Finance (No. 2) Bill

Lord Davies of Oldham Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords
Wednesday 26th April 2017 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I, too, thank the Minister for describing so fully the remaining sections of the Finance Bill to be considered today. We all recognise the constraint in terms of the general election’s imminence. She will anticipate that, as what is before us is an agreed position in the famous wash-up procedure, I am unlikely to add too much controversy to this debate. Well, we shall see. I appreciate the fact that she explained accurately what is in the measures. Of course, I have no debate with the measures at present.

I very much appreciate the contribution by my noble friend Lord Haskel. As ever, he has the ability both to identify the minutiae of a problem and to draw some general principles from it. It is a facility I wish I had to the same degree because it is important in economic debates that we understand the full implications of what is going on with discrete pieces of legislation.

I am also grateful to the noble Lord, Lord Kerr, who took from me the responsibility of analysing in particular the problems with regard to the controversial digital tax proposals. These are controversial, of course, because quite clearly a lot of people considered that their interests had not been taken sufficiently—if at all—into account. Both the committees to which the noble Lord referred indicated their views that the Government had made a pretty poor show of this.

In principle, we are in favour of the digitalisation of the taxation system but, pursued under a Labour Government, it will be after due consideration of the needs of business, particularly the categories to which the noble Lord, Lord Kerr, referred: businesses with limited resources being put under very substantial demands indeed. Meanwhile, of course, the Government have to wrestle with the fact that the intended taxation is not necessarily coming in at the rate they would have wished.

The Government have not been too lucky with Budgets in recent years. We all recall the rather embarrassing business of the pasty tax. We recall that the tax credit cuts were reversed by wiser counsel in this House. We remember the cuts to personal independence payments, which the Government had to rethink. Of course, we remember that in his Budget the Chancellor introduced a national insurance contribution proposal that turned out to be something of a fiasco. All the key features of recent Budget proposals have had more than their fair share of difficulty, to the extent that one can wonder whether one can trust a Conservative Chancellor these days to get the fundamentals of the Budget right.

It is the job of the Opposition to point out when the Government have got things wrong and we will continue to pursue that role, even under the constraints of this Bill. We are now considering a gutted Bill left with those parts which both the Government and Opposition agreed should become law.

Of course, the Government tend to avoid tough choices while at the same time pursuing tax cuts for the multinationals and the super-rich, to be paid for by the mass of our people, who have rather more limited resources. So we take it with more than a pinch of salt when the Government put their proposals before us and suggest that they have some concept of fairness.

The Government fail to realise the need for additional fiscal resources, even when the NHS is in crisis. There is not a person in this country who is not aware of the current privations of the National Health Service. The one that is often cited is that the NHS has been obliged to jettison its target of dealing with people requiring hip or knee operations within an 18-week period. This is evidence of the considerable difficulties that the health service is in, and it is not at all clear that the Government have shown the political will to resolve the issue.

Of course, the health service has also been acting as a proxy for the problems of the social care service. Hard-pressed local authorities have not been able to sustain their share of the resources in social care. The fundamental responsibility for this crisis in two absolutely critical public services rests with the Government, and there is nothing in this Bill which indicates that the Government are prepared to face up to these issues effectively.

The Government’s fiscal policy shows a ruinous performance on the public finances, as their target period for clearing the deficit has now been surpassed. It has gone from five years originally on to a further five years. It is now suggested that it will be a further seven years before the Chancellor can see his way to hitting the target, which between 2010 and 2015 dominated the then Chancellor’s objectives. There was never really a recognition of the extent to which failure was enjoined in that period.

The weakness is not helped by cuts in HMRC staffing. In 2011, when I first addressed this issue in the House, I could not understand how the Government could be serious about indicating that they wanted to improve their taxation collection capacities—they had that as a major issue on the agenda—while pursuing their clear ideological objective of reducing the size of the state. The HMRC began to suffer its significant cuts at that time. How can a Government be so committed to a philosophy that they cannot recognise that cutting the efficiency of a government department, which does not just pay for itself but brings in huge resources far in excess of the cost of that department, is surely a nonsensical position to take up? But of course the Government did not accept that argument in 2011 and are not accepting it in 2017. I have not the slightest doubt that if they were to continue in power, they would not accept the argument beyond 2017—but of course the electorate might have some say in that.

This weakness is not helped by the fact that over this period, the Government have misdirected their taxation targets in any case. The work of cutting staff resources in these terms is just emblematic of the fact that the Government are prepared to reduce their services, even when it is quite clear that the costs borne by the community are very significant. That is true not just in our health service and in social care but certainly in education. How can the Government waste resources on private schools when the state school system as a whole is crying out? The obvious fact is that every school is facing a reduction in the resources available to it.

The Government have a lot to answer to. They have at times paid lip service to one important feature of improving the economy: improvement in productivity. I well remember, and I welcomed, the appointment of a Minister who specialised in productivity and I regretted his departure after a very short time—too short for him to make any real impact on the issue. From what I can see, the Government have largely given up on this matter. They talk about certain areas in which there will be expenditure for contribution but the simple fact is that under their period in office since 2010, we have slipped crucially against the G7 criteria of productivity. We now have the largest gap since 1991 with the G7. How do the Government expect us to be successful in our trade negotiations with other countries if our productivity stays so low that our comparative costs are high, and we are not in a sufficiently competitive position with other countries?

This would be bad enough if we were in a relatively steady state, but of course Brexit has occasioned a complete convulsion in the country’s prospects with regard to international trade and earnings. That means that the Government are going into this election with a great question mark over whether they have the will and the capacity to tackle the fundamental issues of our economy that ought to have been addressed long since.

This Budget is consistent with the performance of the Government since the Conservative Party became the dominant force in politics in 2010. There has been a conspicuous failure to hit economic and fiscal targets, backed up by taxation and social strategies which on the whole reward those who are already well off and hit the average working family and those on lower incomes hardest. So much for fairness. What we are actually seeing is the ever-growing inequality in our society which is prompting a response which the Government will have to reckon with in the very near future.

As my noble friend Lord Haskel pointed out, the Government’s greatest failure is on growth. We have hit very low levels of growth ever since they have been in office. There has been a slight improvement in the past 18 months, but all forecasts show that within two to three years even those low growth levels will begin to subside. The Government cannot expect the country to be able to afford all that the public need in terms of personal resources and public provision if we cannot get growth in our economy.

I was grateful to my noble friend Lord Haskel and the noble Lord, Lord Kerr, for embellishing this debate with degrees of precision in areas on which the Minister should respond. Although she may think that, because I am trammelled to a degree by the fact that there is an agreement about the provisions in the Budget which should go ahead, I hope that at the very least the Minister will feel obliged to respond to their cogent points.

UK Convergence Programme

Lord Davies of Oldham Excerpts

Monday 24th April 2017 Lords Chamber

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, the major political events of the past few weeks have been the calling of a general election and the triggering by the UK of Article 50 of the Lisbon treaty, giving notice of our withdrawal from the EU. Given that background, today’s debate, which stems from arrangements and rules in essence designed to ensure economic convergence among EU member states, might at first glance look a little odd. But the oddity, if it exists, is on the surface only, and there is good reason for submitting the 2016-17 convergence programme before us. Most importantly, there is the fact that, until we leave the EU, we have all the rights and obligations of a member state. Of course, we continue to exercise our rights of membership in this period, and the document before us, which explains UK economic policy, especially in relation to maintaining stability and bringing down the deficit, is one such obligation.

In practice, drafting the paper was relatively straightforward, since it is based on the Spring Budget report and the OBR’s most recent Economic and Fiscal Outlook. I am sure that noble Lords who have examined it will have seen much familiar content.

I should draw to the attention of noble Lords one detailed but vital point. It is the Government’s assessment of the UK’s economic and budgetary position, and not the convergence programme itself, that requires the approval of the House. There is one further point which I should stress now. It is that, as the UK is outside the eurozone, we cannot be subject to any sanctions under the EU fiscal rules encompassed in the stability and growth pact of which the convergence programme forms part.

It may be helpful to the House if I provide a brief overview of the information that we have set out in the UK’s convergence programme, even though much of this will be familiar. Perhaps the most pleasing point is that in March 2017 we were in a better position economically than many—indeed, most—had predicted. The IMF recently revised up its 2017 growth forecast for the UK by 0.5 percentage points and growth in the second half of 2016 was stronger than the OBR anticipated in the Autumn Statement. In fact, last year the UK grew faster than most other advanced major economies, with near record employment, too. The deficit has also been reduced. Overall public sector net borrowing as a percentage of GDP is predicted to fall from 3.8% last year to 2.6% this year. It is then forecast to be 2.9% in 2017-18 and to fall thereafter to 0.7% in 2021-22—its lowest level in two decades.

As a consequence of all this, we are forecast to meet the EU’s 3% stability and growth pact target this year, for the first time in almost a decade. Accordingly, the UK will cease to be subject to the EU’s excessive deficit procedure. Although we are leaving the EU, this is good news. We are within sight of bringing to a halt the increase in the national debt as a proportion of GDP. Nevertheless, at nearly 90% of GDP, the Government believe our debt level is too high. That is why they set out fiscal rules that combine the flexibility to support the economy if necessary in the near term with a long-term objective of returning the public finances to a sustainable position.

The OBR forecasts that business investment will remain subdued as we begin the period of negotiation with our EU friends and partners. It continues to judge that, in the medium term, growth will slow due to weaker growth in consumer demand as a consequence of a rise in inflation. Accordingly, putting the public finances in good order will remain vital for the foreseeable future, all the more so given that the deficit remains too high and that there is a range of risks in the global economy. That is why we are getting ourselves into a position of readiness to handle difficulties of any kind that might come our way.

Our fiscal rules, which enable us to do that, strike the right balance between reducing the deficit, maintaining flexibility and investing for the long term. Our Autumn Statement and Spring Budget set out our plans to build on recent economic growth and our strong employment record, and indeed to raise productivity, which has been disappointingly weak over a long period. We are taking action to improve skills, to give more children the chance to go to a good school, to support the care system and the NHS, to drive innovation and to invest in infrastructure and digital. We have consulted on a Green Paper about an industrial strategy aimed at delivering a high-skilled, productive, competitive economy that benefits people in all parts of the UK. Sound public finances are an absolute necessity to make this happen and to provide the level of public services we all wish to see. That is essentially what the convergence process is about.

To conclude, following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit it to the Council of the European Union and to the European Commission. Doing so also provides the EU with a useful framework for co-ordinating fiscal policies. A degree of fiscal policy co-ordination across countries can be beneficial to ensure a stable global economy, which is of course in our own interest. The UK has always taken part in international mechanisms for policy co-ordination, such as the G7, G20 and OECD. Although we are leaving the EU, we will continue to have a deep interest in the economic stability and prosperity of our European friends and neighbours. We will also continue to play our part in this process while we remain an EU member, and we will play our part in other international policy co-ordination processes once we have left the EU. The Government are committed to ensuring that we act in full accordance with Section 5 of the European Communities (Amendment) Act 1993, and I ask this House to approve the economic and budgetary assessment that forms the basis of the convergence programme. I beg to move.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister made the best fist of a pretty thin case. First, it is somewhat absurd that we are debating and seeking to put through a Motion on the issue of convergence just at the point when the Government have set their sails in the opposite direction, away from any convergence as far as their direct relationship with the European Community is concerned. At least the Minister in the other place, when pressed on this particular obvious sailing point, said, “Well, I don’t really think the issues of convergence affected government policy a great deal”. It is quite clear that the Government have had their own agenda for the economy and have pursued it with considerable rigour, at particular cost to sections of our population—and, I might add, to the economy as a whole. But the issue of convergence certainly did not rank particularly highly in that agenda and the Government, I imagine, can therefore begin their approach to the question of Brexit untrammelled with any regrets that no British Government will have to face up to this issue in the future.

The Government are making much at this stage of economic growth over the last year and a half, with the prediction that it might last a little longer. That is against a background where their record on economic growth was close to catastrophic. They presided over the slowest recovery from a recession in more than 100 years and followed the worst policies for getting the country back on to an even keel. What has this meant? Their target was 2015, which was two years ago. They were meant to hit their target in 2015 but we now have a revision under a new Chancellor, who has slightly more elastic concepts on how rigorous an onslaught should be pursued on the debt position. He is saying that it may be the early 2020s but has not made too great an assurance about that. What would your Lordships say normally to anybody who had promised that they would bend every sinew to producing a position where they got out of debt in five years, and then after seven years said, “We haven’t made it—in fact, we are only half way there and we don’t think we’ll be able to do it for another five years anyway”? It suggests that there is a slight flaw in the Government’s thinking on how well they have done with the economy over the last few years.

The other dimension of it is quite clear: the absence of growth has reduced significantly the receipts to the Exchequer and made the Government’s onslaught on public expenditure even more savage. The Government boast about the fact that they have been conducting their position on public expenditure with a real sense of fairness. Tell that to the disabled. Tell that to the families where children are entering poverty in numbers that we have not seen for two decades. Tell that to the people who are seeing benefits for those in work cut at the levels which they are by this Government. That is to say nothing about what I hope the Government recognise is a crisis in the health service, or about the problems we have with regard to welfare and in particular with care for the aged. It says nothing about the real problems of so many in our community, who depend upon government handouts not because they are idle and have brought things upon themselves but because they live in a society, and an economy, in which it is difficult for them to earn sufficient to sustain their living standards. Yet the Government are busy eroding any support which they enjoy.

Let us turn as well to the question that the Government always emphasise as such a significant achievement: levels of employment. What kind of employment is it? It is no coincidence that when the Minister says that we have made painfully little progress—I am not sure whether she used quite that adverb but she was generous enough to concede that progress on productivity has been limited in recent years—it is a direct reflection of the employment conditions of so many of our people. Far from them being engaged in enterprises alongside employers who are seeking to promote the work, to engage the workers constructively and perhaps even from time to time to listen to them on how work could be done better, we have the exact antithesis. We have people on zero-hours contracts with no commitment to the company at all, apart from the hope that they will be able each week to sustain enough hours in work to keep their living standards.

What employers have been doing is worse. There are appalling examples. They have been saying to such people, “Sling your hook”. That phrase comes from dockers in the 19th century who turned up for work with their hook and if not so many were needed or those who were needed were carefully selected, they rest had to sling their hook, go away and receive no remuneration or sustenance of living standards. It is not surprising that the late 19th-century state had to react to that situation in the face of such discontent. The Government may feel that they are not presiding over a period of such discontent at this time. That may partially be because so many of the people who are in that position have no voice. They have no voice because the very vulnerability of the work they do renders them unable to challenge.

What does this all mean? It means that the Government are now engaged upon Brexit, which will dominate all political and economic debate for a considerable period ahead. What is conspicuous about Brexit—I hope the Minister may at least own up to this fact—is that the Government had absolutely no plans to cope with Brexit and had not anticipated that the vote might go that way. If they did anticipate it, they are very culpable for leaving us in this position, where it is quite clear that our negotiating position is a good deal weaker than it ought to be. The Government keep on saying that we are out on a deep, wide ocean and that we can greatly increase our trade with others whom we have neglected in the past. I have not noticed the British economy neglecting markets in the past. Our problem is being able to be sufficiently competitive to win them. We are walking out on the largest market of all. Whenever the Government mention the United States, India or China, do they not realise that trade with those countries adds up to only a fraction of that which we enjoy at present under the framework of the European Community? That is the nature of the risk being taken.

I realise that this is a straightforward Motion today. There is no question of the Opposition not seeing that we make a last gesture towards convergence, which is required of us as long as we are a member of the European Community, which we are at present. Underpinning it all—and this is what this Government have to face up to—is the basic weakness of their economic position. That may not worry Ministers in this House too much because, although they would probably like to continue in office, it is not quite as serious a threat as that to Ministers at the other end who have to retain not just their office but their seat as well. The confidence of Ministers in the other place may be shaken somewhat, and therefore, although I have indicated that the Opposition support this Motion, I offer some warnings as to the future.

[Baroness Neville-Rolfe]

First, I thank the noble Lord, Lord Davies of Oldham, for supporting the Motion and for filling the void in a debate with few participants today. I suspect he will not be surprised to learn that I do not agree with his cynicism. We have our own economic policy of course in this country, and as I tried to explain, the work to bring deficits down is important from both a European Union and a UK point of view, and we have made progress. It has been difficult, not least because of the legacy—the mess—that we inherited on the economic side, but since 2010 our economy has grown by 14.6%: faster than Germany’s and twice as fast as France’s. As I mentioned in my opening remarks, we have had good news recently from the IMF, and indeed the CBI published strong figures today. The deficit has been cut by almost two-thirds from a post-war peak of 8.8% and, as he acknowledged, employment is up, by nearly 2.8 million. The employment rate is at a record high of 74.6%.

This is, in my experience, the envy of other member states in Europe, alongside the small business creation that we have also managed to oversee. Our labour laws are strong, and will remain strong, but they also allow different types of employment which have helped us in this country to grow and to innovate. The rise in employment is not all in lower-paid or unskilled jobs. Three-quarters of the rise is in higher-skilled occupations. Zero-hours contracts have a part to play in a modern, flexible labour market, as we have debated before. They are also a small proportion of the workforce—2.8%. We have invested for the future and are at last tackling productivity in a comprehensive way, something which I am certainly very engaged in.

I do not think there is any point in us arguing about Brexit, but I am clear that our bold and ambitious plan offers this country a great future.

As I stated in my opening remarks, following this debate, and with Parliament’s approval, the Government will inform the Council of the European Union and the European Commission of our assessment of the UK’s medium-term economic and budgetary position. This is a legal requirement under the EU’s stability and growth pact, and the information we present is based entirely on information and documents already presented to Parliament and, in the main, debated. That includes the Budget we set out this spring, which upholds our economic stability, invests in the future and keeps the UK on a clear path to prosperity over the long term. The foundation of all those things lies in our work to improve the national finances, and that is the basis of the convergence programme that we are, this month, presenting to the EU. I am pleased to commend this to the House.

Premium Bonds

Lord Davies of Oldham Excerpts

Thursday 23rd March 2017 Lords Chamber

[Baroness Neville-Rolfe]

That is another innovative idea for premium bonds. I will certainly think about it, but the basic point about premium bonds is that they have to be part of a portfolio of sensible savings, such as the investment bond that we are bringing in. That seems to me the right way to go. They are popular and successful, and they give people a bit of excitement, as well as easy access to saving, and there is a 100% Treasury guarantee.

[Lord Davies of Oldham (Lab)]

My Lords, every statistician and financial adviser can establish that premium bonds are a pretty poor deal, and the Government are in the business of reducing the rate yet again, so the deal is not getting any better. What they are is a flutter but, as my horse will fall at the second fence in the Grand National in the fairly near future, I am not going to argue against gambling at this point.

[Baroness Neville-Rolfe]

I think we can agree on the excitement, but there is also a more serious point underlying this. When you are choosing how to save, you need to look at a number of options, which we have debated here in this House, including having a pension through the auto-enrolment system and taking advantage of other savings products such as ISAs and so on. I see premium bonds as a very important part of the savings market. And I am so glad that the noble Lord likes to have a flutter.

Crown Estate Transfer Scheme 2017

Lord Davies of Oldham Excerpts

Thursday 23rd March 2017 Lords Chamber

[Lord Adonis (Non-Afl)]

My Lords, I am sorry to add to the questions that have been posed to the Minister, but could she tell the House a bit more about the relationship between the income from the Crown Estate that is being devolved to Scotland and the sovereign grant? Under the Sovereign Grant Act, a substantial proportion of profits from the Crown Estate go to fund the monarchy, and that proportion is rising significantly with the arrangement that the Government have entered into for the refurbishment of Buckingham Palace. The agreement in respect of the Crown Estate profits in England is for 25% to be used that way. Will a similar share of the profits from the Crown Estate in Scotland be allocated to the sovereign grant from the profits of the Scottish Crown Estate under this arrangement? If not, are the Scots making any contribution to the monarchy at all?

[Lord Davies of Oldham (Lab)]

My Lords, I have no wish to pile Pelion upon Ossa, because the Labour Opposition of course fully endorse this instrument. It would be surprising if we did not, as after all we were closely associated with the development of the Smith commission. We are very much in favour of devolution of income tax to Scotland and of course see the benefits to the Scots of them being able to obtain financial advantage form the Crown Estate in Scotland, so I am very much on the Minister’s side. She has been asked some interesting questions, which I am sure she will answer in a moment or two. I have only one, very general question, which was asked by a colleague in the other place, to which I think we have had no indication of an answer subsequently. On the question of resolving disputes between the UK and Scottish Governments, there has been a substantive change since the publication of the original draft seen by Parliament in October 2015.

Will the Minister say a little about the negotiations with Scottish Ministers, particularly as the process seemed to involve the resolving of disputes through determination by independent experts? We do not know who those experts might be, nor do we know how they will be chosen. That seems a very important point, to which the Minister should address herself in the context of this instrument.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017

Lord Davies of Oldham Excerpts

Thursday 23rd March 2017 Lords Chamber

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, the order that we are looking at today forms part of the UK’s transposition of the markets in financial instruments directive II. The directive is accompanied by the markets in financial instruments regulation. I will, if I may, refer to these collectively as MiFID II.

Before I turn to the specific changes made by the order, let me start by explaining the important context in which the changes are made. MiFID II is a key part of our post-financial-crisis regulatory reform. Agreed by the EU in 2014, it will have a significant role in strengthening the regulation and transparency of our financial and commodity markets. This means keeping pace with market developments and strengthening the protections available for investors. MiFID II applies from 3 January 2018 and member states are under an obligation to transpose the directive into national law by July 2017. That brings us to why we are here today.

In the UK, we are transposing MiFID II through legislation and regulators’ rules. Last month, we concluded our consultation on the legislative changes needed to do that. This order therefore makes amendments to the regulated activities order, which sets the regulatory perimeter for financial services in the UK, to give effect to MiFID II.

The order makes three key changes. First, it brings the new activities and investments introduced by MiFID II within the regulatory perimeter. This includes, for example, structured deposits which are sold or advised to clients, emissions allowances and organised trading facilities. In accordance with the regulated activities order, this will mean that performing a specified activity in relation to a specified investment is a regulated activity for the purposes of the Financial Services and Markets Act.

Secondly, the order classifies binary options as a type of financial instrument. This means that the regulation of binary options will move from the Gambling Commission, where they are currently regulated as bets, to the Financial Conduct Authority. An example would be betting a sum of money against the FTSE 100 rising by 50 points. This is an important change that will ensure that consumers receive at least equivalent protections to those that exist with similar financial instruments.

Thirdly, the order updates definitions, references and makes a number of minor amendments to allow MiFID II to operate within our domestic legislative framework. I will be happy to answer any questions that your Lordships may have on the detail of the order as far as I am able. I beg to move.

[Lord Davies of Oldham (Lab)]

My Lords, I apologise to the Minister for failing to contact her yesterday and give her some indication of one or two of the anxieties that I had about the order, but I am afraid that the disruption that affected the Palace also affected my liaison. Consequently, I was not able to warn her of what is to come. Nevertheless, I am sure she will be able to answer the points I make with great facility, as she usually does, or, if not, perhaps she will write to me in due course on the issues which are not covered.

Of course, we support MiFID II and bringing it into our national law. It entrenches consumer protection. If we learnt one thing from the financial crash of 2008, it was the need to guarantee consumer protection in the most adverse circumstances. MiFID is a European response to that worldwide crisis, which affected our colleagues in Europe as it did us here in Britain. I appreciate the fact that the Minister has brought the instrument forward.

The consultation for the Government’s transposition plans revealed that, along with this order, two further statutory instruments were required in order to deliver MiFID II: the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations and the data reporting services regulations. When can this House expect to scrutinise and debate those instruments? They are a crucial part of the package. As the Minister will appreciate, they have at least an indirect impact on the workings of the instrument in front of us today—I am thinking particularly of the extended regulatory provisions and their subsequent impact on the FCA and PRA. Given this, perhaps it would have been more helpful to debate all three instruments in the round, but we are making progress on this one first.

The public consultation on transposing MiFID closed in June 2015, nearly two years ago. The Economic Secretary to the Treasury, when moving this order in the other place, stated that,

“last month we concluded our consultation on the legislation needed”.—[Official Report, Commons, Second Delegated Legislation Committee, 14/3/17; col. 1.]

What were those discussions, who were they with and why did they last so long? Where are the documents on those proceedings, which, as far as I know, are not available to your Lordships’ House?

We of course support the supervision of binary options being transferred from the Gambling Commission to the Financial Conduct Authority. We agree that they are financial instruments and as such the FCA is clearly better placed to regulate their use. When does the Minister expect the FCA to produce its guidance, particularly about how it intends to protect potentially vulnerable consumers? The Minister will clearly appreciate that consumers need full disclosure about the product they are purchasing and we need the greatest clarity. Related to this, the consultation document says:

“Ahead of the legislation coming into force, the Government will consider whether consequential amendments to the Gambling Act 2005 are necessary in order to support the transfer of the regulation of relevant binary options from the Gambling Commission”.


I was somewhat involved in the Gambling Act. The experience does not rate enormously highly on the list of my joys in speaking in this House and introducing legislation, so I am very glad to see that the Government are taking a very different view in this instance.

The consultation document goes on to say that further consideration will be given to the fee arrangements for firms that hold a Gambling Commission licence and to the implications of these legislative amendments for the relevant tax framework. Again, I do not expect an immediate, full answer today—perhaps I will get one—but I hope we will get an indication as to the progress that is to be made. Can the Minister say where the Government are on these issues, given that they are not included in the order? I am sure that firms will be grateful for clarification as to where they will stand when this legislation comes into force.

I feel particularly guilty about dropping my last question on the Minister at this point, but she has enormous support and great experience and she will handle it readily. I would have given her notice had I not been so disrupted by events yesterday. An issue was raised in the Explanatory Memorandum which accompanies this order. It says:

“The Treasury is working closely with representatives from local government and the FCA in order to mitigate the possible effect on local government’s participation in financial markets”.


Yet we have not been able to find anywhere in the impact assessment or the consultation document what the Government expect those effects to be. Is the Minister in a position to outline the key monetised and non-monetised issues involved in the transposition of MiFID II for local government in this country? What discussions have taken place between local government representatives and the Treasury?

My final point relates to costings. The estimated annual net cost to business has been calculated at £105.2 million, while the impact assessment states that the direct impact on business will be £148.5 million. Can the Minister clarify the disparity between these two figures?

[Baroness Neville-Rolfe]

My Lords, I thank the noble Lord for offering to accept a written response to some of his detailed points. We were all disrupted yesterday; it was an extraordinary day. My officials have had a great deal of difficulty advising me because nobody without a parliamentary pass is now allowed into the building. That makes it somewhat difficult for me to answer all his questions. I will do my best and will then follow up, copying the reply to anybody else who has an interest in the issues.

I very much agree with the noble Lord that these changes enhance consumer protection. We have to transpose vital parts of the post-financial crisis legislation into UK law and, indeed, until exit negotiations conclude we have an obligation to do so: we need to move ahead.

The noble Lord asked about the transposition of MiFID II in the round. As he said, in February we concluded our consultation on the legislation needed to transpose the instruments and there will be three statutory instruments. One is the order we are discussing today. As I explained, that applies from 3 January and we are under an obligation to transpose it into law by July, which I understand is very important in terms of people making preparations.

Of the other two statutory instruments, one transposes relevant requirements on the provision of data reporting services and the second transposes a wide range of other MiFID II requirements. For example, in accordance with MiFID II, it creates a position limits regime and imposes obligations on certain persons engaging in algorithmic trading. Regulators have also been consulting on the proposed rules to transpose MiFID II, one or two of which the noble Lord mentioned. I will obviously take away the point he made about consultation and debate on those issues.

I was glad to have the noble Lord’s support on the changes on options and I will look carefully at what he asked about the Gambling Act. However, there is a fair amount of agreement that it is right to bring that into the curtilage of the FCA. I am afraid that I do not have a reply on local government and I will ensure that I respond properly in my forthcoming letter.

It seems to be agreed that these are important reforms to ensure that our financial system is transparent and resilient. This is important to the City of London and other financial service operators right across the UK, which actually provide more employment outside London than in London. The changes form part of the wider regulatory reforms since the financial crisis to ensure the efficient functioning of our financial markets. I hope that we have learnt lessons from the past; this legislation puts those into practice by ensuring that our financial markets are effective and stable. There has been a fair degree of consultation. The noble Lord knows that I always value that, but I will ensure that his specific questions are answered and if necessary, we can have a further word about that.

[Lord Davies of Oldham]

Let me say how much I appreciate the Minister’s response. She will know that we are enthusiastic about the developments contained in the MiFID position. I was therefore not in any way being critical of the Government, merely seeking to elucidate things further. I am grateful for her response.

Motion agreed.

Budget: Saving for Retirement

Lord Davies of Oldham Excerpts

Thursday 16th March 2017 Lords Chamber

[Baroness Neville-Rolfe]

I thank the noble Baroness for that and for all she does in this important area. I think we have a clear sense of direction and a plan to restructure our finances and to invest in the future. Of course, all taxes and reliefs are kept under review through the annual Budget process. Our priority has been to increase the personal allowance, which benefits everyone. The lifetime ISA, which comes into operation very shortly, complements automatic enrolment, which will help people to save so much more. All these changes will help people. I know that the changes to automatic enrolment are expected to generate an estimated £17 billion a year more in total workplace pensions saving by 2019-20. I know noble Lords here were involved in that. It will make a lot of difference. Obviously, we have longer-term problems but the sense of direction is important.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister is fiddling when, for so many people, Rome is burning. How are the just-managing meant to cope with a situation where there has not been a pay increase for the duration of this Government—a situation unparalleled since 1800? That is the crisis facing our people at present. It is therefore not surprising that unsecured household debt rose dramatically last year. No wonder the savings ratio fell last year from 2% to -0.03%. How can people save when living standards decline for the many—while, of course, lavish wage increases occur for the few, buttressed by a taxation policy that favours them?

[Baroness Neville-Rolfe]

As we have discussed before, living standards have been rising. Yesterday, it was announced that we had a record number in employment and a 40-year low in unemployment. Getting people into work makes a huge difference. We made a series of proposals in relation to both pensions—this step change with auto-enrolment—and savings products that help people to save. The most important thing is to have a plan to restore our finances—we inherited a considerable mess—for everyone in this country, and for our children and our children’s children.

Budget Statement

Lord Davies of Oldham Excerpts

Tuesday 14th March 2017 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I agree with the noble Baroness that this has been an exceptionally insightful debate. With 39 speakers, it is very difficult to give a comprehensive response to it. I will limit my remarks in one obvious respect: I have no intention of pursuing the issue of the taxation of national insurance contributions at this time. The Government are in enough difficulty over it. If the noble Lord, Lord Higgins, gives a warning on it and decries the fact that the Prime Minister intervened, it is just as well that the Government have got sufficient time before legislation is necessary and will be able to sort the matter out. We all have sympathy for the Chancellor: he was putting forward a pretty limited Budget anyway and it has been utterly and totally swamped by one issue as far as the press are concerned.

I will concentrate on the main features of the economy and particularly the failures of the Government over the last decade. Growth is being downgraded again, with no prospect of the Government hitting the 2.3% normal growth rate which we had before the financial crisis. The OBR forecasts that growth might reach 2% in 2021. The Government are squeezing as much positive publicity as they can from that. However, after all the sacrifices that the British people have made, with the colossal squeeze on incomes and resources of ordinary people, it is worrying that we are going to see another five years of austerity. This is going to be the third consecutive Parliament of austerity activity. Is it surprising, therefore, that we have some difficulty in analysing why people are responding in the way that they are? There have been no pay rises for large numbers of people in the public sector for nearly a decade and they can see no prospect of that situation being remedied in the near future. Look at the onslaught on the least privileged in society by cuts in benefits and support, reducing a greater number of our children to poverty. The cuts have still not presented their full force. The previous Chancellor’s agenda still has to be delivered from April this year. No wonder that large sections of our population feel that the system is against them. Although it was suggested that my noble friend Lord Howarth was being somewhat apocalyptic—there was certainly naught for our comfort in his contribution —he is reflecting the fact that, for an awful lot of people, that bleakness is fully justified by the economic actions of this Government over the last seven years and the prospects for the future.

In 2010, the previous Chancellor promised to remove the deficit and balance the books by 2015. We now find that the present Chancellor is prepared to run a deficit of £21.4 billion five years from now. This massive priority, which alone could save the economy, has cost the British people so much yet it is regarded by a Conservative Chancellor as a lower priority than it has been in the past. This brings us to what the priority should have been. There is no doubt about that in this debate. It has been made clear that the key to growth is productivity. It is that which should have been concentrated upon.

I congratulate the Government on the aspect of the Budget and those proposals that show an interest in improving technical education and providing direct resources to equip our people with skills suitable for a changing environment—the world of work is changing —to enable them to achieve the level of skills required if we are to be a competitive economy. I was very grateful to the noble Baroness, Lady Wheatcroft, for referring to that aspect in her contribution, as did several of my noble friends. The only thing is, this Government have annihilated large numbers of technical colleges and technical teaching under the previous Chancellor. The proposals in this Budget come nowhere near making up for the devastation that the Government have caused in the recent past. Therefore, we welcome their conversion, albeit we think that it is on a very limited level compared with the cuts that have taken place in the recent past. Nevertheless, we welcome it.

My noble friend Lord Bhattacharyya, as ever, made the most thoughtful of contributions on industry’s need for skilled technicians, skilled technologists and people who are able, like the Germans, to make “Vorsprung durch Technik” a reality so that we enhance our capacities too. I have participated in many economics debates where people have lauded the contribution of higher education in this area. That has never been an issue for higher education as it has the necessary resources and has produced high-level, technologically skilled people. The problem in education has always been at the next level down. At last, the Government seem to have realised that fact to a degree. That is certainly an important step forward.

As the right reverend Prelate indicated in his contribution, we are concerned about certain areas of public services which have now reached absolute crisis point. It is clear that the NHS is in dire circumstances. It is even clearer that social care requires immediate additional funding. The suggestion was that the Government should provide £2 billion for this coming year. The Chancellor has adopted the figure of £2 billion but it is to be spread over three years—in other words, the figure for this year is a third of the amount regarded as necessary. Therefore, it is understandable that our society feels greatly ill favoured towards politicians, the body politic and the actions we set out to carry through.

This has been a distinguished debate. We are proud of the fact that the House of Lords is able to bring together a range of contributors who provide real insights into our discontent. However, it is action that the people need. This economy is far from being on the road to recovery. We have five more years of austerity and of continuous burdens on many who can least bear them. It is clear that the Government still have an underpinning ideology of shrinking the state. They want to reduce public expenditure and the price has to be paid by the ordinary people of this country. This Budget merely reinforces that position. Despite the ameliorative factors that I applaud, the underlying position of this Government is to leave the British people profoundly dissatisfied.

Living Standards: Inequality

Lord Davies of Oldham Excerpts

Tuesday 7th March 2017 Lords Chamber

[Baroness Neville-Rolfe]

I would not want to steal the Chancellor’s thunder today. There is certainly some provision for prudential borrowing by local councils, but I come back to the support that we give to working families. The national living wage has already been mentioned by my noble friend. That has provided the fastest pay rise in 20 years. We have raised the personal allowance to £12,500 by the end of this Parliament; nobody had done that before. We are introducing universal credit, which has the benefit of making work pay, so that if you go out and work you are not held back by benefit dilemmas. We are committed to making work pay, and we believe that that is the very best way forward for the people of this country and for hard-working families, which I agree are a priority.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister cannot discount the Resolution Foundation in such a cavalier manner. It has a strong reputation and it produced very real, well-backed analysis. It said that higher incomes will rise, but slowly; that middle incomes are going to stagnate; and that low incomes are going to fall. We know that the base for low incomes is so little that they will be unable to afford to fall without poverty increasing substantially. The Foundation says it will be the biggest rise in inequality since the late 1980s. I do not need to remind the House which party was in power during that period or which Prime Minister—many of whose Cabinet members, of course, are still with us.

[Baroness Neville-Rolfe]

I would add that the Resolution Foundation report also says—which is the point I have been emphasising—that economic forecasts can change dramatically and there is no way of knowing just how the future will play out. I believe that the approach we now have—including our industrial strategy, and investment in infrastructure, housing, digital and transport —is making a big difference. We have protected the most vulnerable through the benefit system, which is actually highly redistributive, so that households in the lowest decile get four times the support in spending that they pay in tax, while the highest decile pay five times as much in tax as they receive in pay. We want a fairer society and getting workless households into work and improving productivity and skills is, to my mind, the best way forward.

Health: Duties on Food and Drink

Lord Davies of Oldham Excerpts

Monday 6th March 2017 Lords Chamber

[Baroness Neville-Rolfe]

Obviously, the Government look forward to the work that is being done by the committee on the Licensing Act, learning from what has worked well and what has worked less well. It is fair to say that the Government have done a whole range of things to try to tackle the problem of cheap alcohol. The lower-strength drinks have lower rates, and there are higher duties on higher-strength beers and ciders. We took action to ban sales in England and Wales below duty and VAT. We amended the definition of “cider” so that only products with a minimum 35% apple or pear juice can be defined as cider for tax purposes. Working with the Home Office and the police, industry has taken a whole load of measures which I think are very important. Noble Lords will know that I used to be in the retail industry, and this was an issue that exercised me a lot. Indeed, we supported the minimum unit pricing that came in in Scotland, which is now the subject of court action.

[Lord Davies of Oldham (Lab)]

My Lords, I share my noble friend’s disappointment at the Minister’s reply. I understand what the Minister says about the review of VAT—that it is about simplification—but it is also an opportunity. If the Education Minister can devote a levy on soft drinks to school sports in order to tackle the problem of obesity, why on earth can we not look at using VAT to tackle the acute problems associated with alcoholic drinks and heavy drinking, which need resources?

[Baroness Neville-Rolfe]

Alcohol is a problem and I think I gave a positive answer about the direction of travel, outlining the issues regarding EU rates and the structure of alcohol duties. The truth is that alcohol and obesity are problems right across the board. That is one of the reasons why local authorities have £16 billion for public health over the spending review period, in addition to the PHE funding and what the NHS itself spends on prevention. Our GPs do a marvellous job and I have been very struck by the way they support the measures we need on alcohol. However, I take the point that the licensing and tax regimes are also important.

Tax Avoidance

Lord Davies of Oldham Excerpts

Wednesday 18th January 2017 Lords Chamber

[Baroness Neville-Rolfe]

The noble and right reverend Lord is right that we have very much been at the leading edge in this area. Our principle is that we should tax companies on where their activities take place. The OECD base erosion and profit-shifting projects, which we have been very much leading on, avoid strategies that artificially shift profits to low-tax or no-tax jurisdictions where there is little economic activity. That seems vital. Transparency is also important, as the noble and right reverend Lord says, but obviously that is something we have to tackle by acting together internationally. Our international work on tax avoidance and evasion continues, quite apart from anything that is going on at EU level.

[Lord Davies of Oldham (Lab)]

My Lords, the Government are not at the leading edge of collecting taxes. They are in the process, over a five-year period, of implementing agreed EC tax avoidance measures. The Government expected that that would raise a certain amount of money but at present the total is £2.6 billion below what they had anticipated. Are the Government aware of how this looks in Europe? Do we not really need to reassure Europe on these matters? Otherwise, the sense Europe has that we might go for low taxation and look to be an offshore tax haven will strengthen their negotiating stance across all Treasury matters in the forthcoming negotiations.

[Baroness Neville-Rolfe]

I really do not see things that way at all. Actually, the UK tax gap is one of the lowest in the world. We are investing in work on avoidance and evasion, with an extra £800 million for HMRC, while the work we have done to bring in accelerated payments has yielded £3 billion in extra tax since 2014. The noble Lord talks about tax havens. I think the Prime Minister made it quite clear yesterday that Britain wants a new partnership with the EU and is hoping that we will get a good deal. The point about tax havens was the need to change the economic model if that was not possible. I am hopeful that, with that new agenda she set out, we will get a very positive agreement in this area.