Oral Answers to Questions

Steve Baker Excerpts

Tuesday 18th April 2017 Commons Chamber

[Mr Hammond]

Of course we want there to be a viable branch banking network across the country, but we must recognise that the nature of banking is changing. More and more of us are using online digital banking, and that is bound to be reflected in the configuration of the branch networks that the banks operate.

[Mr Steve Baker (Wycombe) (Con)]

As the entrepreneurial heart of England, Buckinghamshire provides an excellent bridge to the east midlands and beyond. Will my right hon. Friend look into how investment in Buckinghamshire can help to stimulate growth throughout the country, not just in London and the south-east?

[Mr Hammond]

I am sure you are delighted, Mr Speaker, that my hon. Friend has lighted on the key role of Buckinghamshire as a bridge between the north, the south, the east, the west and every other part of the country. I should be happy to receive, and I confidently predict that I will receive, my hon. Friend’s detailed submission on the case for greater infrastructure investment in Buckinghamshire.

Finance (No. 2) Bill

Steve Baker Excerpts

2nd reading: House of Commons
Tuesday 18th April 2017 Commons Chamber

[Kit Malthouse (North West Hampshire) (Con)]

It is a joy to follow my Treasury Committee colleague, the hon. Member for East Lothian (George Kerevan). That should imply not an endorsement of his views, but rather an appreciation of his passion and erudition. I rise to welcome the Finance Bill—if it goes through unmolested, and even if it does not—and to concentrate my remarks, brief as they may be, on a couple of areas.

As an aficionado of my speeches and interventions, Madam Deputy Speaker, you will be aware that I have developed something of an obsession about the future of the British economy being based on a combination of science and private capital. We are fortunate in this country in being a science superpower. In the south-east of England we have five of the world’s top 20 science universities: in King’s, UCL, Oxford, Cambridge and Imperial, we have possibly the largest agglomeration of scientific research on the planet, not just in life sciences, but in physical sciences, synthetic biology and all sorts of new exciting and interesting areas.

We are incredibly good at science. Our history of scientific endeavour points to that. There is one Cambridge college that has more Nobel prizes for science than the whole of Japan, for example. So we are good at science; what we are not so good at is turning those scientific discoveries into companies. We used to be good at that of course, back in the 19th century; much of the wealth of this country was built on the discovery and innovation of the Victorian era, put together with what was then much more adventurous private capital to create some of the monoliths—the huge companies we built over the following century and have sadly too often since sold to the rest of the world.

During that period, and particularly after the war, we were, however, lax in planting the acorns that would be required to produce the forest of oaks that we could chop down and sell to the highest bidder in the future, so our stock of these large companies has diminished. In fact, this is a European problem. Of the top 500 companies in the world, only two have been created in the past 40 years. Fortunately, those two are both British—Vodafone and Virgin—but that is not enough. If we are to continue our proud history of industrial innovation and of creating these large multinationals, we need to start planting those acorns. The operation of private capital and its dynamism in finding the ideas, the discoveries, the molecules, the therapies and the inventions are absolutely critical.

I have raised this issue again and again with the Chancellor in questions and during debates. I have asked about the complexities that are put in the way of individuals who wish to invest in innovations. The primary vehicles for investment that the Government allow private individuals to use are the enterprise investment scheme and the small enterprise investment scheme. They are welcome schemes that provide incentives for investors and some tax relief on disposal, but they are complex. Over the past eight to 10 years that the EIS has been in place—the SEIS has been in place for slightly less time—a body of case law has built up around their operation, as always happens with these things. Investors have tried to be innovative with the schemes, and investments have often been disallowed on technical bases. As a result, people are to a certain extent becoming shy of using them. Looking at the SEIS in particular, we see that the number of companies availing themselves of the scheme has levelled off. It has been broadly the same for the past three or four years.

I therefore welcome the measures in the Bill to introduce flexibility into the EIS and SEIS. If the Government really want to see a cascade of private capital into small, innovative businesses and into scientific endeavour, they need to make those schemes as flexible and easy to operate as possible. At the moment, if I want to invest a relatively small amount of money—£10,000 or £15,000—in a company, I need an accountant and a lawyer, and I need to get pre-approval from the Inland Revenue to ensure that I get my tax relief. I have to do all that in order to invest a relatively modest amount, in investment terms. So is it any wonder that the level of investment in these schemes is not enormous?

In this country at the moment, the Government are making 60% of the investments below £2 million through various schemes and funds and through the British Business Bank. That is all very welcome, but for a capitalist country, this is not right. The majority of investment should be from private capital, and it should be individuals who are making those investments. Accessing retail capital and putting it next to science to allow the two to create a powerful cocktail of wealth creation is key to the future of the British economy. I hope that, if we have another Finance Bill this year, the Government will seek to liberalise the investment regime for private investors in private businesses, particularly those that are innovative or science based.

The same applies to venture capital trusts. These were an enormously beneficial invention when they came in about a decade ago. They attracted huge amounts of capital. There was a time when people saw them as the last 100% tax shelter, but they, too, have fallen out of fashion. Their complexity and the poor returns that they produced compared with the tax relief available for them have meant that the number of VCTs has shrunk and the capital under management by VCTs has been broadly static over the past few years. These two things together—private capital investment through the EIS and SEIS and private capital coming in through VCTs—must be the twin planks underpinning the future of the British economy. We know that we cannot rely on foreign investment and that we cannot rely entirely on institutional investment. They are far too cautious for some of the innovations that need investment. So re-energising private capital and providing easy, flexible ways for individuals to invest quite small amounts of money into innovative companies will be absolutely key. I welcome some of the flexibilities in the Bill and I hope that the Government will be more ambitious over the next 12 months.

[Mr Steve Baker (Wycombe) (Con)]

My hon. Friend’s speech is an absolute treat because it is a much better version of the speech that I made on science and markets in the Vehicle Technology and Aviation Bill Committee on which we served together. Does he agree that one of the key spirits that we need to recapture from the 19th century, when we took science and innovation and turned them into big companies, is getting people who know how to do things, such as engineers, to become entrepreneurs—perhaps in the spirit of I. K. Brunel? In that way, those who know how to produce will also know how to invest and how to serve people in a commercial way.

[Kit Malthouse]

My hon. Friend makes a powerful point. This is a chicken and egg situation. If people with ideas and inventions who are thinking about starting their own business know that capital is more easily available, they will be much more likely to go out and take the risk of starting that business. It is often the paucity of capital and the difficulty of raising it that lead such people not to proceed.

Let me give the House a small anecdote. When I was deputy mayor for business and enterprise in London, I went to a life sciences fair where companies were making presentations about their inventions. I came across a group of young biochemists from Cambridge who had invented what they called an espresso machine for DNA. When people are doing primary research, they often need to manufacture DNA on which to carry out their research. The standard ways of doing that are either to send off to have it made elsewhere, which is time consuming and expensive, or to make it themselves by trial and error. This group had developed software and invented a machine to produce the necessary kind of DNA. I thought that was incredible. It was an amazing British invention. The group had won a prize at Cambridge and received a small grant. I thought that they would need £5 million or £10 million, and if I had had it, I would have given it to them. When I went up to them afterwards, I discovered that they were trying to raise only £250,000, but they were having difficulty in doing so, even though, as far as I could see, their incredible invention was going to revolutionise research. Time and again while I was doing that job, I met young, ambitious and exciting scientists who had a molecule, a therapy or an invention but who were unable to access the necessary capital and would therefore go off and become chartered accountants, like me, instead. We lose a huge amount of talent that way. My hon. Friend has made a strong point.

I lament the passing of the employee shareholder scheme, which was introduced by the previous Chancellor, under which employees could enter into an agreement to vary their employment rights in exchange for which shares in the company. Sadly, the scheme was abused. It was often not taken up for the purpose for which it had been intended. It was abused by some as a form of disguised remuneration. The Government are quite right to close the scheme down, but that nevertheless leaves us with a problem. Not enough people in the United Kingdom participate in the balance sheet of this country. The Prime Minister has often talked about having an economy that works for everyone, but such an economy surely has to be one that is largely owned by everyone. I do not mean owned in a statist or communist way; I am talking about an economy in which everyone has some kind of financial interest from a balance sheet point of view.

We spend a lot of time in this House obsessing about people’s profit/loss account. Is my income bigger than the next chap’s income? Am I earning more than the lady round the corner? We obsess about income inequality, but we rarely obsess about wealth inequality; yet intergenerational wealth is built on the balance sheet of the family. It is built on the investments, albeit small ones, made by one generation. That wealth is expanded by the next generation and built on by the third one. That was certainly the story in my family. We came from fairly lowly beginnings, yet here I am now. This has been built on the fact that my grandparents made investments and my parents started a business. Hopefully, in turn, they will pass some of that wealth to me, although not, I hope, for a long time yet. We have a collective family balance sheet. We are able to buy stocks and shares, for example, but that is denied to lots of people in this country.

The one place in which individuals should have a share of wealth is in the companies that they work for. If we are really to have an economy that works for everyone, we need an economy that is largely owned by everyone. The Government have schemes available, particularly for employee share ownership, in which companies can set up pools of capital for their shareholders. I have been looking into this for my own business, but the scheme is incredibly complicated. In dealing with relatively small amounts of money, I need lawyers and accountants and pre-approval from the Revenue. There is an incredible frictional cost involved in getting such a scheme under way.

My plea to the Government, having got rid of the employee shareholder scheme, is to think about how to facilitate that idea—how to make sure that it is in the interests of employers and business owners to involve their employees in the business in a capital sense. That will enable employees to create for themselves a balance sheet on which to begin the intergenerational wealth creation that the country needs. If we can do that, we will start to build an economy that works for everyone.

I want to talk about two other small things. I welcome the change to the allowance for investment in grassroots sport. Members may not have noticed, but the Finance Bill will make investment in grassroots sport deductible for businesses, and that will be extremely welcome to football, cricket, hockey and many other clubs. I am proud to say that my business has sponsored local children’s football clubs at schools and so on. The more we involve business with school and grassroots sport for young people, the more both parties will see each other on the same level and the more interested they will be in each other. That is a good thing.

Finally, I want to say something about the overall tenor of the Bill. It has become clear to me over the last three or four Finance Bills that we in this House will increasingly struggle to tax a changing economy. We have seen in the discussions about national insurance and business rates that because of the changing nature of business, the standard Whitehall way of taxing the world will not last that much longer. We are moving into a world of cloud computing, the gig economy, non-domiciled businesses and cashless businesses that operate from third or fourth countries. All those things will be difficult for us to tax, and one of our challenges over the next Parliament will be to think more radically about how to deal with the changing nature of our economy and how to tax it to pay for the things we need.

My personal view is that given the changing nature of our economy and the removal of a lot of cash from the business cycle, it may be time to start to look at things other than direct taxation. Corporation tax is difficult, complex and hard to collect. There is a big tax gap compared with VAT, which is relatively easy to collect and where compliance is high. If I were Chancellor, I would probably prefer to have VAT.

With international businesses transacting in the UK and extracting money, we may need to start to look at the notion of a universal sales tax. Such a sales or turnover tax would be more easily collected and might well allow us to have a lower tax rate, spread across a wider tax base, because we would catch international businesses that transacted from, say, Luxembourg or Ireland. Fundamentally, the rule should be that if the sale takes place in the UK, the tax on the sale is collected here, no matter where the company is domiciled.

We will have to think quite carefully over the next five years, after we get through the general election in the next few weeks, about the changing nature of the economy and the radical measures we need to take to keep up with it. Beyond that, we are making good progress.

Value Added Taxation

Steve Baker Excerpts

Tuesday 21st February 2017 General Committees

[Jane Ellison]

I am not sure I can add a great deal more. No, I do not have my head in the sand. I am being practical, as many of us now have to be. As Ministers, many of us are engaged on a day-to-day basis with the practicalities of how we move forward.

To reiterate, when we are outside the EU, it is probably going to remain our most important trading relationship. Therefore, it is vital that we continue to be good EU members while we are in, and that we continue to be engaged, practical and positive once we are out.

[Mr Steve Baker (Wycombe) (Con)]

To level-set people’s expectations, when in the process of the next few years do we expect to regain sufficient control over VAT so as to be able to end, for example, the hated tampon tax?

[Jane Ellison]

On Report of the Finance Bill last year, we included provisions to legislate by this spring or by the time that we had left the EU, whichever was legally possible and feasible. We have continued to engage with the Commission at official and ministerial level quite extensively since that debate. We are not likely to be in a position to move this spring, for the reason I spelled out in my comments, but we have given a commitment. We have the same view on this matter in all parts of the House; we want to deal with this long-standing anomaly. I am sure Members of all parties would also support the fact that we are equally committed to abiding by the rules for as long as we are in the club. We will not, and cannot, act outside the rules—that would be counterproductive to a negotiation in good faith—but we have included legislative provisions to move on this matter as soon as we are legally able. The clock is ticking on it. We are not moving towards a distant and unsighted point—we have a sense of the backstop date.

--- Later in debate ---

[Kirsty Blackman]

We will not be in a single EU VAT area because we will not be an EU member state. However, the paragraph that I have just read out says that it should be

“possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce”,

so we will be involved as a third country. Given the way the EU does trade deals, it will look to ensure that there is as much equivalence and commonality as possible in a number of areas. We therefore need to make the case for the industries, sectors and products that we think are important. Ensuring that our voice is as loud as possible in these negotiations will benefit us as a country.

The likelihood is that the EU will look to include some commonality or equivalence in relation to VAT systems in a post-Brexit deal with the UK. The EU is a much bigger entity than the UK, so we need to think carefully about how the EU is currently structured and what it is currently doing to ensure that it is as favourable as possible for us when we become a third country and try to make a trade deal with it.

[Mr Baker]

I have been listening carefully to what the hon. Lady has said, which has been interesting. What consideration has she given to the need to co-operate on issues such as VAT in a world of global e-commerce that necessarily extends to many nations and millions of people outside the European Union?

[Kirsty Blackman]

That is a really interesting point, which highlights how much sovereignty has to be given away when agreeing a trade deal with another country. As the EU is a major player and a major consumer of our services exports—that is particularly relevant for e-commerce—we probably need to concentrate on agreeing a trade deal with it before thinking about deals with other countries. It is likely that the EU will want to talk about VAT when it makes trade deals with other third countries, too, so having a common relationship with the EU will probably be positive for us when we make deals with third countries.

I very much appreciate the chance to talk in this debate and make our priorities clear. If there is more flexibility over VAT and its devolution once the UK leaves the EU, I will call for the entirety of VAT to be devolved to Scotland. We have mentioned that before. Under the Scotland Act 2016, the top share of VAT is devolved to the Scottish Parliament. Although that is nice, it does not give us flexibility over policy levers, so I would call for further devolution in that situation.

Commercial Financial Dispute Resolution Platform

Steve Baker Excerpts

Thursday 15th December 2016 Commons Chamber

[Mr Steve Baker (Wycombe) (Con)]

I am very glad to be called to speak in this debate. I support the motion, and congratulate the hon. Member for East Lothian (George Kerevan), with whom I serve on the Treasury Committee, not just on securing this debate, but on the excellent work he has done in having the initiative to bring forward the all-party group on fair business banking. I am glad to be a vice-chair of it, and am grateful to him for the invitation to take that role. I shall make three points: the first is about incentives; the second is about the cost and accessibility of courts; and the third is about complexity.

I have spoken previously in the House about the incentives for bad behaviour, particularly in relation to accounting under the international financial reporting standards, and liability. It is appropriate that the House is so well packed with Scottish National party Members, because I know at least one of them will be glad to hear that I recently attended an event at the Adam Smith Institute, where I helped launch the book “Legislating Instability: Adam Smith, free banking and the financial crisis of 1772”, by Tyler Beck Goodspeed, a brilliant American economist working in the UK. That event may seem irrelevant, but it goes to the heart of what is wrong today. The book shows that the Scottish banking system, characterised as it was by unlimited strict liability among partners, had very good, strong incentives for the owners and staff of banks to behave well. I am grateful to the hon. Members who are nodding in agreement.

Of course, we have come a long way since then, and we are not about to go back to free banking, much as I would wish us to. I shall quote an actuary, whom I do not wish to name, who talked about his work:

“I have examined around 100 individual cases, all of which had the same negative qualities. It is a case of bank salesmen deliberately withholding key information about the risks embedded in the ‘hedging’ products they sell. The term ‘hedging’ is therefore itself misleading.

Overall, the process is disgusting. Banks sold derivative products on top of loans to their clients which those banks knew would render them less creditworthy at the point of sale, and therefore render the business more likely to fail. How this can be described as ‘hedging’ by any financial organisation with a scrap of integrity is beyond me.”

I agree. The actuary went on to say:

“This misleading use of language, unfortunately, is maintained by some of the ‘experts’, some of whom charge large fees for reports to take into the courts. If these reports miss out on key risks, the cases become far weaker, possibly to the point that the case fails. At the best, the bargaining power of victims is much reduced.”

I want to pick up on that experience, because my second point is about the cost and accessibility of the courts system. This points to why our debate is so important. I am sure that the hon. Member for East Lothian has, like me, heard evidence in constituency casework and from the authorities showing that the system that was set up was not adequate to the task in hand. Indeed, I am sure many Members will have constituents whose businesses have been in grave difficulty, and whose lives have been affected, who found that the system failed them.

However well intentioned the authorities were in setting up the system, it has not worked well. We need to find some middle ground between the courts, which are too expensive, complex and require expert evidence—often either unavailable or too expensive to purchase at quality—and the failed semi-formal system. The court system, its inadequacies and the necessity of avoiding it is an old problem—Matthew 5:25 refers to it—and the Government have quite some task ahead of them if they are to deal with this matter.

As for complexity, even Treasury Committee members, who have been elected by the House to deal with such issues, have found derivatives fabulously complex and difficult to follow. If that is true of those of us who are charged with developing the expertise, it will no doubt be true of the small business people who buy the products. To ensure that similar problems do not reoccur, the Government may want to consider whether small businesses —limits on size is something else to consider—ought to be treated as consumers for regulatory purposes.

I am glad that we are interested in a tribunal system funded by the banks, and that we are open-minded. Although my hon. Friend the Member for Henley (John Howell) is not in his place, I am grateful that he will be working with the APPG to take things forward. Finally, I again congratulate the hon. Member for East Lothian. I look forward to making progress, and to hearing what my hon. Friend the Economic Secretary to the Treasury has to say.

--- Later in debate ---

[Michelle Thomson (Edinburgh West) (Ind)]

I made a speech in this place on 1 February 2016 on the FCA compensation scheme for interest rate hedging products. I argued then that that scheme was ill thought out and provided no effective redress for businesses that had been made insolvent. To be honest, I was almost tempted to re-read my previous speech because here we are again, although I would have included the new numbers. Whereas in the case of the IRHP scheme 10% of its complainants were insolvent, in the case of RBS Global Restructuring Group that figure is upwards of 75%, with some estimates as high as 94%, yet fundamentally nothing has changed because RBS has already confirmed that it will not deal with the business owners who have lost their livelihood. The too little, too late apology from the chief executive of RBS, Ross McEwan, is not good enough.

Thanks to the excellent investigative journalism of BuzzFeed and the BBC, the so-called dash-for-cash articles make fascinating, yet harrowing reading. They clearly demonstrate a system that is well ordered and well structured in which the winner takes all. The so called victory emails that were sent to teams in GRG when West Register acquired an asset are a disgrace. That is quite telling because where there is a victor, there is always a loser.

I am grateful to Nick Stoop of Warwick Risk Management who applies the story of the “Komodo dragon” condition. The Komodo dragon lies in wait at a watering hole where it nips the foot of its prey. The prey escapes, apparently not seriously harmed, but the bite is toxic and the dragon knows that its target will eventually weaken and die. So it is with RBS swaps and GRG. The swaps salesman lands the toxic bite. GRG and West Register then get to tear the client to pieces.

I concur with Members who spoke about what that means for those people. We can never forget that people are at the heart of what we are trying to do here. Remember what they may have lost—their family home, their business, their livelihood, their future livelihood if they planned for their children to go into the business, their dignity, their pride and often their very self-definition. We know that wider society loses—the wider community, other local businesses that depend on the failed business, its supply chain, creditors, Her Majesty’s Revenue and Customs and local authorities. My hon. Friend the Member for East Lothian (George Kerevan) pointed out the potential emotional impact on individuals who, for years, have to dig deep for resilience and strength, but very often end up with mental health issues or develop physical illnesses. Let us never forget that people have committed suicide as a result of the actions of some of our banks.

When did we sign up to this? When did we sign up to a taxpayer-owned bank pillaging the assets of our SMEs—the so-called life blood of our economy—or creating a system where victory emails are sent when another department of the same bank asset-strips? We have to ask whether abuses such as those at RBS could have taken place if we had a system where a business owner could simply be heard. I concur again with my hon. Friend that it is a contract between unequals when somebody who has been declared sequestrated or insolvent cannot take on a bank.

[Mr Baker]

In this House we often hear strident language. The hon. Lady used the word “pillage”. I entirely agree that it is wholly appropriate to describe some of that behaviour as a pillage of those companies, and I hope the Minister will bear that in mind.

[Michelle Thomson]

I thank the hon. Gentleman for that compliment.

Finally, I want to address the topic of culture. We need to recall that it is the underlying culture of institutions that has enabled this to happen. We know that we have come from a driven, bottom-line culture, but we must make our banking system—our whole financial system—work for us and for our society. I fear that we have lost sight of that over recent years. I agree that we need a tribunal, but we also need an effective process so that precedent can be set and learned from, and so that behaviour is changed and abuses do not happen in the first place. We have seen that happen with other tribunal systems.

I thank the APPG for its support in driving this campaign and Andrew Bailey of the FCA who endorsed the idea. It is time to get started.

--- Later in debate ---

[Simon Kirby]

I will not give way, but perhaps we might speak afterwards. I have an awful lot of things I have to address.

My hon. Friend the Member for Wycombe (Mr Baker) asked about incentives to discourage misconduct. The Government and regulators have acted to embed personal responsibility in banking through the senior managers and certification regime. He also stated that small businesses should be treated as consumers.

[Mr Baker]

I am not sure that I did state that. I asked the Government to consider whether it would be appropriate, if I recall correctly.

[Simon Kirby]

I thank my hon. Friend for that clarification, and I apologise to the right hon. Member for Delyn for being inconsistent.

Unincorporated sole traders and small partnerships fall under the regulatory rules of the consumer credit regime. The FCA is asking how all SMEs are treated as customers of financial services, as is right and proper.

The hon. Member for Coatbridge, Chryston and Bellshill (Philip Boswell) mentioned the IRHP scheme. The redress scheme was not designed to replicate the courts system, which can be lengthy and expensive, as Members have acknowledged. Independent reviewers were put in place to oversee each case.

The hon. Member for Ceredigion (Mr Williams) asked about the timeliness of the ombudsman’s decisions. I agree that the decisions should be quick. I am assured that its decisions are faster than the courts and free for complainants. However, inevitably, complex cases will take time to resolve. He also asked about the disclosure of information. Where the ombudsman considers it appropriate to accept confidential information, an edited version, summary or description will be disclosed to the other party. I agree that it is right to pay tribute to my hon. Friend the Member for Aberconwy (Guto Bebb) for keeping this issue on the agenda.

The right hon. Member for North Norfolk (Norman Lamb) asked an important question about whistleblowers. I understand that the FCA has invited the hon. Member for East Lothian to discuss whistleblowing and I am sure he would be welcome at that meeting. To be clear, the Government recognise the information and huge value that whistleblowers provide.

Oral Answers to Questions

Steve Baker Excerpts

Tuesday 29th November 2016 Commons Chamber

[Mr Hammond]

Well, this was worth waiting for: we have a firm commitment by the Opposition to run the triple lock through the lifetime of the next Parliament. I wonder whether the hon. Lady knows how much money she has just spent, without knowing the fiscal circumstances the country will face. What we have said, and the only responsible thing to say, is that all the commitments we have made for the duration of this Parliament we will review at the spending review before the end of the Parliament, and we will decide then which ones we can afford to renew and which ones are appropriate to renew. I think this tells us everything we need to know about the Opposition: three and a half years out, they are willing to spray around commitments without any idea of what it is going to cost them.

[Mr Steve Baker (Wycombe) (Con)]

T9. Casework in Wycombe continues to illustrate calculation and communication errors around tax credit payments. What steps will the Government take to reduce those errors?

Oral Answers to Questions

Steve Baker Excerpts

Tuesday 25th October 2016 Commons Chamber

[Mr Gauke]

The UK is in discussions with the EIB.

[Mr Steve Baker (Wycombe) (Con)]

Does my right hon. Friend agree that reducing anti-competitive market distortions is both a great fiscal way to promote manufacturing and a way of ensuring our country is best placed for new trade deals?

[Mr Gauke]

I agree that removing distortions in the economy results in a more efficient economy. The UK Government have a record of doing that, by, for example, reducing corporation tax.

Quantitative Easing

Steve Baker Excerpts

Thursday 15th September 2016 Commons Chamber

[Mr Steve Baker (Wycombe) (Con)]

I welcome this debate. I wonder whether the hon. Gentleman saw the editorial in The Daily Telegraph of 13 September headed, “A pension scandal at the Bank of England”, which discussed the fact that senior staff had been given massive increases in their pension contributions in order to fight the phenomenon he mentions. I am afraid that what is sauce for the goose in the case of the Bank of England is not sauce for the gander. Does he agree that the Bank of England is in danger of being accused of hypocrisy again and again as this proceeds?

[Ian Blackford]

The hon. Gentleman makes a very good point. I have not read the article, but I have seen the press headlines about it. That is exactly the point I have tried to make in painting a picture of the inequality. Those at the top or in the vanguard of society, if one wants to put it that way, are seen as benefiting from the quantitative easing programme—it benefits the pension schemes of those in the Bank of England—while ordinary workers and savers have been penalised. He is absolutely right, and one therefore recognises why we have the disconnect in society.

--- Later in debate ---

[Mr Steve Baker (Wycombe) (Con)]

I am delighted to participate in this debate and congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing it. I certainly support him. Like him, I am pleased to agree with my right hon. Friend the Prime Minister’s comments on monetary policy. That is certainly a first for me, and I hope to explore more with her how we should move forward.

I pay tribute to the journalist Tim Price of MoneyWeek for bringing forward a petition on the parliamentary website against QE, which has so far secured more than 4,700 signatures. I hope that by the end of this debate, with the enormous audience it is bound to draw, there will be a few more signatures.

One of the great tragedies of this subject is that, although we might think it is one of the most important issues of our time, it is not well understood, as can be seen from the attendance in the Chamber. Although the public feel the effects of it widely, their representatives are not as well equipped to participate in debates on the subject as they might be.

I will talk about the two areas mentioned in the motion: the effects of QE and the future development of policy. It might be helpful first to turn to page iv of the last inflation report, which sets out the channels through which monetary policy works. The first is by bringing forward spending by lowering the “real interest rate”. The next is by lowering debt servicing costs, which is the “cash-flow channel”. There is the lowering of funding costs, which is the “credit channel”. It also mentions the “wealth channel”, which is people selling assets to the Bank, so that they can

“reinvest the money received in other assets”,

thereby supporting asset prices. The “exchange rate channel” bears consideration, given that our exchange rate has just dropped. That is an object of Bank policy. There is also the “confidence and expectations channel”, which demonstrates that the Governor, the Bank and the Monetary Policy Committee are aware of the importance of their role in the markets of creating expectations and the effect that that has on the real economy.

The hon. Member for Ross, Skye and Lochaber made some good points about wealth inequality—a matter on which I will dwell. In 2012, the Bank of England wrote a report on the distributional effects of asset purchases. It states:

“By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.”

After the MPC’s last inflation report, the Treasury Committee picked up on wealth inequality and the extent to which it is promoted by what I would call “easy money” and by QE specifically. The Committee is increasing its focus on the issue. I am glad to see present the hon. Member for Bishop Auckland (Helen Goodman), who serves with me on the Committee, and I look forward to hearing what she has to say. I think that hon. Members on both sides of the House are converging on a genuine concern that the processes of the market are being undermined in their justice by the current set of monetary policies.

If anything, QE has an upside: it has made explicit a phenomenon that has been going on for a long time. The hon. Member for Ross, Skye and Lochaber mentioned the quantities of M4 outstanding. If we look back a bit further, we will see that M4 outstanding in 1997 was about £700 billion. If we plot the quantity of M4 outstanding, we will see an accelerating rush through that supposed moderation and in the quantity of M4 outstanding. Is it any wonder that we seemed to have abolished boom and bust, and seemed to be getting better off, when actually there was an enormous acceleration in the supply of credit, leading to a crisis, broadly a stagnation in the creation of money, and the categorically different economic environment in which we find ourselves today?

This has gone on for a long time. The Office for National Statistics and the Library published a paper looking at price inflation back to 1750. It has an instructive chart—I regret that I cannot put it on the record—which shows, on a linear scale, that the value of money was broadly flat until about 1914-18. There was some inflation during the wars and then, from 1971, the value of money collapsed. What happened in 1971? The final link to gold was severed and money became inflationary. As ever, Governments’ third means of financing themselves after tax and borrowing has been currency debasement, and it is that continuous, chronic expansion of credit that has brought us to the position we are in. Although we are now increasingly concerned about the wealth equality effects—the justice effects—of QE, the point is that the money supply has been chronically expansionary since 1971, and therefore those effects have been going on throughout my lifetime.

I will not read out the whole passage, but in “The Economic Consequences of the Peace”, Keynes wrote:

“By a continuing process of inflation”—

that is, increasing the money supply—

“governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

What has changed? Nothing much. That was, of course, only Keynes; I am not quoting some wild-eyed libertarian monetary scholar.

Is it any wonder—I have given advance notice of this—that we see reported in The Daily Telegraph today a speech by the hon. Member for Hayes and Harlington (John McDonnell), in which he said:

“We’ve got to demand systemic change. Look, I’m straight, I’m honest with people: I’m a Marxist… This is a classic crisis of the economy—a classic capitalist crisis. I’ve been waiting for this for a generation!”?

He went on to say, if the House will forgive me for repeating this:

“For Christ’s sake don’t waste it, you know; let’s use this to explain to people this system based on greed and profit does not work.”

I have covered this theme before. The point is that, if this is capitalism, I am not a capitalist. It is not capitalism when money, under the centrally planned and directed policy of a committee of wise men and women at the central Bank, creates a chronically expansionary environment, which we are now beginning to realise has real wealth effects. That is not capitalism. If the outcome is unjust, that is because of our monetary arrangements, in my view. There will be other factors, but I think that that is potentially a profound cause of wealth inequality and injustice in the market economy.

[Jeremy Quin]

I am interested in my hon. Friend’s speech; as is so often the case, he is sharing interesting ideas with the House. I totally get a lot of what he is saying about the inflationary trajectory, but, as a monetarist, would he have supported QE when the policy was launched in 2009—I know that I am going back a bit—given the circumstances at the time? He seems to think that it has run its course and ceased to be effective, but would he have supported it initially?

[Mr Baker]

My hon. Friend asks a magnificent question, one that is discussed on the website of the Cobden Centre—a think-tank that I co-founded. [Interruption.] There, I said it. The question is, “Would Hayek have supported QE?” The consensus of Hayek scholars is that, given all the circumstances at the time, he would have supported it, to prevent the money supply collapsing and the horrific humanitarian consequences that that would have involved. But would he have supported it now to try to stimulate the economy, creating patterns of economic activity sustained only by that expansion of the money supply? Flatly, no. I was not in Parliament at the time, and I am happy to tell my hon. Friend that I did not have to make that decision. We are where we are.

My second point is that I believe policy is now ineffective and counter-productive. The Governor told the Treasury Committee that we have “extraordinary, if not emergency” monetary policy; we have had it since 2009. I believe that if, during that seven-year period, productive investments could have been made, brought forward and induced by these low interest rates, they would have been made by now. When it comes to real productive investment, I think we are into the law of diminishing returns. We therefore run the risk of inducing firms to engage in activities that will not have a return—in other words, banks will make non-performing loans. That is, of course, the problem afflicting the Italian banking system, as we sit here.

The question is whether this monetary policy can produce a self-sustaining recovery and do it in a non-inflationary way. One of my advisers wrote to me before this debate to say that if we

“remove the base effects from the collapse in oil prices—as will happen over the coming months—and then just let the underlying ‘core’ inflation trends continue as they are, CPI would be 4%+ by mid-2017.”

That is something I shall ask the Governor about next time we see him.

Further to what the hon. Member for Ross, Skye and Lochaber said, Andrew Lilico, an economist at Europe Economics, has pointed out:

“In the three months to July 2016…the UK’s broad money supply (on the Bank of England’s preferred ‘M4ex’ measure) grew at an annualised rate of 14.7%”.

When I raised this with the Governor at the last Treasury Committee meeting—I used the monthly figures; it is far starker if we look at it quarterly—I asked whether, if the money supply is currently growing by 14.7% annualised over three months, we should expect more or less inflation next year. I think that I know the answer, but when I put it to the Governor, his answer was that aggregates had moved away from the whole problem of inflation targeting. I encourage the hon. Member for Ross, Skye and Lochaber to have a look at exactly what he said. I shall return to some of the Governor’s remarks in a few moments.

[Ian Blackford]

I am very much enjoying listening to the hon. Gentleman’s contribution. Given the case that he outlines, does he consider that there is a bubble in financial assets and, indeed, in property assets, and if he does, what would he do about it today?

[Mr Baker]

I certainly agree with the hon. Gentleman. Indeed, the Bank of England’s Andy Haldane said that the Bank had deliberately inflated the biggest bond market bubble in history. That is not a literal quote because I do not have it before me, but that is broadly what he said. If we look at the period 1997 to 2010, the period before the crisis, and look at the regional distribution of house prices, we find an eerie correlation between it and the increase in the money supply. That distribution of changes correlates with what one might expect of Cantillon effects—in other words, in London and the south-east, house prices rocket away quicker and earlier, while in the north-east and Scotland, house prices increase more slowly as the money spreads out. My point is that there is a good case for saying that Cantillon effects and the increase of the money supply have a profound effect not only on particular assets, but on the regional distribution of prices. It is something that the Bank should consider in its report. It should speak to and address the issue. Speaking as a humble aerospace and software engineer who has only read a few books, it is not within my gift to produce the research.

My next point is that this is a deliberate policy of manipulating asset prices, disrupting the price mechanism in the capital markets. Therefore, there will be a misallocation of capital. The Governor made a speech in New York at a monetary policy conference in which he acknowledged this phenomenon. I have tried to raise it further with him, but he is very good at moving the subject on. His speech was in defence of inflation targeting, and he dealt with four criticisms of it. The first was that price stability does not guarantee financial stability. He went on:

“Second, the stronger critique of the Austrian school is that inflation targeting can actively feed the creation of financial vulnerabilities, especially in the presence of positive supply shocks… From the Austrian perspective, this misguided response”—

the response of the central bank—

“stokes excess money and credit creation, resulting in an intertemporal misallocation of capital and the accumulation of imbalances over time. These imbalances eventually implode, leading to crisis and ‘bad’ deflation.”

It cannot be said that the Governor of the Bank of England is unaware of the somewhat unfortunately titled Austrian school of economics, which I believe in and which tells us that money creation has real structural effects on the economy that affect people’s everyday lives. I was going to challenge the Bank to include in its report an assessment of these things, to demonstrate whether or not it was aware of these effects, but the Governor’s speech has shown us that the Bank is aware. It should not only show in its report that it is aware, but justify what the Governor went on to imply, which is that, by using other instruments, it could deal with these structural consequences. That is one of the big questions of our time: whether or not the structural consequences of easy monetary policy can be dealt with using its other instruments. I am absolutely convinced they cannot be dealt with, and therefore we will have a worse crisis later than the one in 2008.

I sense that Mr Deputy Speaker would like me to wrap up, so I will just make the following point. This has gone from an exercise in saving the financial system to an exercise in kicking the can down the road. How will it develop in future? We have gone from low rates to QE, and I think we will go to negative rates. There has already been talk of banning cash. There have been discussions of helicopter money, too, and at the recent inflation report meeting, out of four people, only the Governor would rule out helicopter money. It is encouraging a misguided belief that if only we printed money and gave it to everybody, there would be justice. This kind of naive inflationism is madness.

[Ian Blackford]

indicated assent.

[Mr Baker]

I am grateful to the hon. Gentleman for agreeing with me.

We have got to get to a point where we escape from easy monetary policies. That will come through one of three mechanisms: a self-sustaining recovery, which I emphasise I very much hope for—I hope that the Bank, and all the central banks, are right on that—or the next phase will be massive inflation, or there will be an abandonment of easy monetary policies before either of those things, at which point there will be an horrific correction.

The great question for society and us as representatives, and indeed for monetary economists, is going to be what went wrong. Will people blame the free market and vote for the policies of certain Opposition Members, which will lead to more statism and I would argue impoverishment and misery? Or will people blame central planning by central banks, which is deliberately dislocating our economy, manufacturing injustice and undermining faith in the market economy and has dropped us into a profound crisis of political economy?

I very much welcome this motion. I shall certainly support it, and I congratulate the hon. Member for Ross, Skye and Lochaber on moving it.

--- Later in debate ---

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

It is with some inevitable trepidation that I stand to speak in the debate, given the eloquence and experience of those who have spoken before me, not least the experience of a modest crofter from Skye, my hon. Friend the Member for Ross, Skye and Lochaber (Ian Blackford). I was taken not only by his great eloquence but by every contribution this afternoon in what, inevitably, is one of the most important debates that I have taken part in. It is also one of the most thoughtful. While others can wax eloquent given their experience in the financial sector over many years and their distinguished careers, I come to this issue trying perhaps to give voice to others who do not have that background.

The ordinary person in the street would recognise that we live in troubled times. There is increased uncertainty and the stability and certainties of the past seem to have flown past. For example, who could have foreseen at the outset of QE that today many economies would be experiencing weak growth, low business investment, collapsing prospects for pensions, near negative interest rates penalising savers and a huge increase, as the hon. Member for Bishop Auckland (Helen Goodman) said, in wealth inequality.

I would like to add something else to the equation. We need to recognise the political instability that has arisen. People are feeling that they are disfranchised, have no voice and are losing hope. That is one of the profound social and political consequences that deserves to be considered.

It was not supposed to be like this. It may be wise to cast a critical eye over what seemed to most people, myself included, an entirely logical response to the crisis some years ago. It is good that people are able to reflect. Although it comes hard for many politicians, it is good when we, too, are modest enough to recognise that we do not always get it right and that we need to learn from experience. For example, many people in recent years feel that the UK Government’s economic plan has been blind to some of the consequences of QE. That is seen in the poverty, in many cases, of the fiscal response to aid those who are not benefiting from the increasing wealth. The Treasury needs to think about doing more to achieve a better balance between the fiscal response and the monetary response. The time is surely right for it to mount a rigorous and open appraisal of the balance between monetary policy and fiscal measures, and of whether each of the rounds of QE has had the desired effect. The Bank could also look at that question.

Let us recall some of the antecedents of QE. I might not have worked in a bank at any time—the only time I go into the bank is when I receive a phone call from it—but in a past life, I used to read quite a lot about this subject. Everyone attending this debate will recall that it was back in 1969, in a paper by Milton Friedman entitled “The Optimum Quantity of Money”, that the idea of what we know today as QE was created. Friedman contended that if policy interest rates reached the lower bound of zero, it would be appropriate for a central bank to purchase assets—Government bonds in the first instance—to create a wealth effect that it was no longer possible to achieve through the conventional interest rate policy of the central bank. Friedman’s notion of quantitative easing was that asset prices would be boosted, leading to an increase in confidence and spending through the wealth effect. In turn, economic activity would be given a boost.

In more recent times, however, even that great monetarist Allan Meltzer—who has written widely on the development and application of monetary policy and on the history of central banking in the US—has questioned the efficacy of QE, arguing that it has not led to what Friedman expected. In particular, the key aim of creating an increase in confidence and therefore investment has not transpired as hoped. Today, too, central bankers seem content to see inflated asset prices. But who speaks for the millions of savers around the world? Who speaks for the ordinary men and women who have paid the price of banking failure? Where were the UK Government when our economy failed to diversify or balance in the aftermath of the global financial crisis? Where were the necessary fiscal measures when it transpired that the relatively poor were paying the price for the mistakes of the wealthy? The SNP and others understood the use of quantitative easing by the Bank of England as a response to the 2008 crisis to be a temporary measure to help to regain stability. How long, I now ask, is this temporary measure going to last?

I agree with my hon. Friend the crofter that the effects of monetary policy have to a great extent been undermined by the austerity agenda, which is now leaving a legacy of unintended consequences that is placing an unprecedented burden on future generations. Broadly speaking, the policies being followed by central banks around the world benefit a relatively narrow group of people—equity-rich individuals and investment banks, for example—but few others. It is the unintended consequences—I admit that they are unintended—of QE that must now be the focus of policymakers.

[Mr Baker]

I agree with much of what the hon. Gentleman is saying. The Bank of England is not represented here, and I do not agree with it, but if it were here, I suspect that it would say that everybody benefited, given the reality that there would have been a worse recession if it had not acted. Does he agree that that argument is now wearing thin?

[Roger Mullin]

The hon. Gentleman must have read the next part of my speech. However, that allows me to haste along and agree precisely with what he has said.

A friend of mine, Dr Jim Walker, wrote to me recently and pointed out that

“interest rates throughout history have not only been the cost of capital (or the reward to thrift) but have also been a signalling mechanism about the future”.

We now know that zero interest rates and QE tell business owners and entrepreneurs that there is little or no growth coming. They therefore encourage businesses to hold cash and be extremely cautious about investment. The signalling mechanisms have had a different effect from those predicted by Friedman. It is again time to review the situation. It would be difficult to argue that QE has therefore led to the increase in confidence and investment that was the argument for it.

We can also see other consequences. Despite eight years of near zero interest rates, UK real gross fixed capital formation is 2.8% lower than its 2007 peak. Therefore, investment in the real economy has not been boosted in the way that was originally thought. A similar phenomenon has being going in other aspects of the economy on the demand side, such as in how households have been afflicted. Zero interest rates and asset purchases were supposed to convince ordinary people to borrow and spend more immediately, but some key groups have reacted to zero interest rates by saving more. Why? In order to provide for old age, they can no longer rely on the positive compounding effect of above zero interest rates; nor can they rely on getting the type of annuity for which they may have planned. Instead of encouraging that group to spend, policies have encouraged them to save more due to fear for the future. Such savers are understandably angry. After years of saving some of their income, many people have zero income from their savings.

I am not somebody who is disadvantaged—I have a well-paid job in this House—but I wonder how people who, like me, have a cash ISA are feeling. Before the crash, it was fairly common to get 6% interest, but I received a letter a few weeks ago to point out that from 1 December the interest rate is going to be reduced yet again to 0.1%. The time has come to undertake a critical review of the policies of recent years.

Oral Answers to Questions

Steve Baker Excerpts

Tuesday 19th July 2016 Commons Chamber

[Mr Steve Baker (Wycombe) (Con)]

The business rates system sometimes interacts with the planning system to leave premises empty, but incurring tax. Will the Government work to ensure that councils are appropriately incentivised to ensure that premises are productively occupied so that business owners have a chance of paying the tax they incur?

[Jane Ellison]

I hear the point that my hon. Friend makes. That is clearly something to which further consideration will be given.

Oral Answers to Questions

Steve Baker Excerpts

Tuesday 19th April 2016 Commons Chamber

[Mr Gauke]

The hon. Gentleman will be aware of the Treasury analysis published yesterday that shows the various models and the consequences were we to leave the EU, including a permanent reduction in our GDP compared with what it otherwise would be and significant damage to productivity growth. The hon. Gentleman is right to highlight that point.

[Mr Steve Baker (Wycombe) (Con)]

Do the Government welcome the opportunity to bring forward actual data without the need to project forward 14 years using techniques that have proved to be inaccurate every six months?

[Mr Gauke]

As I said, HMRC has gone through the data and will provide them to the ONS. It is for the ONS to decide the timing, but I have drawn the House’s attention to what it has said.

Returning to the Treasury analysis, it compares one scenario with other scenarios, and all three possible scenarios for leaving the EU would leave this country poorer than we otherwise would be.

Budget Resolutions and Economic Situation

Steve Baker Excerpts

Tuesday 22nd March 2016 Commons Chamber

[George Kerevan]

Indeed, and I welcome all the supply-side measures, but—[Interruption.] Wait for it! We have had five Budgets in the past 15 months. Why did those measures not appear in the last four of them? In fact, if we count today as well as last week, we have had six Budgets in that time. Why did those measures not appear before? This is not about the Treasury officials, who are bright men and women; this is about the fact that there is no strategy apart from trying to run a budget surplus in a particular year, because the Chancellor knows that if he does not deliver in 2020, what is left of his reputation after this week will be in shreds.

[Mr Steve Baker (Wycombe) (Con)]

I should like to draw the hon. Gentleman’s attention to page 2 of the Red Book. It states:

“This is precisely why the UK has been working through its long-term economic plan. Since 2010 the plan has been focussed on reducing the deficit, while delivering the supply side reforms necessary to improve long-term productivity growth.”

Will he at least concede that the Chancellor has in his Red Book precisely the kind of strategy that he is criticising him for not possessing?

[George Kerevan]

I cannot accept that. There is a tension in the Chancellor’s mind. It is like good and evil sitting on either shoulder. One side is telling him to run a budget surplus, because that is an easy road to take. That is not badly thought out. Given the number of rules that Chancellors have thought up over the years and then failed to implement, running a budget surplus is an extremely simple rule. It is just too crude, however. That argument vies with the supply-side strategy.

Following on from the question from the hon. Member for Wycombe (Mr Baker), another friend from the Treasury Select Committee, let us look at what the Office for Budget Responsibility says in its report about how the Budget supply-side measures will work. It states:

“We also expect smaller positive contributions to potential output growth over the next five years from population growth, while average hours worked are expected to trend down over time.”

With a decrease in average hours, in input and in population growth, where is the productivity increase going to come from? I should like to hear the answer from the Chancellor.

--- Later in debate ---

[Mr Steve Baker (Wycombe) (Con)]

I rise to support the Budget and, in particular, to welcome the Government’s supply-side reforms. This has been a dramatic Budget, and I would be failing the Government if I did not concentrate on the areas of drama. First, on the disability reforms, the challenge before the Government is clear: to deliver a policy that we can all be proud to defend in our constituencies and in front of any objective scrutiny. I do not think we would have been able to do that if the Government had not wisely made the decisions that they have over the past few days.

When I look at page 150 of the OBR’s report, on the successive forecasts for spending on disability benefits, I can see that the Government’s envelope within which to deliver this humane disability policy is very clear. When we came to power in 2010, the Government were spending £12 billion on disability benefits, which rose to £16 billion by now, which is an increase of a third. The figure is forecast, with the reversal of the PIP measures, to reach £18 billion by 2020-21. It is clear that the Government have an envelope within which to work to ensure that we have a world-class policy that any of us can defend, even in an environment of fierce and partisan political attack.

I signed the two amendments on VAT to highlight the extent to which VAT is controlled by our membership of the European Union. Neither amendment has legislative effect. I congratulate the hon. Member for Dewsbury (Paula Sherriff) on her amendment, which, as she said, makes clear our intent to zero rate tampons and other sanitary products. Of course, both amendments are pursuant to Government policy, and this is the bitter irony of our membership of the EU. We had to have a dramatic row over VAT in the context of an EU referendum in order to secure the following commitment from the European Council:

“The European Council notes that the Commission intends to publish shortly a communication on an action plan on VAT. It welcomes the intention of the Commission to include proposals for increased flexibility for Member States with respect to reduced rates of VAT, which would provide the option to Member States of VAT zero rating for sanitary products.”

That is welcome, and it is clear that the Government’s policy and the House’s wish is that sanitary products should be zero-rated. It is welcome that the Government have secured this change of EU policy but, particularly as a participant in the campaign, I do not want us to have an EU membership referendum every time we want a different policy on our second largest tax.

[Mr Kenneth Clarke]

Will my hon. Friend accept that British Governments have always supported the idea of having an EU framework on VAT? Otherwise, the problem is that there is pressure on Governments to compete with each other in lowering the tax on selected products when they think that their manufacturers or producers will benefit. Also, it is very difficult to operate an open trade area if everybody is going for competitively different tax rates. If we go too far down that path, the main beneficiaries are smugglers.

[Mr Baker]

My right hon. and learned Friend raises some interesting points and, although I am grateful for the additional minute for my speech that he has given me, I cannot touch on all of them. He illustrates the difficulty of operating a customs union among interventionist nation states. The old doctrines of liberalism did not require that one got rid of non-trade barriers, for the most part. There were no non-trade barriers because laissez-faire was the norm. I abridge an argument that could be made at much greater length, but at the heart of the exchange that we have just had is the difficulty involved in interventionist nation states attempting to engage in free trade. In a world of globalisation, air travel and the internet, we need some degree of harmonisation on a global scale, provided that that enjoys democratic consent. That is probably a subject for another debate, but I am grateful to my right hon. and learned Friend for his intervention.

Until the VAT directive 2006/112/EC is changed, it will be technically unlawful under EU law for any amendment to be introduced in UK law, even if it is not applied and takes effect in the future. That is the situation that we face. It is similar to the situation concerning insulation products, on which a judgment in the European Court of Justice on 4 June 2015 ruled that

“The United Kingdom cannot apply, with respect to all housing, a reduced rate of VAT to the supply and installation of energy-saving materials, since that rate is reserved solely to transactions relating to social housing.”

That is the position in law while we are in the EU. Although I hear what my right hon. and learned Friend says, it is a fact that while we remain in the EU, we cannot control what is currently our second-biggest tax. I am grateful that we have had this opportunity to put this part of the EU membership debate on the public record and have it discussed in the media. I am particularly grateful that the Government will not be opposing either amendment. If there is a Division, I shall certainly vote for amendment (a) and I shall probably abstain on amendment (b).

Perhaps the most dramatic aspect of the Budget is a subject that I have talked about at every Budget. It is a subject that I mentioned in my maiden speech—the insane state of monetary policy all around the world. If the European Central Bank was printing €80 billion of new money every month in paper and shipping it around the continent in articulated lorries, it would already have destroyed faith in paper currency. Yet, because the process is one of buying Government and corporate bonds, we simply notice a recirculation of money and celebrate the coarse aggregate results. In 25 seconds, I cannot give a lecture on capital-based macro-economics—[Hon. Members: “Oh!”] If Opposition Members would like to call a Back-Bench debate on the subject in their own time, I would be glad to give them the lesson. I welcome this Budget, but its dramatic consequences will be felt much later as a result of easy money.