Bank of England: Monetary Policy Committee

Lord Barnett Excerpts

Monday 14th October 2013 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government when the Chancellor of the Exchequer last met the Governor of the Bank of England in his capacity as chairman of the Monetary Policy Committee, and what they discussed.

[Noble Lords]

Hear, hear!

[Lord Newby (LD)]

My Lords, I am sure that the whole House will wish to join me in congratulating the noble Lord on his 90th birthday. There are clearly two Barnett formulae. There is first the public one that we regularly discuss in your Lordships’ House, but secondly there must be a secret elixir that enables the noble Lord to continue to play an energetic part in our deliberations undiminished by the passage of the years. We wish him many happy returns.

The UK’s Monetary Policy Framework, set out in the Bank of England Act 1998, gives operational responsibility for monetary policy to the independent Monetary Policy Committee. The Chancellor of the Exchequer has frequent discussions with the Governor of the Bank of England on a wide range of issues in the UK economy.

[Lord Barnett (Lab)]

My Lords, I thank the noble Lord for his initial comments. In the light of those, I had better be kind to him, but I am afraid that when he answered a similar question on 9 July, I believe that he misled the House on an important issue of the independence of the Monetary Policy Committee and the Governor of the Bank of England. I gather that he was depending on a command paper and on an exchange of letters between the Chancellor and the governor, but surely you cannot change a major Act of Parliament—the Bank of England Act 1998—by an exchange of letters and a command paper. That is clearly impossible. Can he explain how he has done that? The independence of the Monetary Policy Committee is important, as the new governor has told the country that he believes in long-term forecasts. He has forecast interest rates which clearly would be affected by QE, on which he is apparently being given unfettered power. Whether or not he has those powers, could the Minister explain and confirm that the Chancellor has agreed to allow the governor and the Monetary Policy Committee unfettered control over interest rates and QE?

[Lord Newby]

My Lords, that is what the Bank of England Act says. The Monetary Policy Committee is operationally independent. The remit of the Monetary Policy Committee has to be set by the Governor of the Bank of England. It has to be renewed every year. It was renewed this year. The difference between this year and previous years is that the Chancellor asked the governor to look at possible methods of forward guidance which would give greater certainty to the markets about the medium-term movement of interest rates and, indeed, QE. That is exactly what the governor did, in line with the request from the Chancellor which was in line with the provisions of the Bank of England Act.

Financial Services (Banking Reform) Bill

Lord Barnett Excerpts

Tuesday 8th October 2013 Lords Chamber

[Lord Lawson of Blaby (Con)]

My Lords, I listened very carefully to what my noble friend the Minister said. I am extremely grateful to him for the extent to which he has accommodated the points made by the Parliamentary Commission on Banking Standards, of which I had the honour to be a member and to which the noble Lord, Lord Turnbull, referred—and I entirely endorse his remarks. However, the remarks that the Minister has just made simply do not stack up. Before going into why that is so, let me put a little perspective on what we are doing today. It sounds very dry, arid, tedious and tiresome in many ways. Indeed, it is not a model of how to construct legislation, as my noble friend Lord Higgins pointed out. Nevertheless, it is testimony to the fact that the Government have listened attentively to what the parliamentary commission had to say, and what was said in the other place in response to it.

My noble friend the Minister has already raised matters wider than the amendment that we are discussing. He started to talk about the industry-wide separation power, which we were concerned about but which was not part of this group of amendments. We will come on to that later. In this country, we are suffering, as part of the wider world’s suffering, the after-effect of a most appalling global recession. There were a number of causes of that problem, but it is generally agreed that right at the heart of it was a banking meltdown. Nothing is more important, therefore, than to do whatever we can to ensure that a further banking meltdown in future is unlikely to occur and to ensure that, if it does occur, the damage will be much less than that caused in 2008 and thereabouts.

There are few pieces of legislation going through Parliament that are more important than this Bill. I am not saying that you can do everything with legislation—there are a number of wider issues. But you have to do whatever you can. It is a long time since this House has had such an important role in trying to ensure that it is put right. It is clear that the legislation that was introduced in the Commons and went through the other place was wholly inadequate, and as a testimony to that are all the amendments that we are discussing today and all the amendments that the Government have moved. It is up to this House to get the legislation right; that imposes a very great responsibility on us and we should look at the legislation in a non-partisan fashion.

The Minister rested his argument on the fact that the Vickers commission came up with this wheeze of ring-fencing. It was a compromise between full separation of commercial and retail banking and investment banking and just leaving it as universal banking. There are a number of problems with the idea of the ring-fence. As the noble Lord, Lord Eatwell, and others have pointed out, this is new territory and has never been done before. We do not know whether or not it will work. We know that separation can work. There was separation in the United States under the Glass-Steagall legislation from 1933 to 1999 when it was repealed and for most of that time it worked very satisfactorily. It was weakened as time went on as a result of the success of the American banks in lobbying various authorities in the United States to make exceptions here and amendments and changes there. We need to watch out for that. It was also weakened to some extent by the ingenuity of investment bankers in finding ways round it, to which the noble Lord, Lord Turnbull, referred. Nevertheless, separation worked pretty well in the United States and in the United Kingdom.

I speak with some experience. It is now more than half a century since I was the principal writer of the Lex column in the Financial Times and I have been a close observer of the banking scene throughout that period. I recall that for most of that period we had a separation between what were called the joint stock banks, which engaged in retail and commercial banking for small businesses and so on, and the investment banks, which were not called that in those days—they were called merchant banks. They were completely separate and it worked very well, so we know that separation can work, and has worked, in the two major banking centres in the world.

It is true that the continent of Europe has always gone in for universal banking. That is so in Germany in particular but is generally the pattern in continental Europe. However, it is no accident that the two major banking centres of the world, London and New York, had separation. That worked. Whether this halfway house can work or not is very uncertain. Although the remarks of my noble friend Lord Blackwell on this amendment showed that he got completely the wrong end of the stick on it, as the noble Lord, Lord Turnbull, pointed out, he was absolutely right to point to one of the problems, although not the only one, with the governance structure. It is a very curious governance structure in which the two subsidiaries of the holding company are together but separate. They are meant to be completely separate even though they both, as boards of directors, have responsibilities to exactly the same group of shareholders. It is a very odd system and we do not know the workings of it.

I say that my noble friend the Minister is unconvincing because his whole point rested on the fact that Vickers said the ring-fence is the right answer and that because Vickers said that we must stick with it and not change it. What we are saying, which is surely much more reasonable, is that we will, of course, give Vickers a chance. Indeed, we will try to reinforce his proposal by means of the so-called “electrification” procedures. However, if it is seen not to be working, we will have to go to separation. One member of the Vickers commission is already convinced that we should go to separation without any intermediate step but I am quite sure that nobody on the Vickers commission wishes to see a failure. Let us give Vickers a chance and see how it works but if it does not work—it has to be kept under review—we should go to full separation. That must be sensible. The fact that the Vickers commission said what it did is really no argument at all.

I am very glad to see the most reverend Primate the Archbishop of Canterbury in his place. He was a most distinguished member of our Parliamentary Commission on Banking Standards and I hope that he will contribute to our debates. One of the things that he has emphasised strongly—I have tried to explain the importance of this—is the problem around the culture of banking. This was accepted by Parliament when it set up the commission and, indeed, my right honourable friend the Prime Minister explicitly said that it was to deal with the culture.

One of the key problems is that retail and high-street banking—commercial banking—and investment banking are two completely separate cultures. It is very difficult, with the best will in the world. I am not against investment bankers, but I do not think they should be bailed out by the taxpayer. We may, from time to time, need to bail out the commercial banks, with their retail depositors and their responsibility for the payment system. They may need that, even though they have enhanced capital funds, but it is wrong, I think, ever to bail out investment banks; they should be like hedge funds, with a fear of failure restraining what they do. They will be imaginative, they will be adventurous, they will be creative, they will be exciting for those who are excited by this kind of thing, and they will have a totally different culture. To assume that you can get two quite separate cultures in the same entity is stretching it a bit. Therefore, we have to see how this will work. It may not work. If we are going to address this cultural problem we have to make sure we address it effectively.

We shall come on to the other amendments in the name of the noble Lord, Lord Turnbull, to which I have added my name, but on this major issue we have to strengthen the Bill in the way that the noble Lord highlighted, endorsed by the noble Lord, Lord Eatwell, for the Official Opposition. We have certainly not heard any good reason from the Minister why we should not do that.

[Lord Barnett (Lab)]

My Lords, I have enormous sympathy with the noble Lord, Lord Turnbull, who said in his introduction that he has never seen such a shambles presented to any House. As Chief Secretary to the Treasury, I had the misfortune for five years, as the noble Lord will know, to take two Finance Bills a year through, mainly because the first Bill had to be amended because it had not been properly scrutinised; it had been guillotined by all successive Governments. Yet I have never seen anything remotely like this Bill and I am grateful to the noble Lord, Lord Deighton, and his staff, who have done a tremendous job in trying to present to us what exactly is going on here. It is very difficult when one is working without a group of secretaries, let alone one, to understand what the devil is going on.

It seems to me that every speaker we have heard so far, apart from the noble Lord, Lord Lawson, is stumbling towards the only real solution. We will have to debate fairly soon to settle whether the House agrees to separation—call it Glass-Steagall, call it what you like. However, while we are stumbling in this direction—I am not sure from what my noble friend on the Front Bench was saying whether our Front Bench is stumbling towards it as well—it seems inevitable to me that we have to decide this one, major issue. However many times this is reviewed, ring-fencing can never be the solution to the different cultures that the noble Lord, Lord Lawson, referred to. It is quite impossible.

I do not want to take too much of the Committee’s time on this occasion, but we have to settle, once and for all, whether we agree with this ring-fencing idea. It is so complex that it makes the situation even worse, as we have heard in a number of debates. Until we settle this matter, we will go from amendment to amendment for years on end, and have reviews for years on end, getting nowhere at the end of it. I hope that we can have the major debate as soon as possible so that the House can decide.

Taxation: VAT on Retrofitting Buildings

Lord Barnett Excerpts

Thursday 25th July 2013 Lords Chamber

[Lord Newby]

My Lords, I think that we are all aware of the complications of trying to make a building such as this energy efficient, and I pay tribute to the work being done in that respect. Sadly, under EU legislation, the scope for a reduced rate of VAT on non-residential royal palaces is, I am afraid, non-existent. However, I commend, and refer the noble Lord to, the work that the National Trust is doing on green energy projects—for example, installing a biomass boiler system at Chirk Castle, which just shows what can be done. I remind the noble Lord that the Green Deal will apply to homes that are listed buildings.

[Lord Barnett]

My Lords, is the noble Lord’s strong support for energy saving why his right honourable friend the Chancellor is so strongly supporting shale gas, especially in Lancashire, where many jobs will be created? Lancashire will be very grateful for the support of the Chancellor.

[Lord Newby]

Shale gas is a significant potential new source of energy. As the noble Lord will be aware, we announced a series of measures in the spending review that will facilitate the development of shale gas. We think that it can play an important part in our future energy mix. Of course, the development of it will generate a number of jobs.

Financial Services (Banking Reform) Bill

Lord Barnett Excerpts

Wednesday 24th July 2013 Lords Chamber

[Lord Barnett]

My Lords, I noted that the noble Lord, Lord Deighton, in opening the debate told us again that the Government were committed to all the recommendations of the commission. Forgive me, but it does not seem to me, as far as the ring-fencing side of this Bill is concerned, that the Government have totally accepted what the commission said. The commission did not go as far as separation, which, like the noble Lord, Lord Lawson, I would very much like to have seen, but the Minister has ruled out separation under any description, and the commission did not do that. So they have not totally accepted ring-fencing—I will come in a moment to what I want to say about ring-fencing.

I know that the Minister is new to Parliament, but he talked about there being “full scrutiny” of this Bill in the House of Commons. Anybody with any recent experience, let alone going back to my time in the House of Commons, knows that under successive Governments, all Bills have been guillotined all the way through. They may have spent so many days in debate, but I do not know how many people were seriously looking at the Bill when they did so. They certainly did not look seriously at this one.

The noble Lord, Lord Deighton, called this a Bill of the highest importance. It may be when we have finished with it and when we see the government amendments. He should understand that it is very important, as my noble friend Lord Eatwell said, that we see those amendments at an early stage, because we may wish to amend them. We cannot do that without even seeing them, although we might guess and have a chance at doing so.

I turn to ring-fencing, which is all I wish to speak about this evening. On pages 4, 5 and 6, we are told time after time where the real power lies in this Bill. On page 4, subsection (3) says:

“An order under subsection 2(b) may be made … only if the Treasury are of the opinion that”,

and then, subsection (6) says:

“An order under subsection (2)(b) may provide for the exemption to be subject to conditions”.

Lower down that page, subsection (3) of proposed new Section 142B says:

“An order under subsection (2) may be made only if the Treasury are of the opinion that”,

and then there is a whole list. Lower down again, under proposed new subsection (5), it says:

“The Treasury may by order”,

while subsection (6) refers to,

“An order under subsection (5)”.

The whole way through, everything that has to be done under this section of the Bill can be done only by order of the Treasury, not by Parliament. It does not surprise me too much that the Treasury wants all these powers. In my experience, that is what it wanted and it seems to have got it. That is because a Bill does not really go through the House of Commons as fully as it does here in the House of Lords, so our job on this Bill—to go through it with great care—will be even more important.

We are told by the commission that on ring-fencing, if I read the report correctly, it does not want full separation as the noble Lord, Lord Lawson, and I might like to see. However, it would in certain circumstances be prepared to go to it. As I understand it, that has been ruled out under any circumstances by the noble Lord, Lord Deighton, and by the Government. The whole question of Glass-Steagall is very important and an important article was written by John Authers on it recently, on 15 July. His very interesting article spoke of the amount of bank assets as a percentage of GDP. In the United States in 2010, that amount was 81%, but here in Europe it is ginormous. In Germany, France and Spain respectively, the figures were 294%, 416% and 325% of assets as a percentage of GDP. That is because the banks have grown substantially, which is why they need separating. In the UK, for example, the most recent figures on 19 May showed that we had 492% of GDP as bank assets.

Merger after merger after merger has led to precisely the problem we are now seeing. That is why the banks were led to near failure in some circumstances and almost had to be bailed out in others. However, the Government are not prepared to consider that separation or even to debate it. It should be debated fully. It cannot just be dismissed; the issue is too important for that. I hope that during Committee and certainly later on the Bill, we will have an opportunity to consider it and whether it should remain as it is, with things being able to be done just by Treasury order.

Unlike some, I am not always of a suspicious mind, but on the lobbying question, I cannot help feeling that there might have been just a little lobbying by the banks of the Government. I would be glad if the Minister could tell us whether the banks were responsible in any way for the drafting of parts of the Bill. It would not surprise me if they were—it does happen. It could save a lot of work by giving them drafts. Did they discuss the drafting and were they finally happy with it as it stands? Those banks are a very powerful body. They were even more powerful when Angela Knight did the PR work for them, but we certainly know that they are a powerful group. It would be interesting to know what lobbying the banks did of the Government because it is very important that the banks should not be too happy about what we are proposing here, as the current situation is simply unacceptable.

I am not sure whether the Bill will not still be unacceptable when we finish with it. Of course, we are told that all these amendments will be tabled. I very much hope that we will have them at an early stage but, for now, we are left high and dry. I hope that we will see them quickly and before we get to Committee. We have from now until October, so there is plenty of time for the Government to draft amendments—or get them drafted for them.

The Explanatory Notes are very interesting as well. Paragraphs 11 to 17 make it clear where the real power lies. It lies with the Treasury, as I suppose was always intended. It has the powers to do just about everything and anything. It has given some powers to the Bank of England, and the Bank of England in turn has got the PRA and the FCA, renamed from the FSA—no doubt so they can have a lot of the staff from the FSA doing the job that they were doing before. It does not really help us very much to be told that, from the start, the Government simply do not accept any kind of separation.

It would be helpful—indeed, it might be useful—if the Minister could point out in a list where the Government have disagreed with the commission. I know that there have been various statements by the Treasury but before we start, perhaps we could have a list of where the Government do not quite agree with the commission—certainly on the area of ring-fencing. That is the essential part of the Bill and if we do not get it right, we will be back where we were and we will have failures again before too long. I hope that we will see that list before too long.

Meanwhile, when the Glass-Steagall case was referred to in that article—I did not finish citing it—it talked about “seven decades” of total peace. I know that that was a different era when the banks had not started to merge to the degree they have today, but it was a peaceful era. There were no risks to banks because the banks were totally separated. The Government are not prepared to consider that, but that does not mean to say that we should not be prepared to consider it. I hope that we will have an opportunity to do so. It may sound it, but I am not being party political here, I hasten to add. Indeed, the noble Lord, Lord Lawson, knows that I am not.

I certainly hope that our Committee will be looking at this for as long as we want. We cannot be guillotined like the House of Commons. We can take our time over these matters, although we do not need to rush tonight. I will finish now in the hope that the noble Lord, Lord Deighton, will at least give us those Government’s amendments before we come back in October.

Economy: Infrastructure

Lord Barnett Excerpts

Tuesday 23rd July 2013 Lords Chamber

[Lord Deighton]

I thank my noble friend for those observations about the signs of good news that are beginning to be seen in the economy. Based on my discussions with small businesses, they are most concerned about access to finance, improved broadband and better roads. The Government are addressing all of those through the Funding for Lending scheme to get cheaper financing and through the business bank to get about £1 billion of capital committed in non-bank funding. We are rolling out broadband as fast as possible both privately and through government intervention and we have committed a record amount not only to building new roads but to improving and repairing existing roads so that small businesses can get around. As for the participation of small businesses themselves in these large infrastructure projects, those businesses operate down the supply chain, and giving them a long-term warning that these projects are coming is extremely helpful. By way of example, I think that about 58% of the businesses which benefit from Crossrail spend would be classified as small and medium-sized.

[Lord Barnett]

The noble Lord will know that I strongly welcome the news of the amounts being spent. However, as he has now taken direct responsibility in this area, can he answer the vital question of how much will be spent in the next two years?

[Lord Deighton]

The actual expenditure on infrastructure is difficult to predict because, of course, the predominant portion of infrastructure is financed by the private sector. That is why we focused on developing our energy policy, so that we can trigger investments with offshore wind, with nuclear and with various gas developments. We have laid out our expenditure plans and the proportion of investment that is capital investment is laid out in the spending round for this year and for future years. We have shifted, I believe, £9.3 billion from current spending to capital spending during the time of this Government. We have put an extra £18 billion into capital investment in Budget 2013. As a result of those changes, public investment as a share of GDP will be higher on average between 2010-11 and 2020-21 than it was under the previous Government. We are trying to shift it into the more productive areas. Transport investment in 2013-14 will be higher than at any point under the previous Government despite the fact that we were in something of a boom time there, and it will rise every year until 2020.

Banking: Regulation

Lord Barnett Excerpts

Thursday 11th July 2013 Lords Chamber

[Lord Newby]

Yes, my Lords, and of course that is exactly what we are doing with the banking reform Bill.

[Lord Barnett]

My Lords, the draft banking Bill came from the House of Commons yesterday. I have only just had a chance to glance at it, but it clearly is not quite in line with what was recommended on the important issue of regulation regarding ring-fencing. Why not?

[Lord Newby]

My Lords, as my colleague the Financial Secretary has made clear in another place, there are some aspects of the commission’s views on the speed and timing of ring-fencing that the Government are going to look at further and revisit when the issue comes back to your Lordships’ House. We have Second Reading of the Bill on 24 July, and my noble friend Lord Deighton will look forward to telling the House more about the provisions of the Bill at that point.

Bank of England: Monetary Policy Committee

Lord Barnett Excerpts

Tuesday 9th July 2013 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government what is the Chancellor of the Exchequer’s assessment of the latest statement by the Monetary Policy Committee of the Bank of England.

[Lord Newby]

My Lords, the Bank of England Act 1998 gives powers of operational responsibility for monetary policy to the independent Monetary Policy Committee of the Bank of England. The updated MPC remit set at Budget 2013 by the Chancellor requests the MPC to provide an assessment of the merits of using intermediate thresholds in monetary policy in its August 2013 inflation report, which will be published on 7 August.

[Lord Barnett]

My Lords, in the House last week, in answer to me, the Minister quoted the Prime Minister as saying at the G8 that the UK Government were “supporting … [an] active monetary policy”. How can he say that when it is not their responsibility? Is it because the new governor is virtually unsackable at the moment? Or is it that the Government are simply not interested at all in monetary policy? The new governor took his first meeting, to which the Minister referred. During the meeting, unusually for a governor, he gave some guidance and said that interest rates would be low for a long time, and could even go a little lower. In those circumstances, the pound dropped substantially. Some people are very happy with that. Is the Chancellor?

[Lord Newby]

My Lords, on the first point, the Government updated the remit of the Monetary Policy Committee at Budget 2013 to give it greater powers to clarify the trade-offs that are involved in setting monetary policy to meet a forward-looking inflation target. That is what the governor and the Monetary Policy Committee will do over the coming months. On exchange rate policy, as the noble Lord knows, the previous Government did not have a policy for an exchange rate, and this Government do not have one, either.

G8: Eurozone and UK Growth

Lord Barnett Excerpts

Tuesday 2nd July 2013 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government what discussions the Prime Minister had on the issue of economic growth in the eurozone and the United Kingdom at the recent G8 summit.

[Lord Newby]

My Lords, the G8 summit economic discussion focused on the issues that matter—jobs, growth and mending our economies. The UK’s approach to supporting the recovery through fiscal sustainability, active monetary policy and structural reforms was shared by all other G8 members.

[Lord Barnett]

My Lords, I am not sure whether that means anything. However, can the noble Lord tell me whether it means that the Prime Minister explained that there was nothing in last week’s review to help growth? In practice, we may, happily, get some over the next year or so but the Bank of England has reversed its former forecast for 2015. In fact, as the Chief Secretary has said, the expenditure for infrastructure will not start until 2015, so what on earth did the Prime Minister tell the summit about what we are doing to enhance economic growth, which is so vital, between now and 2015?

[Lord Newby]

My Lords, the noble Lord has no doubt seen the report today from the British Chambers of Commerce, which shows that services and manufacturing report confidence rising to levels last seen in the last pre-recessionary period. Service exports reached levels not seen since 1994, and the proportion of the BCC’s members who are exporting rose in a year from 32% to 39%.

Spending Review

Lord Barnett Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Deighton]

We are going to do it simply by implementing it in 2015-16. As I understand it, many of the structural changes to Civil Service pay have already been made in many departments. This is just equalising the system right across the service.

[Lord Barnett]

My Lords, I start by acknowledging the very difficult economic situation that every Government are going to face. People are living longer and I am the last person in the world to complain about that.

Given that every forecast made by the Chancellor since 2010 has had to be adjusted, how do we know that we need exactly £11.5 billion of cuts in 2015? What was his economic forecast for that year? We now know that no economic forecast by anybody can be expected to be accurate, even if it is based on next year. Perhaps the Minister will tell us why we should assume, when every forecast that the Chancellor has previously made has been wrong, that a forecast based the economy in two years’ time will do precisely what he said. In one line, he says:

“We commit now to £50 billion of capital investment in 2015”.

That is rather a lot of money for one year. How long a period is that planned to be spent over? The cuts are going to take place after 2015. When will that £50 billion of capital expenditure be spent: this year, next year or only after 2015? We all know that we need it now. Why is he delaying it?

Bank of England: National Debt

Lord Barnett Excerpts

Monday 24th June 2013 Lords Chamber

[Lord Newby]

My Lords, the Government are not responsible for the way in which banks may or may not raise capital. We are very keen for the banks to continue to lend money to SMEs and, indeed, to increase the extent to which they do it. One way in which we hope that this will happen is through increased competition in the banking sector. We hope that current trends in some aspects of that, with some of the new smaller banks lending to SMEs, will continue.

[Lord Barnett]

My Lords, does the Minister recall that in 2010 the Chancellor forecast that the total national debt as a percentage of GDP would start to fall in 2015? He later changed that to 2018. Now that forecast might need to be altered, given the review that he will announce on Wednesday, and further cuts. When does the Minister expect the national debt itself to start falling?

[Lord Newby]

My Lords, the noble Lord is right to say that the point at which the national debt will fall as a proportion of GDP has been pushed out by a couple of years. The statements made at the Budget showed that we still believe that it will happen in 2017-18, and the spending round being announced later this week is designed to ensure that we meet that target.