European Financial Stability Mechanism
Lord Davies of Oldham Excerpts(12 years, 12 months ago)
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Lord Sassoon
My Lords, my noble friend embedded a number of questions in what was apparently one question. As to the use of the different articles, another key part of the agreement at the European Council in December 2010 was that Article 122 would unequivocally not be used in future for these purposes. Without going into the debate about whether Article 122 should ever have been used for this sort of operation, it will not be used in future—that is agreed. As to Article 125, that is used for loans for medium-term financing under things such as the balance of payments facility and quite other purposes, and that will continue. As to the UK’s participation, the new mechanism has been agreed by the Council. Its resolution is completely clear. A treaty amendment will bring in the new mechanism. That position could not be clearer. As to Portugal, my right honourable friend the Chancellor has made it completely clear that as the negotiations go forward to completion, the UK will not participate in any bilateral loan to Portugal. Ireland was a special case, and the same considerations do not apply in the case of Portugal.
Lord Davies of Oldham
The House will have noted that the Minister brushed aside the constitutional preamble to the Question. I have some sympathy with him on that, but will he confirm that what took place after the general election had produced an inconclusive result and during the interim period was an entirely proper action by the Chancellor of the Exchequer at the time, Alistair Darling, who sought consensus from the Conservative Party before he went to ECOFIN and subsequently had that consensus confirmed by the Government when the Economic Secretary to the Treasury, Justine Greening, confirmed it on 21 July? Will the noble Lord take the opportunity to clear that up?
Lord Sassoon
I am very happy to clear up the matter; I thought we had done that a week or two ago. Let me be absolutely clear. The previous Chancellor, Mr Darling, took the decision—it was still for him and the previous Government to take that decision. He consulted the Opposition. My right honourable friend the current Chancellor made it clear that he did not agree with the decision. The previous Chancellor consulted him on the course of action that was proposed and, in the words of my right honourable friend, it was for the previous Chancellor to reach that decision. The previous Chancellor reached the wrong decision. That was his decision; he made it.
Government: Convergence Programme
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Lord Davies of Oldham
My Lords, this has been a most interesting debate, not least because of its focus on the valuable documents before us—those provided by the Treasury, by the Office for Budget Responsibility and, of course, the extensive work done by the European Union Committee of this House. I congratulate the noble Baroness, Lady O’Cathain, on her work in the committee, to which tribute has been paid during the course of the debate, and on her contribution this afternoon.
It is also a timely debate, for while the situation of the UK economy at the turn of the year was grave, today it is worse. In the first half of 2010, it should be recognised that under the recovery strategy put in place by my right honourable friend Alistair Darling the economy grew at an annual rate in excess of 2 per cent, with a beneficial effect on tax revenues that led to welcome reductions in the deficit that were substantially in excess of what the forecasts had predicted. Now the economy has effectively ground to a halt and there has been no growth at all since the third quarter of last year. Indeed, the National Institute for Economic and Social Research said last week that the performance of the UK had deteriorated markedly since the autumn, that economic output would grow by just 1.4 per cent and that the weak recovery would feed through to lower tax revenues. That meant that even if the spending plans are met over the next four years, the public sector deficit will substantially exceed the Government’s professed target. Yesterday, the Bank of England downgraded its growth forecasts and added in the extra spice of a predicted rise in inflation in the not-too-distant future to 5 per cent. This is a new coalition of low growth and high inflation.
As this debate is set in a European context, what of convergence? How are our major European partners doing on the road to recovery and in the face of rising commodity prices that we also confront? Germany has growth at around 3 per cent, with inflation at 2.6 per cent. That is almost double UK growth and half our predicted inflation rate. France has growth at 2 per cent with inflation at 2 per cent—higher growth and lower inflation. Italy has growth at 1.5 per cent with inflation at 2.5 per cent. Growth is about the same as ours, but with much lower inflation.
Indeed, despite all the financial problems in the eurozone, the eurozone as a whole is forecast to grow just as fast as the UK this year, with less than half the UK’s rate of inflation. The new UK coalition of low growth and high inflation is just like another coalition that I can think of—it tends to bring out the worst elements in each partner. Low growth undermines productivity, stoking the fires of inflation. High inflation not only cuts growth of demand by cutting real income, it also means that Britain becomes less competitive at home and abroad. Inflation is likely to erode all the advantage that we obtained, particularly in our manufacturing industry, from the devaluation a couple of years ago.
I referred to the Treasury documents. They are indeed valuable, because they contain clear, succinct statements of the Government’s economic strategy. It is particularly well put in paragraph 2.10 of the 2010-11 Convergence Programme for the United Kingdom, which states that the policy has four components: cutting the deficit to promote confidence; monetary policy to secure price stability—it is pretty obvious how well that is working—reform of financial regulation; and microeconomic policies to make the UK the best place in Europe to start, finance and grow a business. Underpinning all that is the deficit reduction programme and the rate at which the Government want to see that programme completed. The link that the Government make between deficit reduction and growth is very clear. On page 7, we are told:
“Tackling the deficit is essential as it will: reduce the UK’s vulnerability to further shocks or a loss of market confidence, which could force a much sharper correction; underpin private sector confidence, supporting growth and job creation over the medium term”.
That is what serious economists, such as the Nobel prize-winning economist Paul Krugman, call the confidence fairy theory of growth, where the confidence fairy is like the tooth fairy, but with a bit less credibility. Sad to say, the confidence fairy does not seem to have sprinkled much stardust on the UK economy. Not only has consumer confidence plummeted over the past six months, the recently updated survey by the Institute of Chartered Accountants reveals that,
“business confidence has fallen sharply over the past three quarters”.
The chief executive of the Chartered Institute of Purchasing and Supply stated last month that in the construction industry:
“Confidence remains at a historically low level as the number of jobs continues to drop”.
We have rising inflation and falling confidence. No wonder that in April, the UK's manufacturing sector grew at the slowest pace for months. On page 8 of Convergence Programme for the United Kingdom, there is a valuable table. It compares the impact on the deficit of what is called the policy inherited by the Government—in other words, Alistair Darling's strategy to halve the deficit in four years—with the Government's policy of eliminating the deficit in four years, the clear implication being that Labour's policy was just a timid version of that of the present Government.
That is a quite incorrect implication. The thinking behind Labour's policy was and is entirely different from the policy stance of this Government. The coalition argues that cutting the deficit is the prerequisite of growth, whether via the confidence fairy or microeconomic measures—something that I will talk about in a moment. Labour argues that the only way to secure a sustainable reduction in the deficit is for the economy to grow. Preserving, as far as possible, a steady rate of demand is the key to securing growth. That is exactly what was happening in the first half of last year. Exactly the opposite is happening now.
It is only fair to ask whether the fourth element in the coalition's economic plan, the microeconomic measures, will achieve what seems to be beyond even the confidence fairy's magic wand. Of course, there are some sensible sounding measures; and I would be the first to recognise them. There is a focus on science and research and development, on apprenticeships and on tax incentives for entrepreneurs. Sadly, when we look more closely, the actual measures are either too small or badly targeted. Research and development tax changes sound good until one realises that they benefit just 7,000 of the 4.8 million small firms in this country. The entrepreneurs’ relief sounds good until one realises that the benefit will go to just a few hundred people. The idea that higher education is being put on a “sustainable financial footing”, when this week David Willetts, the Member of Parliament and Minister, has produced another dimension of uncertainty with regard to higher education, indicates that the Government’s funding projection for higher education is beyond a joke.
However, of even more concern is the idea that at the heart of the growth strategy is a policy to,
“create the most competitive tax system in the G20”.
The Minister emphasised the extent to which corporation tax was going to be reduced. As we all know, the problem with corporation tax is that it is an extraordinarily efficient device for enhancing capacity for tax avoidance. Of course, there is nothing wrong with lowering taxes to create the right climate for business when it is part of a wider growth strategy that includes finance for industry, increased investment in research and higher education, and the maintenance of growing demand, which is the key motivation to invest. However, when cutting taxes and deregulation are central to the strategy, there is a risk of a race to the bottom—a risk that we will be involved in competitive tax-cutting, which has the effect of draining the Government of the funding they need for vital investment in infrastructure and other foundations of competitive success. Will low growth, weak regulation and low taxes build a manufacturing industry in this country to compete with Germany? I think that the answer is clear.
However, we can leave to the Office for Budget Responsibility the final verdict on the Government’s so-called growth strategy, which is at the heart of this debate in relationship to our perspective on Europe. Considering the growth measures in the recent Budget, the OBR concluded that the impact on growth would be “minimal”. No wonder. Without the prospect of growth, there is no incentive to invest, however low taxes might be.
Of course, we all recognise that economic forecasting is a hazardous activity, indulged in when projections over 10 to 15 years enable one to avoid some of the harsh realities of the immediate and clear future. Why do we need the crystal ball when the book is open before us? Under the coalition Government, the recovery has stopped in its tracks, with no growth since the third quarter of 2010. The previous Government’s strategy of supporting the growth of demand in the recovery process has been replaced by the economics of low growth allied with high inflation—a coalition perfectly designed to reduce confidence, discourage investment, postpone recovery and, as the national institute has argued, reduce tax revenues in due course and therefore make the deficit problem more acute. This is the world of the Government’s economics, and the Minister will no doubt set out to defend them once again.
EU: Budget
Lord Davies of Oldham Excerpts(13 years ago)
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Lord Sassoon
Again, I completely agree. That is precisely why the other two of the three key points made in the joint statement at the February ECOFIN were about greater member state responsibility for items of expenditure and greater transparency. Therefore, I think that we have already identified the three key areas where improvement needs to be made and needs to be made quickly.
Lord Davies of Oldham
We of course wish the Minister and the Government well in their labours with regard to this issue but we do not underestimate the challenge of the task and are not anticipating early progress. However, there is one set of sums of money relating to Europe in which the nation is greatly interested and on which I am sure the Minister is well briefed and aware of what is involved, and that is the amount of money we are committed to on eurozone bailouts. Will the Minister enlighten the House with those figures?
Lord Sassoon
My Lords, much as I would like to talk about European bailouts, we talk about them on other occasions and I think that we are straying a bit far from the audit issue on which other noble Lords may want to ask questions.
EU: European Financial Stabilisation Mechanism
Lord Davies of Oldham Excerpts(13 years, 1 month ago)
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Lord Sassoon
My Lords, I am grateful to my noble friend Lord Lawson of Blaby, who, as is customary, brings us back to what is really important. I can absolutely confirm what he says. At the European Council on 17 December 2010, this Government did what the previous Government failed to do, which was to get agreement that there would be an amendment to the treaty that would achieve a permanent mechanism to be established by the member states of the euro area to safeguard the financial stability of the euro area as a whole. Therefore, it is indeed correct that, as of 2013 at the latest, the United Kingdom, being outside the euro area, will not be part of this mechanism. That is the critical point, which I can confirm.
Lord Davies of Oldham
My Lords, I agree that this is an important point of public policy. However, it should be appreciated that there is a significant matter at stake, because my right honourable friend Alistair Darling appears to have been accused by the Prime Minister of acting out of faith as far as the present Government are concerned. The document signed by Justine Greening, the Economic Secretary and therefore answerable to the Chancellor, related to the legislation. It is headed “Explanatory Memorandum on European Union Legislation” and the last paragraph is as follows:
“It should be noted that whilst agreement on behalf of the UK was given by the previous administration, cross-party consensus had been gained”.
Is an apology not due to my right honourable friend, who acted entirely properly and consistently with this note?
Lord Sassoon
No, my Lords. No apology is due. I have already tried to make it clear, but let me make it absolutely clear again. Consensus was reached on the process by which the ECOFIN qualified majority voting meeting would take place. That, as has also been made completely clear, is quite a separate matter from my right honourable friend the Chancellor making clear his position on the underlying policy matter. The two matters are distinct. The decision on the policy matter was for the then Chancellor, Mr Alistair Darling. He was the Chancellor at the time and he took the decision.
Economy: Growth
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Lord Davies of Oldham
My Lords, it is a delight to follow that constructive contribution from the noble Lord, Lord Mawson. It was partially trailed by my noble friend Lord Layard, who indicated this aspect of social capital is something to which the Government should pay attention with the concept of the big society. I hope that the Minister will address himself to that point. Of course, these contributions are a reflection of the fact that we all owe an enormous debt to my noble friend Lord Hollick for choosing this as a subject for debate today. It has given the House an opportunity to be constructive and thoughtful about positions for the future in circumstances where we all appreciate that the country faces tough times ahead. It is important that we are able to chart the routes to the future which promote the well-being of our society. Typically, my noble friend Lord Hollick indicated in his speech potential areas of entrepreneurial growth to which I hope the Minister will respond.
Also in the debate, we had five maiden speeches in which all noble Lords rose to a significant challenge today. They had to express, as we all feel, the privilege of being Members of this House and of having the opportunity to address your Lordships. They wanted to make sure that they made their constructive contributions to this serious and important debate today, and they had to do all that in four minutes. I hope that the House will be more generous to all those noble Lords in future when they make their contributions, but I congratulate them all today on the way in which they presented themselves to the House. We all look forward to hearing from them in the very near future; at greater length, I hope.
As my noble friend Lord Haskel indicated, this is the third economic debate we have had on successive Thursdays. In past weeks, we have somewhat aired our differences of perspective on economic policy. An element of that inevitably underpinned this debate. It was brought to the fore by the noble Lord, Lord Skidelsky, and supported by my noble friend Lord McFall who indicated another perspective that is different from the Government’s—a perspective showing that the Government are taking great risks with the economy and the welfare of our society. Her Majesty's Opposition have been articulate in identifying an alternative route, of which the outstanding feature is that the Government are bent on reducing the deficit within the minimum period of time—a single Parliament. In doing so, they are asking the country to be subjected to cuts that will affect the well-being of large sections of the community. But those cuts also affect the growth potential of the economy.
In this debate, noble Lords have identified where these cuts may do harm to the important, long-term economic development aspects of public investment. I know that the Government stress only the private at the present time. None of us doubts the importance of the private sector in terms of growth, but one cannot set at nought the public sector. Nor can one cut it without engaging on a strategy of some risk.
As a number of noble Lords identified, our education sector will be under great pressure. Our universities will be significantly starved of public resources and will have to depend on the free market in terms of the response of students. We do not know whether that will lead to a reduction in resources for the universities because students are unable or unwilling to pay, and we do not know the impact on recruitment. However, we do know that when these reductions take place the impact on research in our country, and on the development of a great deal of the fundamental basis on which creative activities can take place in the economy, may be seriously hurt.
In particular, it seems that we are the only country engaged on cutting the science budget, while all other countries regard it as an essential investment. We have a significant contribution to make in science and have a prime position in terms of our world role. However, we must be careful about the danger of losing that position as a result of the Government’s strategy.
It was indicated in the debate that we should not underestimate the creative sector, which is an important growth area of our economy. It was referred to by my noble friend Lord Kestenbaum. Creative activity and the genius of British people, which is translated into effective and constructive activity in the media and the whole world of the creative arts, is a growing part of our economy not to be underestimated. It is now approaching 10 per cent of the economy. It depends on training, essential skills and the colleges providing skilled manpower.
As my noble friend Lord Layard emphasised, whatever the difficulties with regard to higher education, we should be extremely concerned that this continues to be a society that undertrains and undereducates a substantial section of the population. That is why the Government’s contribution with regard to the modest number of places in apprenticeships and training schemes is a minute dimension of the need that is required to ensure that we have a population sufficiently skilled to make a contribution to our society and earn their living in this world. Cutbacks in that sector—and colleges are suffering very substantial cutbacks—and the loss of the guarantee to which my noble friend Lord Layard made reference is a very serious blow.
Another dimension of this, our transport infrastructure, was introduced by my noble friend Lord Soley and the noble Lord, Lord Birt. I give due credit to the Government with regard to rail investment and the fact that crucial areas of it are being sustained. But my noble friend Lord Soley is absolutely right when he says that there does not appear to be a concept of an aviation policy when aviation is bound to play a very significant role in the economy. The noble Lord, Lord Birt, also, identified our difficulties with regard to road.
Another dimension on which I give the Government credit is the Green Deal. They are continuing policies which the previous Government adumbrated, but we are looking forward to the whole development of house insulation and improvement with regard to conservation of energy in the home. The Government deserve credit for their commitment in that area. But as my noble friend Lady Worthington indicated, it is not so certain that the commitment to the green bank and the whole environment development is so secure.
There are tough times ahead. We all recognise that the nation has got to identify areas of potential growth. But I emphasise this one other dimension, which my noble friend Lord Wood introduced into his all-too-brief speech, when he reflected on the concept of fairness. If we are all in this together, there must be some concept of fairness across society. It will not do that the Government rely upon the failed Project Merlin for their temporising with regard to the banks and their pathetic gestures towards seeing the banks make some reparation and take some responsibility for the disasters of the past, while pursuing policies with regard to social cutbacks which hit so adversely the least well-off in our society.
I am grateful that today we have moved from a position of significant division to one in which there have been some very constructive proposals on growth. I hope the Minister will be able to give us encouragement that he intends to pursue the majority of them.
Tax Credits Up-rating Regulations 2011
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Lord Davies of Oldham
My Lords, I had thought that the problems with these statutory instruments would be that our contributions might be not so much after the Lord Mayor’s Show as coincident with it, as the Budget Statement was made today. The other place and all the media are concentrating on the 2011 Budget while here we are, engaging in a debate on instruments that relate to last year’s decisions. I therefore assumed that the Minister would stay fairly close to the technicalities of the instruments and that we were unlikely to engage in a substantial debate on the economy, but no such luck.
The Minister, not content with successive Thursday debates that string out ahead ad infinitum and in which he will regale the House with his perspective on the economy, has taken this rather modest measure as another opportunity to inveigh on those issues which, I suppose, pass for coalition home truths about the situation that we are in. Well, if we must engage so be it. I had not really come prepared for this but I have one or two obvious rejoinders to the noble Lord’s position ready to hand. I am not quite sure why he is not prepared to engage in the debate on how far and how fast, regarding deficit reduction. He presents the issues in terms of the inevitable: that slash and burn is the only response regarding support and the public contribution. Of course, that is because the British economy is very close to the Greek, the Irish and the Portuguese economy—teetering on the brink of utter collapse, with stupendous interest rates and the collapse of the known world. That is specific and special pleading.
The noble Lord rarely addresses an economy that is marginally more significant than the German or Irish economies by looking at the United States. If he looks at its response to this issue, the question is whether destroying so much of the support given at present will grievously affect demand. He is therefore stuck with the fact that the one word he did not mention at all is that which presently revolves around every conceivable contribution in the other place: namely, growth. The decline in growth predicted by the OECD is now confirmed by the figures that the Chancellor made in his Statement today. What does the noble Lord think that lower growth represents? It means more people unable to sustain themselves. I heard him lament the fact of working-age poverty. What on earth does he think will happen to that as unemployment rates in this country begin rapidly to increase?
We have not yet seen the burden of the cuts but, my goodness me, it is quite clear that the nation is already alert. It is not as if this date, 23 March, is not insignificant in the nation’s awareness of the implication of cuts. In three days, on 26 March, a very substantial proportion of our people will indicate that a Government who go too far, who reduce potential for growth and who massively increase unemployment and promote poverty can ill afford to parade the idea that there is no other way, when in fact other Governments—whose economies are at least as significant as ours—are pursuing very different strategies indeed. However, I did not come here for peroration. I came just to look at the gentle terms of this instrument. I thought it somewhat otiose to engage today in a debate on government policy when our youngers—and, if not our betters, perhaps our more committed—at the other end are involved in that exercise, debating the 2011 Budget while we are dealing with instruments that derive from last year’s Budget.
Within the terms of the instrument, I accept some aspects of the Government’s attention to the problems that beset the less well-off in our society. I appreciate the fact that there is an above-indexation increase in the child tax credit of £180 for next year and a little less the year after for those of very limited means. I respect the fact that there is some attention to the particular problems of those who are least well off in our society. I do not accept the Government’s position, supported by the noble Lord, Lord Newby, on child tax credits. I shall make the obvious point on the eradication of child poverty: it is a massive target. We all know the projection on how long it takes and how much it costs but, despite this gesture, the Minister never makes the slightest reference to the tremendous onslaught on child poverty which was the product of policies pursued over the past decade through many strategies, the effectiveness of which he is proposing to reduce. To make the most obvious point, what we now have enshrined in stone for the future under this Administration is one criterion and one index for how much uprating will occur. This is an uprating measure. The RPI, currently at 4.6 per cent, is buried and the CPI is now confirmed as the rate that will obtain across the benefits. It is now 3.1 per cent, or two-thirds of the RPI inflation rate, which many households would regard as a far more accurate definition of the challenges that they face in making ends meet.
I appreciate other aspects of the measure. I heard the noble Lord, Lord Newby, say that people should not expect to get tax credits if their income is over a certain amount. He can make that case if he wishes. He knows the outcry that has occurred as a result of the change from £50,000 to £40,000 in the threshold for credits. He knows very well that ordinary working families, on whatever income, budget according to their expected income and how they run their life. Significant government changes in this area cause distress. The noble Lord, Lord Newby, may regard that distress as synthetic. We shall see the response the nation makes to that significant change in tax credits.
The guardian’s allowance uprating is a minor aspect that reflects the fact that a very small number of beneficiaries are covered by these orders in Great Britain and Northern Ireland. We should notice what indexation means at a certain level: just minuscule increases per week are represented by these figures. I am all too well aware that there are limitations on the public purse and that generosity from the Government—“tax giveaways”, the Chancellor said this morning—were not the order of the day. We understand that, and it is bound to be the case, but that should not alter the fact that we should appreciate that a failure by Government to take proper concern for welfare support could be a very grievous failure indeed. We are moving into a position where, without the slightest doubt, a greater number of our people will be plunged into hardship. The Government’s response, as evidenced by these statutory instruments, shows that the Government put deficit reduction as their supreme objective, at whatever cost to our community.
Financial Crime: Legislation
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Lord Davies of Oldham
My Lords, this has been a fascinating debate and a challenging one for the Minister to respond to, not least because, although three distinct areas of legislation are referred to, all with a common theme, they each present their own enormous complexities.
The common theme was adumbrated immediately by the noble Baroness, Lady Williams, in her opening introduction to the debate in which she stressed in a very powerful way her concerns about fairness. That was buttressed by my noble friend Lord Eatwell indicating that our financial system also rested upon trust. The fact that the debate has a strong undercurrent of principle attached to it should come not as any surprise but as a realisation that such principles should underpin our legislation. In these areas they are efficacious in ensuring that we play our full part in the modern world, were our economy to recover and, in due course, flourish.
There were some discordant voices, such as the noble Lord, Lord Hodgson, and the noble Baroness, Lady Wheatcroft, with support to a certain extent from the noble Lord, Lord Newby, who is eager to look at the issues of businessmen on the ground. The noble Viscount, Lord Eccles, also gave us the benefit of his considerable experience in this area. While we recognise the problems that businessmen face, though, the issues that we face are clear. This is a debate about our legislation in these three areas and its effectiveness. As noble Lords have identified, we have not been coming out of international comparisons of effectiveness well. This is of colossal importance.
To take the first dimension of bribery that the noble Baroness, Lady Williams, identified, we all know the challenges that are presented by dealing with regimes that are different from our own. After all, it is not so long ago that the British Government also lived with a bribery culture. We should not suggest that somehow we have had 700 years of glorious history free from bribery; very far from it. It was an underlying principle of government for several hundred years. In fact the best quote that I know about bribery is from Lord Burghley, founder of the Cecil family, with their significance in our political life. He said, “I may be bought”—that is, I never refuse a present—“but I do not sell myself”—in other words, my judgment is not impugned. That is scarcely a democratic sentiment but it is a step along the road towards cleaner and more proper government. We have prided ourselves on the Governments that we have, and we ought to; they are relatively corruption-free, with very small exceptions, with regard to either Administration and the work that our civil servants do. We all know that we have limited issues there.
The Bribery Act, as the noble and learned Lord, Lord Mackay, emphasised, was passed by both Houses without serious division. It was part of a general view that we need this legislation in order to restore our reputation, which has been declining with regard to this issue. We are all party to that Act but the issue, as the noble Lord, Lord Hannay, emphasised in his contribution, is one of implementation. When is it going to be implemented? That has underpinned a number of contributions in this debate. I say to the Minister that we recognise that consultation is necessary—everything can be improved by hearing voices accurately—but this has gone through the full parliamentary process. We have all had our chance to talk to everyone outside and make our contributions, and so have our colleagues in the other place. We expect the implementation of an Act passed by Parliament. We are anxious about the degree of delay that there seems to be, not least because, as a number of noble Lords have emphasised in this debate, we look a lot weaker in this area than the United States, Hong Kong and direct business competitors on the international stage. That will not do. We require high morality to underpin both the basis of our legislation and the way that business conducts itself because, as my noble friend Lord Eatwell emphasised, the City depends on reputation as well.
I thought that we were going to spend a great deal of the debate on the issue of bribery, as indeed we have, because it was the most recent of our laws in this area to be passed and the one that has still not effectively been implemented. However, I was glad that my noble friends Lord McFall, Lord Haskel and Lord Eatwell and the noble Lord, Lord Phillips, commented on the issue of tax avoidance. We all recognise that we would benefit from simpler legislation because it is easier to comply with. We all know the challenges with regard to tax legislation. When one is seeking to give incentives and to deter specific practices, legislation becomes increasingly complex and, therefore, a challenge. As we all know, there is massive investment in the industry concerned with giving advice to businesses on how to avoid—not evade—certain commitments.
We must be strong and tough in this area. The situation is scandalous and the nation sees it as such. It is not just scandalous that banks had to be bailed out by the taxpayer to the extent that they were, and that some practices were considered to be on the wrong side of sound morality, but when it is subsequently identified that a bank such as Barclays pays such a small fraction of its total profits in corporation tax, of course our people view that as an extraordinary situation. Those institutions do not even pay adequate taxation when they are making so much profit and the vast majority of people in the country are suffering privation. That is why we should look at implementation. This is not about the law but whether the Inland Revenue has the resources to pursue the objectives which we set for it in law. I cannot understand why—I cannot think of any business that would understand this—we underprovide for a body that brings in revenue. The Government go in for profit maximisation. Putting extra resources into the Inland Revenue will produce extra returns, yet the Government are engaged in wholesale cutting in that regard.
I will conclude briefly as my time is very limited. Recently, we introduced legislation on money laundering as we were becoming increasingly anxious about the extent to which money laundering might fund international terrorism. Therefore, the relevant laws are in place. However, as the noble Lord, Lord Hannay, and other noble Lords have emphasised, this is a matter of implementation. We should be ashamed of a situation in which it is clear that those whom we knew to be tyrants and who paid scarce regard to the needs of their people have been able to salt away vast sums. On the whole those tyrants exploited countries with limited economies and very many poor people while keeping resources available in London for their own use.
The Minister will, of course, say that the relevant legislation is in place. That is certainly true but this matter is about good, resourceful government and the ability to implement a measure that the House wishes to see implemented.
Social Security (Contributions) (Amendment No. 2) Regulations 2011
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I am pleased to introduce the Social Security (Contributions) (Amendment No. 2) Regulations 2011 and the Social Security (Contributions) (Re-rating) Order 2011. It is worth noting that all the changes covered by these two instruments were announced as part of a Written Ministerial Statement in December last year. As both the regulations and order deal with national insurance contributions, it seems only sensible that they should be debated together. As a matter of course, I can confirm that the provisions in the regulations and the order are compatible with the European Convention on Human Rights.
I shall begin with the social security regulations. The previous Government’s 2008 Pre-Budget Report announced an increase in class 1 and class 4 national insurance contribution rates of 0.5 per cent. These rate rises were due to come into force from the start of the 2011-12 tax year, but 12 months later the former Chancellor of the Exchequer declared his intention to double the increases. This would have placed additional burdens on businesses at a time when they are most in need of our support. While this Government confirmed that these rate rises would be implemented, we are implementing them as part of a wider package of reforms that will reduce the overall cost of employment and will support people on lower incomes. We will achieve this by increasing the income tax personal allowance, the primary threshold and the secondary threshold. The social security regulations before the Committee today are a vital part of this process.
To start with, the point at which employers will have to start paying national insurance will increase from £110 per week to £136 per week from April of this year. This is a weekly rise of £21 above indexation, which means that employers will not pay any national insurance on the first £7,072 of any worker’s earnings.
From April of this year, the class 1 primary threshold, which is the point at which employees start to pay class 1 national insurance contributions, will increase from £110 per week to £139 per week. This is an increase of £24 a week above indexation, which will help to mitigate the effects that a 1 per cent increase in the employee’s rate of national insurance contributions will have on the lower-paid.
As a result of the increases in thresholds included in today’s regulations, around 950,000 low earners will no longer pay national insurance contributions, while their contributory benefit entitlements will be protected. Employees earning under £35,000 a year will pay less both in terms of income tax and NICs. Employers will pay less in NICs on all workers earning less than £20,000 a year. In relation to NICs thresholds, employers will be better off by £150 for every employee earning above the secondary threshold.
Compared with the plans that this Government inherited, more than £3 billion a year is being returned to employers through the secondary threshold rise. Even more money will be going straight into the pockets of hard-working families due to the changes in the primary threshold.
Today’s regulations also set the level of the lower earnings limit. This takes into account changes that we are making to the way in which the basic state pension will be uprated. As part of last year’s June Budget, my right honourable friend the Chancellor announced that the basic state pension will be linked to earnings from April 2011. Not only that, we included the added guarantee that it would rise in line with either earnings, prices or 2.5 per cent, depending on which is greatest.
Now that the earnings link has been restored, the lower earnings limit is no longer legislatively linked to the basic state pension. This means that the Treasury can set its level independently of the basic state pension through affirmative resolution. As a result, large rises in the basic state pension will not result in lower earners being taken out of contributory benefit entitlement. This is fair and progressive and it will support the poorest and most vulnerable in our society. For the upcoming tax year, the lower earnings limit will increase by RPI to £102 per week, while the upper earnings limit will go down from £844 per week to £817 per week. This is to maintain the alignment with the point at which the higher rate of income tax is paid. It is also worth noting that the regulations will increase the main rate primary contributions paid by women who married before 6 April 1977, taking them up to 5.85 per cent from this April.
The social security order sets out the NICs rates and thresholds for the self-employed and those paying voluntary contributions. In the case of the self-employed, it raises the small earnings exception for paying class 2 contributions. The exception will rise in April from £5,075 to £5,315 a year, which is broadly in line with prices. The rate of class 2 contributions will increase from £2.40 to £2.50 a week. The rate of voluntary class 3 contributions will also increase from £12.05 a week to £12.60 a week. Again, this is similar to the general increase in prices.
Today’s order sets the profit limits for which main rate class 4 contributions are paid. The lower limit at which these contributions are due will increase from £5,715 to £7,225 a year, in the same fashion as the class 1 primary threshold. At the other end of the scale, the upper profits limit will be reduced from £43,875 to £42,475. This maintains alignment with the upper earnings limit for employees, which, as I said, is being reduced to reflect the changes made to the higher rate of income tax. The changes to the class 4 limits will ensure that the self-employed pay contributions on a similar range of earnings to employees paying class 1 contributions. The increase in the lower profits limit will guarantee that the 1 per cent increase in the class 4 NICs main rate is offset for the self-employed. This is in much the same way as the increase in the primary threshold offsets the 1 per cent increase for employees.
The legislation included as part of today’s order and regulations is an important part of the Government’s plans to reduce the taxation of labour. It will encourage employers to take on more workers, help those on the lowest incomes and support private enterprise and employment across the country. This is important for the economy and important for the recovery. I commend the regulations and the order to the Committee.
Lord Davies of Oldham
My Lords, I am grateful to the Minister for the explicit way in which he outlined the contents of the regulations and the order. He will forgive me if I do not spend a great deal of time responding to them. First, it seems that the main principles adumbrated in his contribution were debated pretty thoroughly at the general election and largely resolved by crucial decisions then. Secondly, we have had the opportunity to debate national insurance contributions with some degree of intensity over the past few weeks. These issues have also already been considered by the other place. Therefore, the noble Lord will forgive me if I am not able to match the strength, force and length of his opening contribution. However, I have two specific questions to ask, to which I would like him to address his mind and respond.
The Government—or the more senior party of the coalition—made much of this in their rhetoric during the general election. Afterwards, there was in the coalition agreement this commitment—indeed, a pledge—to stop the rise in employer national insurance contributions from April 2011. However, there seems to be a difference between the expectations to which this might give rise and the reality that we see in the SI before us. What is given back to the employer through the threshold changes to class 1 secondary contributions? The threshold goes up from 12.8 to 13.8 per cent but this appears to be somewhat less than employers might have thought they were getting following the pledge to stop the rise entirely as far as employers are concerned. It looks as though the Government are giving back with a degree of generosity that does not quite fulfil their commitment. The noble Lord mentioned that he thought that as much as £3 billion was being returned. Can he confirm that figure and say whether it is consistent with employers’ expectations of what they would get back?
Secondly, I want to comment on what I am sure the noble Lord will indicate is a minor issue, although it is not minor to many of us. I refer to the contribution of married women and widows. I know that they form a limited group but I see that the increase in their contributions will be from 4.8 to 5.8 per cent. What are they getting for that increase? We know that they get no retirement pension, that they cannot get jobseeker’s allowance if they become unemployed and that they receive no sickness benefits. Yet, in all the Government’s bravado about the restrictions that they would place on increasing national insurance contributions, they could not exempt this group. That seems to be at one with an awful lot of the dispositions made by the Chancellor and by Ministers responsible for Treasury matters over the past few months. I think particularly of child benefit for women who earn more than £40,000 a year. Whether intended or not, the legislation seems to discriminate pretty heavily against women when we would have thought that, if the Government were true to the principle that the noble Lord adumbrated in his concluding remarks, which reflected some fairness, this group would have been treated more generously. Will the Minister comment on that? In more general terms, the Opposition are supportive of the regulations.
Lord German
My Lords, perhaps I may add a few words of welcome for these regulations. They give effect to a significant commitment that this Government made to try to reduce the costs to business of employment, to try to make sure that those who are in employment at lower levels of income receive a boost and to give effect to that commonly held and often-referred-to statement that work will always pay. Taken in the round, we cannot omit the other part of this package—the Welfare Reform Bill—which will ensure that those on lower earnings always benefit by being in work and that they do not lose their pensions.
Primarily, these regulations give help to support people on lower incomes. They help those at the lower end of the pay scale but, as the Minister said, they are part of a package to lift people—many tens of thousands and nearly a million in this case—out of national insurance contributions altogether and to reduce the tax burden as a whole for a substantial number of working people throughout the country. That is a crucial change, which, taken with the Welfare Reform Bill, will support the poorest and ensure that it will always pay for people to be in work, to seek work and to find work. It is progressive and as such should be encouraged.
We were told by the opposition party during the last general election that it would be better not to raise VAT but to raise national insurance contributions. We have increased VAT to 20 per cent. To what level would national insurance contributions have to rise to match that switch? Is it not far better to ensure that people who are on the lowest earnings can keep more of their income and that the poorest in our society benefit most from these changes? Is not the progressive nature of these changes crucial to fairness in our society?
National Insurance Contributions Bill
Lord Davies of Oldham Excerpts(13 years, 1 month ago)
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Lord Davies of Oldham
( ) a non-trading charity
Lord Davies of Oldham
My Lords, we debated this issue in Committee and it was the subject of debate in the other place as well. However, we found the Government’s response to this amendment and the concept behind it somewhat unconvincing. Their view seems to be that this measure, in this Bill, revolves around what they define as the wealth-creating sector. That seems, by definition, to exclude charities from consideration. Why should the Bill be subject to this narrow definition, which seems to suggest that charities do not contribute to wealth in our society? That view is buttressed by the Government’s arguments that reflect the very narrow definition of what they regard as the nation’s wealth. In other words, it is to do with jobs but not public welfare—it is about people being employed but not what they are employed to do. In other words, it has nothing to do with quality of life.
I know that the Minister will regard my presentation of these arguments as indulging in a flight of fancy that is a little different from the day-to-day preoccupations of the Treasury. However, I ask noble Lords to consider the obvious point that in these difficult times we should give hope to our people, as this measure seeks to do. We should give help and support to those thousands of our fellow citizens who will lose their jobs in the public sector as the Government say that they cannot afford to employ them all. They rarely deploy the argument which they use regularly at party conferences and elsewhere, when rhetoric plays its part, that they wish to reduce the size of the state as they consider that that would benefit the nation. In reducing the size of the state they are, by definition, reducing the number of people in public employment not because they cannot be afforded but because, in the Government’s opinion, society is better when the Government play a smaller part. The House will not be surprised to hear that we take a somewhat different view about wealth and the virtues of public employment.
The previous amendment was directed at those parts of the country which the Minister indicated were more dependent on public sector employment which is to be subjected to such a serious assault from the government cutbacks. Why can we not help these areas by creating jobs in bodies such as non-trading charities? Of course, I appreciate that it will be a modest contribution and I subscribe to the view that the noble Lord will no doubt put forward in his reply that the Bill overwhelmingly concentrates on businesses which create wealth. I am not in any way, shape or form against that endeavour. In fact, my party has made clear that it supports the development of small businesses. However, I am against exclusion for no obvious good reason. I do not see why non-trading charities should not be included.
The Minister’s argument in Committee partly revolved round the fact that the matter is said to be outside the main purposes of this legislation and that we should not bring in something that is somewhat extraneous. However, the number of Bills which the Treasury can introduce over the year is fairly limited. The noble Lord will be all too well aware of the fact that apart from the Finance Bill, in which this feature is scarcely likely to be addressed, Treasury Bills, other than those which have a very specific operation, are few and far between as the Treasury competes with other departments for legislative time in both Houses. We therefore propose an amendment of a most modest but beneficial kind that—even if the Minister thinks it is not entirely appropriate to the main purposes of this modest measure—is not far distant from the objective of creating jobs on a very small scale in areas where public employment is being reduced. I maintain that non-trading charities can play a modest part in creating those jobs.
Given the government arguments thus far—and that is why we are continuing this debate beyond Committee—I see no reason why the amendment should not commend itself to the Government, and that is why I commend it to the House. I beg to move.
Lord Sassoon
My Lords, the noble Lords who put their name to the amendment have again raised the issue of making non-trading charities eligible for the employers national insurance contribution holiday. This matter was debated at some length in Committee and I again suspect that what I am going to say will not come as a huge surprise to the noble Lords concerned. Nevertheless, I will do my best to persuade them to withdraw the amendment.
I thought that the noble Lord, Lord Davies of Oldham, was going to go off on some flight of fancy. I do not think that he went off on any flight of fancy, and he kept entirely to areas that the Treasury takes extremely seriously. I was therefore disappointed, because I expected the noble Lord to go down some exotic new avenue—but he did not.
However, in the first half of his remarks, he did not recognise that an important group of charities will get the benefit of this holiday. It is important for me to confirm that new charities in qualifying areas are eligible for the holiday if they are carrying on a business. I appreciate that the noble Lord later on in his remarks started to distinguish between trading and non-trading charities, but this is an important point. For example, were employees to be taken on for a charitable trade, such as providing education or healthcare services, the charity is potentially eligible for this generous relief. Amendment 5 would specifically extend eligibility to new non-trading charities in qualifying areas. As, to be fair, the noble Lord recognises, this would not support the Government’s objective of encouraging new entrepreneurs to set up businesses in areas with a high proportion of public sector employment. The noble Lord suggested that his amendment would be a nice-to-have add-on, if I may crudely paraphrase him. However, he recognised that it does not chime in with the core purpose of the Bill.
Just as we have other ways of supporting regions that are not covered by the holiday, the Government of course have other important ways in which they support the critical work of charities, not least in their contribution to the big society. We provide substantial support to charities and charitable giving with tax reliefs worth more than £3 billion each year. Gift aid and relief from non-domestic rates are each worth around £1 billion a year. I remind noble Lords that, across the UK, charities that are employers will also benefit from the increase in the employers national insurance contribution threshold by £21 a week, plus indexation, that comes into effect on 6 April.
Lord Davies of Oldham
My Lords, I am grateful to the noble Lord for his precise exposition of the Government’s case against the amendment in principle. I do not think that we need the overkill of the technical limitations of the amendment. It is rare for the Opposition to table amendments that do not have certain technical imperfections, but when a Government have the will, they certainly have the way to get past those imperfections. Of course, the Minister is really piling Pelion upon Ossa. He is saying that he is not having this amendment at any price on a fairly straightforward and clear principle; nevertheless, so far as the Opposition are concerned, the argument is made on unconvincing grounds. However, I beg leave to withdraw the amendment.
Lord Davies of Oldham
“Annual report by the Treasury
( ) The Treasury shall, following the day on which this Act is passed, review the operation of the regional holiday scheme under Part 2 of this Act, and provide an annual report to Parliament.
( ) Each annual report shall set out, by region—
(a) the number of businesses availing themselves of the secondary contributions holiday;(b) the number of employees designated as qualifying employees under the scheme;(c) the total expenditure saved by businesses under the scheme; and(d) an assessment of the demand to apply the regional holiday to different areas of the country.”
Lord Davies of Oldham
My Lords, this amendment again relates to an issue that we addressed in Committee. On that occasion, the Minister gave us the benefit of his perspective on this matter and indicated the ways in which the Government would be held properly accountable for their work in this area, as in all aspects of Treasury matters, and indeed wider than that.
The amendment relates to the specific nature of the holiday. We are seeking an annual report in the terms adumbrated by the amendment because this is a most interesting scheme. If not experimental, the scheme certainly has a significant dimension, which is, as we discussed when we debated the earlier amendments on the regional aspects of the scheme, the control factor attached to it. The scheme will operate in the majority of the country, although it will exclude the south-east, London and the eastern region. Therefore, after a year, we shall be able to see how much progress has been made on job creation for those who have lost their position and where there are fewer jobs in the public service and we shall have a control position as regards those regions that are not in the scheme. We may be able to see the benefit of this initiative by the Government.
To my noble friends on the Front Bench, that seems to be a good reason why we should have a precise annual report on this scheme and on how it has worked. Although I quite understand that the Minister’s defence is likely to be that the Treasury is always open and accountable and that it has measures whereby it makes matters explicit to the nation, I would not be the first noble Lord to have to confess, even with the experience of being on the Treasury Bench, that from time to time there has been a degree of obscurity that makes it extremely difficult to analyse just what has transpired in schemes and their effectiveness. This amendment would give the Treasury a golden opportunity, after one year, to make quite clear the success or otherwise of the scheme, which we wish success. I beg to move.
Lord Sassoon
My Lords, Amendment 7 would insert a new clause into the Bill with the aim of requiring the Treasury, following the day on which the Act is passed, to review the operation of the regional employer NICs holiday under Part 2 of the Bill and to provide an annual report to Parliament. The amendment would require the annual report to contain information by region. At the risk of being accused of piling Pelion on Ossa, it is important to get the comparison between what is proposed by this amendment and what I shall go on to say the Government propose to do. It is important to get it straight. I hope that I am not going into any unnecessary detail but I will clarify what is going on in the proposed amendment and what the Government seek to do.
The amendment requires that the annual report should contain, by region,
“(a) the number of businesses availing themselves of the secondary contributions holiday;
(b) the number of employees designated as qualifying employees under the scheme;
(c) the total expenditure saved by businesses under the scheme; and
(d) an assessment of the demand to apply the regional holiday to different areas of the country”.
As I said in Committee when we discussed amendments of a similar nature, I think that this amendment is motivated by a wish to encourage transparency—the noble Lord, Lord Davies, has confirmed that—and to ensure that proper consideration is given to how the holiday operates in practice. I shall attempt to explain to noble Lords why the amendment is unnecessary.
First, as I said in Committee, my honourable friend the Exchequer Secretary explained in the Public Bill Committee in another place that there is no budget as such for the scheme. Anybody contemplating starting up a new business can be confident that there is no budgetary constraint on the scheme. The holiday will continue as proposed regardless of how many successful applications are made. If a large number of additional new businesses are formed as a result of the policy, this would help to increase Exchequer revenues. The expected costs of the scheme were set out in the policy costing document at Budget 2010.
Secondly, on the point on which the noble Lord, Lord Davies, focused his remarks, the Government are committed to increasing the transparency of tax policy-making and of the tax system more generally. To that end, I am happy to repeat the undertaking, which I have mentioned before at different stages of this Bill, made by my honourable friend the Exchequer Secretary in another place to provide to Parliament and the public updates before the end of the calendar year on the operation of the scheme, including information at regional level. As I said in Committee, we envisage a factual report regionally and nationally covering the number of new businesses applying, the number of applications rejected, the number of qualifying employees for whom a holiday has been claimed and the amount claimed.
The only significant difference between the commitment that the Government have made and the amendment that we are debating is that the latter would require,
“an assessment of the demand to apply the regional holiday to different areas of the country”.
I am not completely clear about the meaning of these words and how what is suggested would operate. The noble Lord, Lord Davies, did not address the detail. The substantive point is that the Government do not see the need to report annually on the demand to apply the holiday to different areas of the country. We can assess that now and I do not expect the assessment to change. There is, of course, strong demand from excluded regions to enjoy the benefit of a holiday that they would like to have, but we have debated that already and the House has this afternoon formed a view on excluded regions. The position remains as we have debated it, so I am not sure how that part of the amendment would achieve anything.
The Government’s objective remains to target resources at those regions most in need. The Government do not expect the objective to change. By tabling this amendment again, the noble Lord has given me the opportunity to restate for the avoidance of doubt that we will come forward with a transparent and comprehensive report on an annual basis. With those reassurances, I hope that the noble Lord will withdraw the amendment.
Lord Davies of Oldham
My Lords, I am once again grateful to the Minister for his identification of the way in which the Government are seeking to meet the clear objectives of transparency and effectiveness with regard to the scheme. Of course, I understand that because the scheme has no particular budget there is an aspect of parliamentary control that is clearly not possible in the measurement of the budget. My noble friends support this amendment because we see the value of transparency with regard to the scheme, particularly a scheme that is partial in its impact. Of course I understand that the Government have sustained their position about the limited geographical range of the scheme, but there is bound to be greater demand for transparency in a scheme that does not apply to areas where there are none the less pockets of deprivation, as we sought to identify in the past. Clearly, they would have benefited from the scheme had that been the case.
I accept what the noble Lord has said about the process by which the Government will be transparent on the operation of the scheme. I want to make it clear to him and the Government that we will continue to take a close interest in this scheme. It may be a modest measure, but it is highly significant and, in certain aspects, groundbreaking in the way in which it has been framed. That is why we will hold the Government to account on the extent to which they reflect accurately the operation of the scheme. With that, I beg leave to withdraw the amendment.
Taxation: Low-value Consignment Relief
Lord Davies of Oldham Excerpts(13 years, 2 months ago)
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Lord Sassoon
My Lords, I fully accept my noble friend’s statement that this is an important area, which is why the Treasury is looking at it. It flows not from any scam but from the fact that the Channel Islands are treated as outside the European Union for these purposes. That goes back to the accession treaty. The previous Government took steps with the Channel Islands authorities to encourage them to introduce a voluntary restraint and caps on the activities of individual firms in this area. The issue relates not only to CDs and DVDs but to a whole range of goods. It is precisely because this is an important area and we want to make sure that the Exchequer is protected that Ministers are looking at what else we might do.
Lord Davies of Oldham
My Lords, the Minister’s response to his noble friend’s original Question seemed somewhat complacent in respect of the charge sheet of problems associated with this issue. He implied that things are improving, but the noble Lord, Lord Newby, expressed doubt about whether things are improving. I think that the whole House should be doubtful. With online sales increasing at their current levels and with this trade being very much a matter of online sales, it would be very surprising indeed if it was significantly decreasing. Would it not therefore behove the Minister to indicate that the Government intend to act in this area? If it is not an abuse of taxation—if it is not a scam—then it is certainly very close to being an avoidance of tax which we ought to put an end to.
Lord Sassoon
My Lords, I did not want to turn this into a political question; indeed, I attempted to give credit to the previous Government for the actions that they took in conjunction with the Channel Islands authorities. However, the fact is that the VAT loss is estimated to have increased very considerably—by approximately 50 per cent in the past five years—under the previous Government. Members of that Government are now saying that the situation is terrible and we need to take action, but what did they do in the five years in which the amount of revenue lost to the Exchequer increased by 50 per cent? They only talked to the Channel Islands authorities. We have immediately gripped the situation. Ministerial colleagues and HMRC officials are now examining what—in a very difficult and technical area—can be done. If there are things that we believe should be done, they will be announced in the forthcoming Budget.