people go to work, save and plan for their retirement. Essentially, they are people who are driven and motivated by small business. Therefore, a Bill that caps national insurance tax is an excellent development that will be warmly appreciated across my constituency.

We have heard a number of arguments this afternoon that simply do not make sense. On the one hand, we have heard from Labour Members that the Bill is a gimmick and that it is wrong. On the other hand, they have said that they will support it. Indeed, we have also heard that they were apparently the first people to come up with that gimmick. It seems very odd. I am still utterly confused about their position.

The hon. Member for Dundee East (Stewart Hosie) made a very good point, but I recall that before the general election his party was the biggest deficit denier—it was even worse than the Labour party in denying the deficit and ranting against austerity. It is a very confused picture. I would be very interested to see what the SNP will do if the House divides on the Bill.

--- Later in debate ---

[Mr Gauke]

I understand why the shadow Minister does not want to defend the position of the current leader of the Labour party, but let me make this point clear. The Prime Minister came into office in 2010 with a mission to turn around the UK economy. He succeeded and was re-elected with a majority in 2015.

The hon. Member for Luton North always makes entertaining and thoughtful speeches. I noted that he praised the tax system of Denmark, but I would point out that its VAT rate is 25% and it does not have any lower rates. I can assure him that we will not follow Denmark’s example and put VAT up to 25%.

[Kelvin Hopkins]

I would be happy if the Danes lowered their VAT rate, but can the Minister tell us what Danish income tax rates are?

[Mr Gauke]

I do not have all the numbers in front of me, but I take it from the hon. Gentleman’s remarks that he would like to put income tax rates up, not down—[Interruption.] Well, I know he is very close to the Labour leadership and I suspect that he may prove to be an influential figure in deciding policy.

I am delighted that we do not appear to be divided on this measure, even though we heard some doubts about it from Labour Back Benchers. I am grateful to hon. Members for their contributions. This is an important part of the Government’s long-term economic plan, providing certainty and stability to the taxpayers of this country. I am pleased that we are making progress on providing that certainty and stability, as well as protecting the British people from tax increases, at least for the course of this Parliament and—we hope—future years as well.

Question put and agreed to.

Bill accordingly read a Second time.

NATIONAL INSURANCE CONTRIBUTIONS (RATE CEILINGS) BILL (PROGRAMME)

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

That the following provisions shall apply to the National Insurance Contributions (Rate Ceilings) Bill:

Committal

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

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 27 October 2015.

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

Consideration and Third Reading

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

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

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

Other proceedings

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

Question agreed to.