Financial Services and Markets Bill

John McDonnell Excerpts

2nd reading
Wednesday 7th September 2022 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

I hope there will be plenty of time to discuss the detail of the Bill both in Committee and on Report, so I wish to make some general comments on my worries about where it is situated. When J. K. Galbraith wrote about the 1929 crash, his advice for the future was that people could set up all the institutions they needed to try to prevent it from ever happening again, but the greatest protection would come from memory. I therefore want to go back in time to some of the lessons that we perhaps should have learned but did not.

I wrote about the big bang in the 1980s and I can remember the concerns we expressed about a wave of enthusiasm for deregulation similar to what we see today. That enthusiasm resulted, in effect, in a casino economy. The City of London and the finance sector are the most successful lobbyists in the history of politics in this country and they are incredibly powerful. Sometimes, that results in corporate capture, not just of Governments but even of Oppositions at times. That period of enthusiasm for deregulation resulted in a casino economy that eventually resulted in a series of crashes—we endured not just 2007-08 but other crises.

I was in this House in 2007-08 and was the first Member to raise the issue of Northern Rock. I remember that in the debate after Northern Rock, the Treasury itself spoke about the “excessive concern for competitiveness” that brought about elements of that crash. I worry that we are re-inserting into legislation an emphasis on competitiveness that could override so many other issues of concern.

Here we go again. We are introducing legislation and placing in it a reliance on the structures that we established after the 2007-08 crash, particularly the FCA. I believe the FCA has been a catastrophic failure. My constituents have gone through London Capital & Finance, Woodford and Blackmore Bond. We saw the FCA’s failure to address HBOS and RBS properly, and we are supposedly still waiting for the independent review of Lloyds that was established in 2017, yet the FCA has moved not one inch to take further enforcement actions. As I have made clear on the Floor of the House, I was concerned that the FCA chief executive at the time was accused—rightfully, I believe—of being asleep at the wheel. Before we even had the report on London Capital & Finance and so on, we appointed him as Governor of the Bank of England.

[Bim Afolami (Hitchin and Harpenden) (Con)]

The right hon. Gentleman is making an important and interesting speech. On that point about the FCA, will he explain to the House whether he supports changing the regulatory structure and having one super-regulator, or something of a similar description?

[John McDonnell]

The hon. Gentleman knows where my mind is going. We instituted a regulatory review a couple of years ago, and Prem Sikka, a professor of accountancy, and a team of corporate specialists and finance specialists introduced an excellent report. He is now in the Lords and I warn Members that he will shred this legislation when it goes up there. He outlined that 40 bodies are regulating our finance sector in some way and that there is a need for consolidation and to learn the lessons of the experiences of some of these bodies so far. That job is still to be done. I was hoping that the bringing forward of this legislation would coincide with the Government’s clear recommendations on where we go on that structure and, in particular, the role of the FCA.

I am also concerned about the fact that, although we are having the debate about this legislation, we are not debating potential future threats. I am anxious that in this legislation we are not addressing shadow banking, where we have already seen elements of individual firm collapses, particularly in respect of equity firms, that could create a domino effect and then produce a significant collapse.

I am also anxious about the move away from MiFID II. That issue has been raised and was derided by some in the House. We have recently seen the evidence with regard to speculation on both energy and food prices. Of course the cost of living crisis has been caused by a combination of the breakdown of supply chains, covid and the war in Ukraine, but there is significant evidence now that these increases in energy costs and food costs have been exacerbated by speculation in the markets. This is speculation where the paper markets are distinct from the reality of commodity supply. It is not just me expressing that; it has been expressed elsewhere, particularly in the States, but also by a number of global institutions. I regret that we have not addressed that issue in this legislation. We need to hold to the MiFID II, particularly the constraints on asset holding with regard to food commodities, as I am anxious about price speculation forcing prices up.

I was critical of Gordon Brown on some of his response to the banking crash in 2007-08, but one thing he did successfully was bring the world together, and there were international meetings where we looked at a global response to these problems. I believe that we now need to look at a global response to the food and energy speculation that is taking place, which is exacerbating the cost of living crisis that our constituents are facing. In that way, the Government’s approach is lacking. We will have the discussion tomorrow about their response to the energy prices increase and the cost of living crisis. I am hoping that from that, and as we move forward, we will recognise that there is an international role to be played by this Government in bringing people together, in the same way as Gordon Brown did.

I am particularly concerned about the issue of food. The UN special rapporteur Olivier De Schutter has said that what is happening now is that people are betting on people’s hunger. That cannot be right. Anything that we do that undermines in any way our own national legislation, which is against speculation in essential products such as that, is dangerous, but if we fail to ensure that we take up our international responsibilities, we will regret that for the future, as our people increasingly confront the problems of hunger and starvation.

New Wealth Taxes

John McDonnell Excerpts

Tuesday 14th June 2022 Westminster Hall

[John McDonnell (Hayes and Harlington) (Lab)]

I congratulate my hon. Friend the Member for Leeds East (Richard Burgon) on introducing this debate. It is extremely timely and is given justification what our communities are experiencing.

I want briefly to run through a statistical portrait of our country. I have looked at some hard facts about the situation in our country. My hon. Friend has emphasised the importance of redistribution in tackling some of the real problems that many working people face. I have looked before at issues relating to poverty and I will reiterate some of the stats. There are 14.5 million people living in poverty and 4.3 million children growing up in poverty. According to the Institute for Fiscal Studies, there are 700,000 more children in poverty than there were a decade ago. The people who seem to be hit the hardest are families with children, and households with someone who has a disability. Interestingly, two thirds of children growing up in poverty are in households where someone is in work. What does that say about wages overall?

I have also looked at the issue as it relates to pensioners. Despite improvements—which I have welcomed, particularly that with regard to the triple lock, even though it was deflected this year—there are still 2.1 million pensioners living in poverty. There is no need for me to mention the massive increase in the use of food banks. A recent survey and report about children demonstrated that even children are skipping meals because their family cannot afford to feed them on a daily basis. An estimated 2.6 million are skipping meals in some form, and going hungry.

On fuel poverty, National Energy Action estimated that price rises would result in the number of households in fuel poverty increasing by more than 50% in April. The language has changed—we have not experienced until recent years—from a discussion about poverty into one about destitution. There are 2.4 million people who have experienced destitution, including 550,000 children. Destitution is the inability to provide the basics in life: a warm coat, shoes, heating and, of course, eating. That is what they are experiencing at the moment.

The housing figures are startling. On rough sleeping, 64,890 households are assessed as being homeless or facing the threat of being homeless. There are now 1 million on housing waiting lists. The figures on health inequality and poverty are staggering. The gap in life expectancy between our poorest and richest areas is 27 years.

As my hon. Friend said, the increase in the number of millionaires and billionaires is staggering. I looked at The Sunday Times rich list. Britain’s super-wealthy have grown their combined fortunes by a record £710 billion in just the past 12 months. As my hon. Friend said, there has been a nearly 30% increase in City bonuses. In March alone, £6 billion was paid out in bonuses.

Wages are facing the longest squeeze in modern history since Napoleonic times. The research published this morning demonstrates that wages are falling behind again, because of the high rate of inflation. One of the key elements of all of this is the insecurity that that engenders. We now have 1 million people on zero-hours contracts. That is not a society that any of us should be living in or should want to live in.

Somehow, we have to find a mechanism to address the grotesque levels of inequality that our community is now facing. Unless we shape up to that challenge, we will potentially have a change in the nature of our politics, as people get angrier and angrier. We know who exploits that anger: usually it is the far right more than anyone else. In addition to that, we will be ashamed of ourselves for not acting urgently on this matter.

Therefore, how do we ensure urgent action? Of course, I agree with all the policies to ensure that there is a long-term investment plan to get people into jobs that are high-skilled, highly productive and so on, but the link between people having a job and lifting themselves out of poverty has unfortunately been broken, particularly because of low wages. We have also seen the degeneration of our public services because of austerity over the last 12 years, and those public services are therefore no longer available to many people who once depended on them.

We have to introduce an emergency programme of measures to lift people out of poverty and secure long-term investment in our public services, and the redistributive element of a one-off wealth tax, which my hon. Friend the Member for Leeds East has put forward, is one component of the emergency programme that we desperately need. That way, we would be able to use resources directly to lift people out of poverty, to restore some of the cuts that have taken place with universal credit, and to make sure that people get properly funded, particularly if they are providing the public services that we desperately need at the moment. They must have decent wages.

Now is the time to consider all these options. I have always thought that the best mechanics for taxation in this country have been Tory Chancellors. If you look back on the decision to level up capital gains tax with income tax under Nigel Lawson, I think that was the right thing to do then, and it is the right thing to do now. It could give us anything between £17 billion and £24 billion, which would be more than was included in the national insurance increase. It could have covered the social care and health costs for which we need an injection of funds.

Rab Butler introduced an excessive profits tax in this country during the Korea war. It was not just a windfall tax on one sector; it was across the economy for anyone who was profiteering, and the money was put back into funding our public services and helping people out of poverty. All those measures are available to us.

In addition, we need to look at the City of London, because it is obscene the bonuses that are being paid out. Therefore, we need either a tax on those bonuses or a financial transaction tax, so that we have a regular income and the City pays its way. Because of the appalling levels of inequality, the drift towards higher levels of poverty, and the implications that it has for so many within our community, the argument for a one-off wealth tax on that scale—affecting 1% of our population but supporting 99%—is unarguable at the moment. Therefore, there needs be a proper consideration of it.

This is a Westminster Hall debate, but I hope that it extends beyond this debating Chamber and into the main Chamber, and that it becomes a feature of some of the demands in the run-up to the November Budget—the emergency Budget that we now need to tackle the real suffering that our community is experiencing at the moment.

[Sir Edward Leigh (in the Chair)]

I remind Members, please, to keep under six minutes; otherwise, not everybody will get in.

National Insurance Contributions (Increase of Thresholds) Bill

John McDonnell Excerpts

Committee stage
Thursday 24th March 2022 Commons Chamber

[Clive Efford (Eltham) (Lab)]

I want to speak to new clause 2. Yesterday, I was shocked by the Chancellor’s response to people’s entreaties of him to do something more for those on low incomes. As I pointed out to him in an intervention, there is an anomaly—I hope it is one—that the Government will want to put right: when those on universal credit who pay national insurance have their threshold raised to £12,500, the £330 that they gain as a consequence will be subject to the 55% taper. That means that they will not get the full saving. Money is being clawed back by the Government from some of the poorest workers in the country. That cannot be right.

Last year, the Chancellor of the Exchequer announced the reduction in the taper, which was very welcome. He announced a number of measures that increased the incomes of the poor, although we should remember that he took away the £20 a week uprating of universal credit. Those people are still going to be better off as a result of the changes yesterday, but the ones on universal credit who I have just referred to will be less well off than they were anticipating ahead of yesterday’s statement. How can that be? The poorest workers in the country number 2.3 million; I suspect that what the Government claw back from them will mean hundreds of millions going back to the Treasury. That cannot be fair and it cannot be right. By my calculation—I will stand corrected if I am wrong—such people will gain £330, of which they will lose £171, so the actual gain will be in the region of £159. That cannot be right.

My new clause 2 would require the Government to confirm in a report whether my fears and estimates are right that people on universal credit who pay national insurance will lose roughly half the money that they gain. Subsection (2) aims to find out how much the Government will gain from some of the poorest workers in the country because of the changes. If we highlight how much that is, I hope that they will attempt to do something about it and compensate such people for their loss. As we have heard all too often in this Chamber, people on low incomes in this country—families, in particular—have to make choices between feeding their children, clothing their children and switching on the heating, and about what food they buy. When people are living on the margins of, or in, extreme poverty, sums of money that may sound small are extremely significant. How did we manage to have a statement yesterday that clawed money back from such people?

Subsection (3) calls on the Chancellor to deliver that report to Parliament in 30 days. It cannot be right that such people are missing out in this way. It must be an oversight by the Government. It would be an extremely callous move if they actually knew that, as a consequence of the national insurance threshold being lifted, people would miss out in this way. I would be interested to hear from the Government, without delay, exactly who misses out, if they do at all, and how much the Government will benefit from it, if they do.

[John McDonnell]

I tabled new clause 1 because, from now on, I do not think that the House should discuss any legislation that has financial consequences without it understanding or at least having information about the effect on poverty and low pay. I would have liked that information for this Bill, although I can understand why we do not have it today. However, in future, the Government should lay a report before the House that explains the expected impact on low pay and poverty of any piece of legislation and assesses the effectiveness of its provisions.

The nature of this debate so far has demonstrated a lack of appreciation or understanding—and certainly a lack of agreement—about the objective realities of what is happening. Many have quoted the comments of the Institute for Fiscal Studies and the Resolution Foundation, but some of this is about hard facts, so let me put on record again the situation that we face. At the moment, 4.3 million children and 2 million pensioners in the UK live in poverty. Overall, 14 million people live in poverty, and that was before the cost of living crisis hit us. A report from a UN rapporteur described people living not just in severe poverty, but in “destitution”. According to analysis today from the Resolution Foundation, 1.3 million more people will be living in poverty.

One reason I am asking for such a report is so that we can ask simple questions of the Treasury. What forecast have Her Majesty’s Treasury and the Department for Work and Pensions, or the OBR, made of how many children, pensioners and people in the UK will be in poverty by the end of 2022-23?

Yesterday the shadow Chancellor asked the Chancellor how many pensioners and children would be pushed into poverty by the failure to uprate benefits and pensions in line with inflation, and the Chancellor failed to give any answer. It would be useful to have an answer today. Child poverty is already up by more than 500,000 since 2010, and it is interesting to note that most of those children—more than 60%—live in households in which one adult works. That, too, calls into question the levels of pay in this country.

The Joseph Rowntree Foundation estimates that the uprating of just 3.1% will drag more than 400,000 more people into poverty, and as we have pointed out time and again during the debate, inflation is forecast to rise over the year to between 7% and 10%. Has the Treasury analysis come up with the same figure as the foundation, or a different one? If the figure is different, we would like to know why, and on what basis.

The other issue raised in the new clause is low pay. A total of 4.8 million workers earn less than the UK real living wage of £9.90 an hour, or £11.05 in London. The rise in the minimum wage this year—a 6% rise to £9.50 —still falls short of the Living Wage Foundation’s real living wage, and, given that forecast of an inflation rate between 7% and 10%, it is a real-terms pay cut. According to the Office for Budget Responsibility:

“Real incomes have been stagnant since the start of 2019 and this is now expected to continue over the next few years”.

The OBR went on to say that we were about to see the largest fall in incomes on record:

“With inflation outpacing growth in nominal earnings and net taxes due to rise in April, real livings standards are set to fall by 2.2 per cent in 2022-23—their largest financial year fall on record”.

A presentation of analysis by the Institute for Fiscal Studies took place this morning. According to the IFS, public sector pay has fallen by 3% in real terms in the last year, and is 2% lower in real terms than it was 12 years ago. The Department for Education’s average pay offer to teachers is 4%, and the fact that inflation is so much higher has obviously hit their wage levels. There is a group among the workforce who are being hit particularly hard by the Government’s changed arrangements relating to loans for tuition fees that they incurred while they were studying, and who will again be impacted severely by what is almost, in effect, an additional income tax.

Paul Johnson of the Institute for Fiscal Studies expressed incredulity—as have many of us—that the Government had done nothing for those on benefits or for pensioners. He pointed out that, according to the OBR, we are seeing the biggest fall in incomes since 1956, and that the inflation rate experienced by poorer households is even higher than the average. He said that it was “hard to understand” the Government’s “lack of action” on benefits. That lack of understanding of the Government’s approach is the reason for my new clause. I think that in future when we are debating issues such as this—Government measures involving public finances, benefits and wage levels—we will at least need to have a detailed report before us which explains the consequences of measures relating to low pay and poverty.

In the new clause, I have also asked the Government to assess alternative measures that they could take, and to provide an analysis of why those measures were not taken or why they might be brought to bear in the future if not immediately. All I am pleading for is a rational debate based on the widest possible information being provided to this House when we consider measures like this, so that we know whether the decisions we are taking will improve or undermine the standing of our constituents when it comes to low pay and poverty.

--- Later in debate ---

[Lucy Frazer]

I wish first to address amendment 1, which was tabled by the hon. Member for Bath (Wera Hobhouse) and would bring forward to 6 April the increase to the primary threshold that is introduced in clause 1. Of course the Government want to help people with the cost of living as quickly as possible, which is why the Chancellor introduced a number of measures immediately, including the cutting of fuel duty, which came into force at 6 pm last night. However, it was not possible to deliver the increase to the primary threshold from 6 April, which is in less than two weeks’ time.

The Government are implementing the change as early as possible, from 6 July. It is not possible for the majority of software and payroll providers to deliver the measure for April. Its delivery to an April timeline would see millions of individuals paying the incorrect amount of NICs at the start of the tax year, in just two weeks’ time. There would then be an additional administrative burden on employers, who would have to manually re-run the payroll once the software was ready. As my hon. Friend the Member for Wrexham (Sarah Atherton) said, the earliest that we can deliver the policy and it can be implemented by all software developers is July. That will avoid millions of taxpayers having to make manual claims for refunds.

Overall, the delivery timetable strikes the important balance between ensuring that individuals see the benefits of the increase as early as possible and allowing employers and payroll-software providers sufficient time to update and test their systems so that the change is delivered smoothly and individuals can enjoy the benefits at the same time. I hope the hon. Member for Bath will withdraw her amendment for the reasons I have outlined.

Let me turn to the new clauses in combination, because they address similar matters. On the points that Members made about poverty, if we look back at the past 10 years, we see that around 1.3 million fewer people are living in poverty, half a million fewer children are growing up in workless households and hundreds of thousands fewer children are living in poverty.

[John McDonnell]

I do not want the Minister to miss the point of new clause 1. I understand why she is setting out the statistics as she understands them, but they are contested. Nevertheless, the point I was trying to make with my new clause is that the Government should always publish a full report on their assessment of the implications of their legislation for both low pay and poverty, and that that report should include their assessment of the other options available to them that they could have taken. It is a simple measure that I hope would apply to all Governments of whatever political colour.

[Lucy Frazer]

I was going to come to the distributional analysis of the spring statement. The analysis in the document “Impact on households: distributional analysis to accompany Spring Statement 2022” shows that

“government policy continues to be highly redistributive; in 2024-25, on average, households in the lowest income decile will receive over £4 in public spending for every £1 they pay in tax”.

It also shows that

“in 2024-25, the poorest 60% of households will receive more in public spending than they contribute in tax”

and that

“on average, the combined impact of personal tax and welfare decisions made since SR19 is progressive, placing the largest burden on higher-income households as a proportion of income.”

[John McDonnell]

I do not want to labour the point. I have read the analysis of the impact on households; it is always very helpful, but it does not address the issue of low pay and poverty, or other policy options that could be considered. I make the point for the future. I know it is impossible to address now, but I think such a report should be published automatically. If the Government do not publish it, maybe a report should be published by the OBR or some other body that we establish to enable that to happen.

[Lucy Frazer]

I recognise the point made by the right hon. Member and I will of course consider it for the future. Considering a variety of hypothetical scenarios is time-consuming, which is why that is not traditionally done, but I will take his point away and consider it further.

I reiterate some of the points we discussed on Second Reading only a moment ago about the impact of the measures on those in lower pay and on universal credit. As hon. Members know, there was an autumn Budget not very long ago, followed now by this spring statement. In the autumn Budget, the Chancellor started the journey of helping to support those on lower pay through the tax system. He announced the first tax cut on his journey to cut taxation—the cutting of the taper rate, which will put £1,000 into the pockets of those on universal credit.

Hon. Members will already know about the increase in the national living wage. They will have seen the £1 billion household support fund, which is helping people in all our constituencies, building on other measures that were announced at the autumn Budget. More recently, we have provided £9 billion in energy support. There is the increasing generosity of the local housing allowance for housing benefit and the holiday activities and food programme. The Chancellor’s plan for jobs—the Conservative plan—whether through the kickstart scheme, the restart scheme, work coaches or boot camps, is to ensure that, where people can get into work, they get into work, and they are upskilled so that they earn more for themselves.

On new clause 4, the increase to the primary threshold and the lower profits limit is a tax cut on earned income that will benefit almost 30 million working people.

National Insurance Contributions (Increase of Thresholds) Bill

John McDonnell Excerpts

2nd reading
Thursday 24th March 2022 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

Thank you, Madam Deputy Speaker. I remind my hon. Friend the Member for Luton South (Rachel Hopkins) that she has just made a brilliant speech, but if she wants to repeat it she is perfectly welcome to do so!

The hon. Member for Rother Valley (Alexander Stafford), who has just left the Chamber, made a valid point about the nature of today’s debate. We as a House need to look again at how we deal with financial statements. It is all well and good having a statement followed by questions, but these statements are becoming increasingly significant—they are, in effect, mini-Budgets—and we need to look again at how we try to cram a debate about the whole statement into just one piece of the legislative proposals stemming from it. In future it would be better, just as we do with the Budget, to timetable specific debates on the statement and then we would have the legislative flow from that.

I put on the record my apologies to the Pendle constituency Labour party. I was meant to be doing the Sydney Silverman annual lecture this evening, but I have postponed it. I apologise to the CLP for any inconvenience caused. The annual lecture is a significant event, because Sydney Silverman was the man who abolished capital punishment and he had a fantastic record as a Labour MP up there. They have been very good about it and we will choose another date. I have postponed it because, as I raised with the Chancellor yesterday, there is nothing in this spring statement—and for me this is the most significant thing about it—for the poorest in our society, including those forced to live on benefits and pensioners, and I am really worried about what will happen to them over the next six months. My reason for being here is to say that we need to have a proper debate in these coming weeks and months about the nature of poverty in our society, the nature of low incomes, and the options available to us to tackle those issues. I have tabled an amendment, but it looks as though the whole debate is going to run into one.

Last Friday I met a group of unpaid carers who are looking after family relatives. I remind Members that the carers allowance is £67.60. I just do not know how people can live off that. In fact, they cannot live off it. They now face the energy price increases that we have discussed today, and they are being hit by the inflation rate going up. The fact is that, although both benefits and pensions are to increase by 3.1%, the predictions for the increase in the rate of inflation are anything between 7% and 10%. That is a startling cut in people’s living standards, and I do not know how they are going to cope.

I want to wage a cross-party campaign to get the Chancellor to come back sooner, with more measures to assist the poorest in our society. As I said yesterday, I predict that when we get to November there will be large numbers of pensioners and others sitting in their homes freezing. We have gone through a period where, year after year, we have highlighted the number of excess deaths in this country, particularly of older people during winter, and I think that that number will increase again.

Much has been said about the Government’s record on pensions, but I have to remind them that the reason the triple lock had to be introduced is that Mrs Thatcher broke the link between pensions and earnings, and the pension became undermined. When the Government proposed the triple lock, I wholeheartedly supported it. That is why all our manifestos at the last election committed to supporting and abiding by the triple lock, so I found it truly shocking when the Government tore that up and suspended it last year. I thought that we had embedded it into the political thinking of this country that, whatever happens, pensioners should share in the wealth growth of this country, including wage growth, or at least be protected against an inflation hit, but we seem to be going backwards. I know that the Government have said that it has been suspended possibly for only a year, but I fear that it might become the norm. That is why Members from across the House should try to secure from the Chancellor a commitment that something should be done to inflation-proof at least the benefits and pensions of the poorest in our society.

Another issue that I think is going to come at us rapidly in these coming months—I think it will become an important part of the political debate and we should wake up to it now—is that of wages. Unless we inflation-proof wages, I predict that we will see a flaring up of industrial strife in our country. I will give the example of what has happened to council workers in the latest pay settlement. With inflation possibly between 8% and 10% by the end of the year, their wage settlement is 1.75%. That means, in effect, a wage cut of up to 8%. I invite the Government to consider the issue of wages in the public sector, because they obviously set the terms of those in the private sector as well. Unless we inflation-proof wage settlements, our lowest-paid workers will be hit hard by the erosion of their wages as a result of inflation. I think that the Government should be saying to the pay review bodies that, in negotiations, they should start with inflation-proofing settlements.

We also have to recognise that we have to play a role with regard to prices overall. The Government have accepted that there needs to be a continuation of some form of cap on energy prices. I think there should be a cap on profits. The Common Wealth think-tank published its analysis of the energy company profit rates, which were between 42% and 45%. That is absolutely staggering. If that is not profiteering, I do not know what is. We have to come back to this House within the next couple of months. We cannot leave it beyond the recess. Before the recess, we need to know the assessment of the Government, the OBR and others of what the energy price situation is going to be like in three months’ time, and we need measures in place to protect people. We know that the price of oil and so on will fluctuate, but we have to make predictions on the best information we have, before the recess at the end of July, so that we can start to protect people.

We also need to consider other measures on prices. Last week the Mayor of London Sadiq Khan proposed a 12-month rent freeze in London. I proposed a rent freeze last October because it was clear from talking to ACORN, the London Renters Union and others just what rent increases were coming through post covid. Unless we start protecting people with rent controls, particularly in high-rent city areas, a rush of evictions will start again, leading to an increase in homelessness and to those homeless families unfortunately having to rely on cash-strapped councils to support them.

Finally, in addition to the need to provide more support for the hardest hit, including those living in poverty and pensioners, and the need to control the implications of increased prices in both energy and rents, we need—and I hope this is coming next week—clear plans from the Government on where we go from here in tackling the energy crisis. I welcome the lifting yesterday of VAT on solar panels and so on, but, to be honest, that was a fairly small step in terms of what is needed. One of the most effective ways in which we can help people in this coming period is through investment in home insulation. A few years ago, we put forward a plan to insulate 27 million homes, the independent assessment of which was that it would create about 450,000 jobs and reduce energy bills significantly. What we can do now is make sure not only that we insulate people’s homes and bring down their energy bills, but that we create good jobs. We need the Government to come forward immediately with a programme that prioritises that action. Of course we need to go for green growth and investment in wave, wind and solar power, but the quickest gains can be made through home insulation. In that way, we might give some hope to people who, at the moment, are viewing the coming winter as a pretty bleak period.

I have listened to this debate from the start, and I have listened to all those who are quoting the IFS, the Resolution Foundation and so on, but what sticks in my mind is the fact that there are 2 million pensioners and 4 million children living in poverty. We can argue about the Government’s record over the past 10 years, but that is the stark reality of it. The Resolution Foundation analysis that 1.3 million more people will be forced into poverty is shocking and it should shock us all. We should treat it as an emergency that we need to address very quickly. That is why I say that this cannot be the last debate on it between now and the summer recess. We need to have the chance to consider clear proposals about how we deal with the plight of the poorest in our society, how we tackle the way that they are being hit by prices rises and rent increases, and how we can insulate their homes for the future.

I will finish on the point that I made yesterday. A 3.1% increase for those forced to live on benefits and for pensioners, with inflation at anything between 8% and 10%, will push so many people over the edge into real poverty, real stress and mental health problems, and unfortunately for some it will further existing distress. That is what we should be talking about today. We need to be considering measures to address the whole issue, otherwise we will be failing in our duty.

One final point. We are all on good wages and salaries and we do not suffer anything like the hardship of many of our constituents, so it behoves us to try to take into far greater account the most deprived people in our society. So far in these discussions, with all the point scoring and so on, I do not think that we have properly done so. In the coming months, how we tackle this matter must be the nature of our debate.

[James Daly]

The right hon. Gentleman is making a very thoughtful speech. Among his proposals is a cap on profits. I wonder whether he could expand on that. In my constituency, for example, we have many small businesses; we do not have multinationals or anything such as that. Does he advocate that all private sector businesses, whatever their size, should have a cap on profit?

[John McDonnell]

I do not think the hon. Gentleman heard me properly. I was referring to the energy companies, specifically in regard to the profits that they have made. If he looks at the report of Common Wealth, the think-tank, he will see that it was looking at 42% to 45% rises for a number of those energy companies. That is where we need to cap profits. That would then give us the opportunity to redistribute some of that into supporting families and so on. It is about trying to be as targeted as possible so that we get the maximum benefit for the maximum number of people in our country. In his speech the hon. Gentleman used the slogan, “For the many, not the few”. It just shows what a good slogan it is when the opposing side starts stealing it.

Financial Statement

John McDonnell Excerpts

Wednesday 23rd March 2022 Commons Chamber

[Rishi Sunak]

I am happy to tell my hon. Friend that we announced a significant increase for the NHS back at the spending review in the autumn, with a record NHS spending settlement including big increases for mental health. The Department of Health and Social Care will be able to provide him with the exact split, but he can rest assured that we are making good progress with dedicated funding for the cause that he rightly champions.

[John McDonnell (Hayes and Harlington) (Lab)]

Let us be absolutely clear that benefits and pensions are going to rise by 3.1% while inflation is predicted to be between 7% and 10%. That is a cut for some of the poorest in our society. I want to make this specific appeal to the Chancellor. The people I am desperately worried about in my constituency are those who are forced to live on benefit, largely through disability or ill health, and the poorer pensioners. We know that energy prices are rising rapidly, and that the assistance provided so far will not enable them to cope. When we get to November, those people will be freezing in their own homes and lives will be put at risk. One simple solution is to double the winter fuel allowance. Can I appeal to him to go away, think about that and come back sooner rather than later to give vulnerable people some confidence in the future?

[Rishi Sunak]

All the people the right hon. Gentleman mentioned will benefit from the proposals we put forward last month, with £9 million to help everybody. The doubling in size of the household support fund is there for his local council and others to use to support those most in need, and he is right to highlight the winter fuel payments, which are payments of up to £300 for those pensioners. Many of those on pension credit will also have access to the warm home discount, which is an extra £150.

Public Service Pensions and Judicial Offices Bill [Lords]

John McDonnell Excerpts

Report stage
Tuesday 22nd February 2022 Commons Chamber

[Peter Grant]

I made the point much earlier that the amendment is not about BDS; BDS is not mentioned anywhere in it. Going back to the question of whose money it is, we can go round in constitutional or legalistic circles, but morally that money belongs to the people who rely on it for their pensions. If members of the pension scheme want to make strong representations to their trustees, saying, “I do not want to profit in my pension from investments that benefit countries that act in breach of international law”, why is it such a bad thing for pension scheme members to be allowed to make those representations to the trustees? Why is it such a bad thing for the trustees to be allowed to say, “At the request of our members, we will take a decision that might not deliver quite such a high yield for the pensioners, but the pensioners are happy to accept that, because they will be comfortable in their consciences about where the money is going and where the profits are coming from”?

We cannot support new clause 1, and we are minded to divide the House on it later. My final point is that every pension fund trustee has a duty entirely to look after the interests of their pensioners and future pensioners. I do not want to see anything being done that gets in the way of that. We will support the Bill on Third Reading, but I hope it will come to Third Reading without new clause 1 included. The fundamental point is that the £17 billion mistake was made by the Government. If we eventually pass the Bill into law to be an Act of Parliament that makes pensioners or their employing authorities pick up part of that tab, it has not done enough. I fear that by tonight we will still have a Bill that has not done enough and that the Government will not be made to take full responsibility for a mistake entirely of their making.

[John McDonnell (Hayes and Harlington) (Lab)]

I declare an interest in that I am a member of the local government pension scheme. I want to address the amendments standing in my name—new clause 10 and amendments 22 and 24—but I would also like to comment on new clause 1.

On the debate about whether or not this is public money, I thought, as a member of the local government pension scheme, that the Supreme Court was pretty clear that this is not public money in the sense that would enable the Government to issue guidance. However, I have to say that new clause 1 goes further than guidance; it actually includes directions as well. I work on the basis, as I did when I was employed in local government, that the money I earned and the money forgone to invest in my pension scheme was my earned income; it was not public money under the control of the Government.

I think there is a lesson for us all here in that I believe that only in extremis—only in extremis—should the state interfere in one’s own privately earned income. I say that because, in the pension scheme regimes we have at the moment, we have an element of representative democracy with the trustees often being representatives of the workforce and other experts. That reassures me that, as a member of the pension fund, I have an element of say in what those trustees do, if they are appointed, and that enables me and other members of the pension fund to exercise an element of control over decision making, but also to exercise an element of conscience.

[Andy McDonald (Middlesbrough) (Lab)]

Does my right hon. Friend agree that the clumsy way in which new clause 1 has been worded will create a chilling effect on risk-averse pension scheme managers in fulfilling their fiduciary duties and other responsibilities? Does he also agree that it will significantly incapacitate the ability of pension schemes to invest ethically, and the rights of pension scheme members and pension schemes to express and have ethical views taken into account in the investment of their own money?

[John McDonnell]

I agree with the first point, but let me take up that last point, because I just want to explain to other Members where I am coming from and get it on the record.

On moral grounds, I have argued very strongly within my own local government pension scheme—so far, I have to say, unsuccessfully—that I do not want the money I have earned, and part of my pension is my earned income, to be invested in a number of states. They include Saudi Arabia, because of its involvement in Yemen. In fact, I have organised demonstrations when there were visits from various representatives from Saudi Arabia to this country. I have argued that I do not want my pension invested in China because of the treatment of the Uyghurs. Again, I have engaged in demonstrations on that, and also on the moral ground that a number of trade union friends I have worked with over the years are currently in prison as a result of the operation undertaken by the Chinese state in Hong Kong. Yes, I have argued against investments going into Colombia because of the murder of trade unionists, and I have also argued against investments going into Israel because I do believe—according to the Amnesty human rights report, and many Jewish institutions—that it is an apartheid state in the way it treats the Palestinians.

That is my position: on moral grounds, I want to be able to influence the investments. I do not want my pension invested in armaments or fossil fuels either, and I believe that that is my right. I do not believe it is the role of the state to ride roughshod over my moral choices without extremely good reason. Given the threat of climate change and other matters, there may well be, in extremis, reasons for the state to act, but I do not think that this new clause is in that context.

[Chris Stephens (Glasgow South West) (SNP)]

If this new clause had been in legislation in the 1980s, it would have covered South Africa, and the right hon. Member will remember that local authorities drove the anti-apartheid movement, while the UK Government refused to impose sanctions.

[John McDonnell]

I was chair of finance at the Greater London Council at that time, and I would regularly turn up with my shares with regard to Barclays bank. When Mandela came here—some Members will have been there when he spoke—he and others, including the late Archbishop Tutu, commended those who argued for disinvestment from South Africa in order to bring about a change in that regime, and it worked.

The point I am making—I will finish on this element of it—is that I do not believe it is the role of the state to interfere in this way. Parliament can decide to expand the role of the state, but I think it begins to strain the limits of parliamentary democracy. I have listened to Conservative Ministers warn us in this Chamber about elective dictatorships, so I just warn hon. Members on both sides of the House that once these precedents are set, other Governments will be tempted to follow and, in some instances, go much further. I think this adds to the slow erosion of our civil liberties, freedom of choice and, indeed, human rights.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

On the right hon. Gentleman’s point about his own pension fund, I do not think there would be many countries left in which it could invest. I understand his concerns about pension funds making ethical investments, but the pension fund also has a fiduciary duty to sustain the fund, and to make investments in that respect and for future pensioners who will draw on it. How can he reconcile the two positions?

[John McDonnell]

I was once, in my callow youth, an adviser to the mineworkers pension scheme, and then I was an adviser at the TUC, working with Lord Bryn Davies, who is one of our colleagues in the Lords at the moment, and there was never a problem with our fiduciary duty of maximising the income to the pension fund itself because of the range of investment opportunities available to us. I think we found in the past that exercising such moral judgment can prove effective in the long term, because it ensures that the fund is not investing in countries that may in the longer term become unstable as a result of the actions they take. I would just say, and I am making a personal point, that I think new clause 1 flies against my ability to exercise my moral duties about investments by my pension fund.

[Lloyd Russell-Moyle]

Will my right hon. Friend give way?

[John McDonnell]

Yes, but then I want to move on to my amendments.

[Lloyd Russell-Moyle]

Is there not a problem with this, in that it leaves the Secretary of State to decide what the foreign or defence policy might be in an arbitrary way, rather than requiring pension funds to set an ethical policy in which they can say that they do not want to invest in countries where there are human rights abuses? We would still have to treat all countries equally, so they could not target one country or another, but there would be an ethical framework, and this new clause does not allow an ethical framework.

[John McDonnell]

I would also come out fairly pragmatically and say that there may be some countries that, according to the Government, were not appropriate to invest in a few years ago but now are. I do not want a little red book to be thrown at me again, but I would just cite the fact that the relationship the Government have had with China has changed over the years and, I hope, is changing again at the moment with regard to the Uyghurs.

Let me move on to the new clause and amendments in my name. New clause 10 is a simple reflection of new clause 8, tabled by my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq), on the pensions trap. I want to echo what I think she said really eloquently in Committee and today about how the dialogue on this issue must continue, because there is an unfairness at the heart of the legislation we are pushing through at the moment. This affects firefighters, police superintendents and so on, who feel aggrieved, and I feel that a bit more dialogue may enable us to find a solution and restore their confidence in the pension scheme itself. That is why I support new clause 8.

My new clause 10 is simply more explicit about ensuring that there are consultations with the trade unions and other employee representative bodies, and that we seek to overcome the problem so that we have a non-discriminatory approach that does not fall foul of the law.

I turn to my amendment 24, which addresses a complex issue. It reminds me of the debate we had on the d’Hondt proportional representation system, as there were only two people who understood it: Mr d’Hondt, who died, and Jack Straw. Let me just go straight to the point on this matter. I am sorry if I go into some detail. The Chief Secretary to the Treasury said in Committee that

“it is vital that we establish now, for the avoidance of any doubt, that no member benefits will be cut and no member contribution rates will increase as a result of the 2016 valuations. Any benefit improvements due will be honoured, but no additional costs will be imposed. I reassure the hon. Lady”—

my hon. Friend the Member for Hampstead and Kilburn—

“on her important question, that the costs of our remedy genuinely sit with the Exchequer, not scheme members.”––[Official Report, Public Service Pensions and Judicial Offices Bill [Lords] Public Bill Committee, 27 January 2022; c. 10.]

This is complicated stuff. There is a confusion of two issues here. The Government did make a mistake and were challenged in the courts. I fear that that cost burden will now fall on to members of the pension fund, if it is included in the cost mechanism as an employee cost. That is the issue.

I turn to two points in that regard. First, there is the cost to the scheme of giving members the option to choose which benefits—old or new—they want to accrue during the remedy period. Some members will choose benefits that are better for them than they would have received before the McCloud and Sargeant judgments. The scheme will clearly have to meet the cost of paying those benefits—fine. We got the assurance from the Minister that the money will flow—we think it is £17 billion; that is the last estimate—and the burden will not fall on to the members themselves, but that is not what we are talking about here. The issue here is what impact the cost of the remedy should have on the cost control mechanism. I remind Members that this is the mechanism for deciding whether members’ benefits should be changed or, alternatively, whether contributions could be changed.

There is no doubt that treating the cost of the remedy as an employee cost for the purposes of the cost control mechanism leaves members worse off than they would have been had it been treated as an employer cost. I draw the Chief Secretary’s attention to the helpful report from the House of Commons Library entitled “Public service pensions: the cost control mechanism”, which tells us that if we go back to the initial results of the 2012 scheme valuations, which were reported in 2018, the Government said that

“the protections in the new cost cap mechanism mean public sector workers [would] get improved pension benefits for employment over the period April 2019 to March 2023.”

It is those improved benefits that I believe are now at risk if the cost of the remedy is included as an employee cost and not an employer cost.

What does this mean? The improved benefits were required because members had suffered a reduction in the value of their expected benefits over the period 2012 to 2016 because of lower than expected pay increases and because longevity had not increased by as much as had been expected. In other words, the changes would not make members better off; they would simply maintain the value of the benefit package at the level that had been agreed. I apologise to Members, because this is complicated stuff, but it has to go on the record if we are to get redress on this, either today or in subsequent legal actions.

Given the requirement under the cost control mechanism, the respective scheme advisory board then set about agreeing the necessary changes in benefits. In other words, because the pay settlements had not been as large as predicted, and because people were not living as long as the predicted life expectancies, the cost burden on the scheme was less, which should have been reflected in benefits given back to members. The scheme advisory board started looking at what those benefits would be, and the Library report gives an example of packages of changes proposed for the civil service scheme, which included

“a reduction of member contributions; reform of the current contribution rate structure; and increased death benefits.”

The other schemes reflected similar sorts of benefits, so members would gain significantly as a result of this unfortunate situation—unfortunate because they never got enough pay settlements and never had the increase in life expectancy. Nevertheless, because those costs never fell on to the scheme, they should have been paid back to members.

In December 2018, the Court of Appeal ruled that part of the reforms amounted to unlawful discrimination. That was followed by the decision by the then Chief Secretary that the cost control element of the 2016 valuations should be put on hold. In other words, the members were to gain those benefits because of the cost control mechanism, the court decision took place, and the Government then froze the whole process. Eventually, the Government restarted the process and published the Treasury directions in October last year. The problem with the directions is that they treat the cost of remedying the Government’s mistake, as calculated for the purposes of the cost control mechanism, as a member cost, not an employer cost.

The important point to understand is that there is nothing inevitable about the remedy as a member cost. It has always been accepted that there are certain elements in the calculation involved in the cost control mechanism that are regarded as member costs that will impact on the cost control mechanism itself, but there are also other elements in the calculation that are employer costs and do not impact on the cost control mechanism. For example, the impact of changes in pay increases and mortality are obviously member costs, but changes in the discount rate and price increases are the employer costs. It is strongly argued by the trade unions, completely understandably, that mistakes made by the employer—that is, the Government—are employer costs.

What has never been discussed is how to treat the cost remedy incurred by the Government’s own error, and that is what needs to be addressed today. It was the Government’s mistake to have age discrimination in the scheme. The Minister in Committee said it was reflected in trade union representations, but as has been said by the Public Accounts Committee and others, the Government are the Government; they should have foreseen that there was the potential for discrimination. It is the Government who introduced the measures. It is the Government who are responsible for the Treasury directions and any legislation. It was a mistake by the Government. It is therefore logical that the cost of the remedy should be treated as an employer cost for the purposes of the cost control mechanism.

I apologise to hon. Members for the complexity of this, but it is important that we get on the record very explicitly that members of these pension funds should not have to pay in the long term for Government mistakes and should therefore have gained the benefit of either reduced contributions or enhanced benefits, because that is contained in what the Government agreed a number of years ago as the cost control mechanism.

--- Later in debate ---

[Mr Simon Clarke]

I thank all right hon. and hon. Members who have spoken today. I appreciate the constructive way in which all Opposition parties have handled the Bill. Today’s debate has focused on several important themes, which I will address in turn.

One central theme was the clarification requested by the hon. Member for Hampstead and Kilburn (Tulip Siddiq) and other Members about whether the estimated £17 billion cost of remedy will be included in future valuations of the cost control mechanism for unfunded schemes. The answer, definitively, is that it will not. The Government will reform the cost control mechanism to a reform scheme-only design for future valuations. I hope that that reassures the House.

[John McDonnell]

Will the Minister give way?

[Mr Clarke]

Very briefly, but I am conscious of the need to make progress.

[John McDonnell]

I just need the Minister to say that it will be an employer cost, not a member cost.

[Mr Clarke]

The cost of remedy sits with the employer, namely the Exchequer.

[John McDonnell]

Let us be absolutely explicit. With regard to the cost control mechanism, is it the case that this will be not a member cost but an employer cost? Just nod, Minister: that is all you have to do.

[Mr Clarke]

I can confirm that the liability for this rests with the Exchequer. It will be a reform scheme-only design. [Interruption.] I will write to the right hon. Gentleman with the clarification that he is requesting.

[John McDonnell]

Correspondence is not good enough. Put it on the record.

[Mr Clarke]

I will ensure that it is on the record.

My right hon. Friend the Member for Newark (Robert Jenrick) raised the important issue of guidance for the local government pension scheme which will, in effect, prevent bodies from engaging in boycotts, divestment and sanctions activities. In our manifesto, we committed ourselves to stopping public bodies running their own direct or indirect boycotts, and the wider BDS movement. I am grateful to my right hon. Friend for the all the hard work that he has done to draw the House’s attention to this important issue. I also pay tribute to Lord Pickles for his work.

Coronavirus Grant Schemes: Fraud

John McDonnell Excerpts

Tuesday 18th January 2022 Commons Chamber

[John Glen]

Unfortunately, I am sure that there are examples of people who conducted fraud; that is self-evident. I urge the hon. Gentleman to give as much information as he can to HMRC, so that these matters can be chased up. There was always a balancing act between speed of delivery and risk of fraud, and Government and Ministers’ decisions were made in the light of the best advice. It was not a perfect situation. However, we were urged to get that money out—not just by Labour but by the CBI, the Federation of Small Businesses and numerous other organisations—and we responded. I think that was generally acknowledged, and it certainly was by the shadow Chancellor at the time.

[John McDonnell (Hayes and Harlington) (Lab)]

This is outrageous. This is an attempt to shift the blame to everybody but the Government. Of course MPs across the House were pressing the Government for speed of action—for everyone, not just for a select few—but we were also raising issues of fraud. I wrote to the Chancellor within weeks of the scheme’s being introduced about the information coming in about fraud. I tabled parliamentary questions on 3 July. I simply asked what measures were in place. What response did I get?

“I cannot go into specific detail about measures either in place or in development. For the same reason, it is not possible to release the number of fraudulent applications or associated investigations.”

I asked the same questions about the number of companies going bust and so on but still receiving grants.

I ask the Minister: what other organisation loses billions, yet no one is held to account, no one resigns and there is not even a word of apology—not a single sentence of regret? That money could have been used effectively to lift people out of poverty and to support jobs, yet through the incompetence of this Government, it has gone missing.

[John Glen]

I thank the right hon. Gentleman for his question. I do not accept the premise behind it, but I do accept that we moved £81.2 billion of support through various schemes out to businesses and individuals up and down the country, and that there was an element of fraud, which we will continue to bear down on aggressively.

Charter for Budget Responsibility and Welfare Cap

John McDonnell Excerpts

Monday 10th January 2022 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

I will be brief. The debate has roamed over more than just the fiscal rule and the welfare cap, and I will not tread on those other parts of the debate. My right hon. Friend the Member for Wolverhampton South East (Mr McFadden) demonstrated the economic and political farce of the current Government. The right hon. Member for Wokingham (John Redwood) made much of the role of Bank of England debt, which would be interesting to pursue in another debate, and the hon. Member for Glasgow Central (Alison Thewliss) pertinently drew attention to the iniquitous nature of the welfare cap. The hon. Member for North East Bedfordshire (Richard Fuller) made an interesting contribution, but his definition of Parliament’s role as being to protect property is something of a 17th-century view of democracy that we might want to debate elsewhere.

In our debates during the banking crash there was a popular understanding that the cause of the crash was the way in which the system had operated as a result of the finance sector’s greed and incompetence, alongside the mismanagement of financial regulation over decades. The Conservative party made a big argument at the time and subsequently that we were in a weaker position because of our deficit at the time of the crash. That is a feeble argument, but there is some substance to it, and I argued at the time that the reason for the deficit was that we did not have an adequate taxation policy to match our overall expenditure.

That argument is for another time, but I say to the hon. Member for North East Bedfordshire that I remember George Osborne ripping into Gordon Brown and others when even the concept of a fiscal rule was raised. George Osborne then ripped into the ludicrousness of a fiscal rule that no one would ever abide by and that had no sanctions. When he was appointed Chancellor in 2010 under the coalition and proposed the fiscal rule process, some of us thought it was ripe to say the least.

However, the most iniquitous bit of that debate was the combination of introducing the individual benefits cap and the overall welfare cap. The individual benefits cap is egregious, and it has forced people into poverty and hardship. In many of our areas, it has affected people’s mental health in a way that has pushed many over the edge and some into taking their own life—that is the tragedy of that element of the cap.

The overall welfare cap is part of that political direction. The point has been made time and again that austerity was a political choice, not an economic necessity. Part of that political choice was the introduction of the cap. After austerity was introduced, people woke up to the fact that public services were being cut on a scale we had not seen before. This was impacting on the health service, education and local council expenditure, and in addition to that, there were pay freezes and in the end, because of inflation, pay cuts. There was an understandable reaction against that. I can remember the deep unpopularity of the coalition Government in those early stages.

I think that a cynical decision was made; in fact, I know that a cynical decision was made because Lord Freud, who was responsible for welfare policy and supposed welfare reform, has exposed in recent months that a cynical decision was made. It was not made on the basis of welfare reform or economic management; its purpose was to find a scapegoat. The scapegoat that was unfortunately chosen by the then coalition Government was the poorest in our society: the unemployed, the people with disabilities and, tragically, children as well. I remember the language that was used, and I have to say that it permeated many sides of this House too. Strivers were set against skivers. I remember the tales of the twitching curtain, where some would stay in bed while others went to work. That certainly did not reflect what was happening in my constituency, because everyone I came up against was desperate for a job, and more importantly, they were desperate for a job that paid a wage that would keep a roof over their head and put food on the table for their children.

That is where the welfare cap came in. Of all the expenditure, that was the area that had to be capped in some form. Other areas of expenditure that were equally demand-led were not debated. This was done specifically because a scapegoat had to be found, and we went back almost to the attitudes of the poor law and the workhouse. I remember those debates. I was offended by them, I was made angry by them, but above all else I was shamed by them and by the fact that this House could stoop to that level. That is what happened, and people suffered as a result.

This welfare cap, associated with the fiscal rule, is a base anachronism that should no longer exist. For as long as it exists, as we go through a period where the economic pressures will impact on any Government—the cost of living crisis is easy to say as a phrase, but there is a reality to it and it is already causing hardship in many of our constituencies—I fear that this Government will want to find another scapegoat, and that it will be the poor again. It will be the disabled. It will be those who cannot find a job or cannot get enough hours in a job to keep them out of poverty. The Government will use the same mechanisms, and the welfare cap will be part of them as long as it remains in statutory form. That is why I will be voting against the welfare cap tonight. In principle, this is an appalling piece of legislation. It has proved to be inhumane in its impact, and it is a weapon that will be picked up again to attack the working-class people that I represent. That is why I want to put on record tonight why I oppose it and will continue to oppose it until we have hopefully secured a Government that will throw out this abysmal piece of political weaponry against working-class people.

Public Service Pensions and Judicial Offices Bill [Lords]

John McDonnell Excerpts

2nd reading
Wednesday 5th January 2022 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

I have to give it to the right hon. Member for Newark (Robert Jenrick) for his ability to describe possibly one of the most inflammatory amendments that we shall consider in this House as a modest technical amendment—but there you are. I am sure we will come back to that debate as part of a wider discussion of the issue.

I want to focus briefly on part 1 of the Bill, which addresses the McCloud judgment. I think we have to acknowledge that what we are having to deal with is an absolute mess in the management of public sector pension schemes by the Government, exposed by the McCloud judgment. It was a mess created not by the members of the public schemes themselves, who have been congratulated across the House this evening on the public service commitment that they are demonstrating at the moment, but by Government decisions. As this mess was created by Government decisions, it follows that the cost and the burden of clearing up this Government-created mess should fall not on the pension scheme members themselves, but on the Government.

Because I have received so many representations from constituents on this matter, I want to get some of the narrative clarified on the record. It is worth going back into the mists of time to fully understand the context and the genesis of this dog’s breakfast, as it was described in the other place.

I am grateful to Bryn Davies—Lord Davies of Brixton—a Member of the other place, our foremost pensions expert, formerly the TUC’s actuary and pensions adviser, and subsequently adviser to numerous trade unions and associations, for the explanatory notes that he has provided to a number of us and the issues that he has raised in the other place. Bryn Davies reminded me of the history of the pension reforms that have laid the path to this chaotic state that we are now trying to resolve.

The mechanism for managing the future funding of public sector pensions stems originally from the discussions between the Labour Government and the trade unions in 2006. It was those discussions that resulted in a broad relationship agreement—the Warwick agreement—and also agreed a series of pension reforms. The aim, quite rightly, was to stabilise for the long term the funding of pension schemes to enable decent pension schemes to be provided, and to tackle, to be frank, the fact that some people who had provided a service throughout their career were finding, contrary to what the hon. Member for Glenrothes (Peter Grant) said, and contrary to what was being reported in a number of papers, that they were being provided with a pension on which they were hardly able to survive.

In 2011, following those discussions, the coalition Government commissioned the Hutton report, which led to the Public Service Pensions Act 2013. That Act provided the basis of the existing system, including the cost control mechanism that we are addressing in this Bill. The key element of the cost control mechanism was that the cost to the employer of each of the public service schemes was fixed as a percentage of pay, which meant that if the cost of providing a scheme increased—I remember the debate and the predictions that were made—for instance due to some scheme members living longer than expected, it was agreed that either benefits would be reduced or members’ contributions would be increased. A number of us did not like it, but that was what the House agreed because it was seen by some as a fair process for the future.

If the cost of providing a scheme fell, such as if pensionable pay did not increase at the expected rate, benefits would be increased or members’ contributions would be reduced. That was the equivalence that was agreed, and it was considered fair. I remember the debate, and it was also agreed that things would stay as they were if the change was less than 2% in either direction.

It was always agreed that some types of additional costs would be the responsibility of the Government—employer costs, as defined, as opposed to member costs. In 2012 the Treasury published a report that spelled out the difference. Employer costs were exemplified by changes in actuarial methodology or changes in the discount rate. The logical argument made by the unions is that the additional costs resulting from remedying the Government’s actions in this case, as exposed by the McCloud judgment determining that the Government’s actions were unlawful, are the responsibility of the Government, and therefore fall squarely into the category of employer costs, not member costs.

This is critical because the cost of the schemes, as used for control purposes, has usually fallen, largely because pay rises have not been as high as expected or because life expectancy has not improved as was previously predicted. If we abide by the agreements that were legislated for in this House, pension scheme members should have received either improvements in benefits or reductions in contributions, or a combination of the two, because the cost of the schemes has fallen.

Instead it appears that the Government are minded to treat the remedy costs of the McCloud judgment—the costs of remedying the Government’s illegal actions—as member costs. We have heard from my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) that the cumulative cost could be £17 billion. This kicks in the cost control mechanism, as in some schemes the cost will rise by more than 2%. This would usually have resulted in cuts in benefits or increased contributions, so at least the Government have introduced a waiver to prevent that from happening.

However, this does not assist my constituents who rightly argue that they have been robbed by the Government and forced to pay over the odds in pension contributions but will receive no additional benefits. In fact, they feel they have been hit by a double whammy, having had their pay virtually frozen or cut but, as a result, still losing out on pension contribution savings. The impact for some will be the prospect of hardship in retirement as a result of not receiving the full benefits of their scheme as originally agreed. For many others, the measures will undermine the incentive to contribute to the pension schemes that are available to them. We have already seen more than 270,000 who are open to joining the scheme dropping out of it. This disincentivisation means that pensioners will be living in greater hardship and poverty and will therefore be reliant on state benefits, so there will be no saving to the Government overall. From the discussions I have had with my constituents and a range of trade union representatives and members, I know that there is a sense of betrayal among pension scheme members.

Another issue that my right hon. Friend the Member for Wolverhampton South East raised was the pensions trap, which has been highlighted by the police associations, particularly the Police Superintendents Association, and by the firefighters, in which the value of the contributions and the pension declines with additional years of service. That is a contradiction that needs to be resolved by the Government, and I hope that that will be undertaken as the Bill goes into Committee and comes back to this House.

The discussion around pensions is as sensitive as the issue of pay, if not more so at times. These are always sensitive policy issues, and people naturally have strong feelings about them. It is worrying to me that, as Bryn Davies—Lord Davies in the other place—highlighted, the key decisions on whether the remedy cost is a members’ cost or an employers’ cost, and on whether the cost of the remedy should be spread over four years as suggested by the Government, are neither on the face of the Bill nor being dealt with by delegated legislation. Instead, under section 12 of the Public Service Pensions Act 2013, these issues will be dealt with by “Treasury directions”. That means that financial obligations will be placed on scheme members without effective parliamentary decision making or scrutiny. These are not technical matters; they are matters of high policy and they affect many of our constituents. They are a matter of public concern and they have generated anger among many of our constituents at what they feel is the unjust way they are being treated. Members of this House should insist that these decisions are subject to proper parliamentary scrutiny and proper parliamentary decision making.

Much of what we are debating in part 1 of the Bill will almost inevitably be the subject of further legal challenge by a large number of trade unions and possibly, we hear, even by the British Medical Association. I fear that, rather than remedying the Government’s errors and lack of judgment, the Bill will almost wilfully compound those past errors and possibly exacerbate the strong feelings of injustice felt by many of our constituents. I say to the Minister that considerable thought needs to be given to these issues in Committee and possibly on Report, to ensure that the Government do not lay the burden of the failure of past Government policy making on the innocent shoulders of many of our constituents, who, as has rightly been said today, are providing essential services across a communities at a time when we desperately need them.

Finance (No. 2) Bill

John McDonnell Excerpts

2nd reading
Tuesday 16th November 2021 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

You surprise me, Madam Deputy Speaker, as I am usually last.

I came to this debate solely to make a proposal on local government, but because the House is not packed I will respond to some of the previous comments. I congratulate my hon. Friend the Member for Ealing North (James Murray) on his comprehensive analysis of the Government’s Budget, which revealed its lack of substance as much as anything. The purpose of having a Finance Bill after a Budget, and especially after a spending review, is that it is meant to embody the Government’s strategy and political analysis in line with their appraisal of the economy and the political situation.

It is difficult to discern from this Bill any form of overall Government strategy, and it is difficult to understand how the Bill relates to the many real-world issues we currently face—that is what is so surprising. The hon. Member for Glasgow Central (Alison Thewliss) made the critical point that, having come back from COP, we might have expected the Government to be fired up to mobilise the whole economy with the purpose of ensuring we tackle the existential threat of climate change, but there is very little in the Bill that relates to any of that major threat.

My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) explained the situation of many of our constituents who face deprivation, challenges, insecurity of income and issues with the delivery of public services. Not only is there nothing in this Finance Bill that will tackle those problems, but the reverse is true: benefits are being cut and austerity continues. That is quite remarkable.

On a side point, my hon. Friend the Member for Bootle (Peter Dowd) always says when we have a Finance Bill before us that the Government, yet again, have not tabled an “amendment of the law” resolution. That is an arcane parliamentary point, but it is important because it limits our scrutiny of the Finance Bill.

If I were trying to identify the Government’s strategy on the basis of the Prime Minister’s words, the high-skilled, high-wage economy is meant to be based on high levels of investment. The Chancellor has referred to the ending of austerity on numerous occasion, and the Prime Minister has made reference to the importance of tackling climate change. I see none of that in the Bill.

I caution the Government. Let me put it in this context: we have had two weeks of report after report of corruption, in effect, on top of month after month of public amazement and now, increasingly, shock about what happened with the distribution of covid contracts. Confidence in not just the Prime Minister but the Government is now at an all-time low. At the weekend, I saw in one article that unless things change, the Prime Minister will be out by the summer—and that was Tory MPs speaking, not us. Lots of evidence now abounds that the Foreign Secretary’s and the Chancellor’s leadership election campaigns are up and running and that the structure is being put in place for that challenge, when it comes, but it is more serious than just the future of the right hon. Member for Uxbridge and South Ruislip (Boris Johnson). There is currently a loss of confidence not just in the Government but in governance overall, and more so this week: from what I heard on the news this morning, there are going to be announcements about transport investment this week that renege on the commitments to the funding of rail in the north, particularly in respect of the extension of High Speed 2. In that political context, the Bill takes on a greater significance than usual.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

I wonder whether I can encourage my right hon. Friend to discuss the fact that the levelling-up agenda is nothing—it is absolutely meaningless. It does not tackle the issues that have led to the high and unequal covid death toll in areas in the north-east and north-west in particular, and it certainly does not cover the disparities in infrastructure investment, such as in transport, which my right hon. Friend mentioned. Would he like to say more about that?

[John McDonnell]

I raised in my Budget speech the lack of confidence in the Government’s commitment to levelling up overall and even to defining what it means, and I mentioned the importance of the need for a bit of levelling back because of the scale of the cuts that have been endured over the past 11 years.

I make the general point that there is currently a level of insecurity and uncertainty, and a questioning of politics overall and of whether the people can trust any politician. I thought that with a Budget and a comprehensive spending review the Government would at least be able to set out their plans and bring forward the measures in the Finance Bill so that we would at least know where they are going, which might give us some security or confidence that the Government at least have some sense of direction. I do not think it is there—it is certainly not in the Bill. We can take some humour from this situation. The Chancellor certainly led with his chin in respect of the proposals to cut the bankers’ levy and the tax on flights and champagne. No one could blame the shadow Front-Bench team coming forward and taking the rise out of what was quite obviously a bankers’ Budget.

Let me comment on a number of the key issues that have been raised in the debate so far. If the Budget was about the end of austerity, high skills, high wages and so on, the Bill flies in the face of all that. The hon. Member for Glenrothes (Peter Grant) talked about how people have been treated in respect of other announcements; how can the Government argue that the Bill is about high wages when they are freezing tax bands, introducing national insurance increases and cutting universal credit? All those things hit earners.

Something fundamental at the heart of this Bill—it was at the heart of the Budget, too—is the Government’s refusal to take on the imbalance between the taxation of wealth and the taxation of earnings. We have seen it in the Government’s setting out of proposals some time ago on reforming capital gains tax but their failure, yet again, to do it in this legislation. Given that the argument over the need to ensure that we tax on capital and wealth as well as on levels of earnings has been won, the proposal that I thought would be in this Bill was to ensure that taxation on earnings and on capital gains were brought into line. The amount that that would bring in to the Government was initially recalculated at £14 billion, but I see that the TUC’s figure is £17 billion. That could have resolved the issues in social care. That would have ended austerity for large numbers of our population.

The Government argue that, in the Bill, they are doing something about the taxation of earnings from dividends, but it is negligible in comparison with what is needed and it sends out a similar message that they are willing to penalise earners, but, at the same time, allow others who earn their money from wealth to walk away.

The reason that the bank levy offends is not just that it is going back to the days of the crash and the scurrilous role that the banks played in enabling that to happen—the profiteering at all our expenses; it is because what the banks have is the best insurance policy in the world. It is an insurance policy, backed up by the UK Government, that no matter what they do, no matter how much they fail, they will never be allowed to fail because the Government will always step in and bail them out. An additional levy was placed on the banks to make sure that they paid something back from the crash, and also that they paid something in return for the guarantee that they were given. What we find now is that the amount that they have paid so far does not even pay off some of the damaging costs that fell to taxpayers as a result of their wild speculation that brought about the crash.

One matter that has been raised in the debate—the Exchequer Secretary has also mentioned it—is that of tax reliefs and the extension of the annual investment allowance. I can understand why the Government have done that, but what I cannot understand is why they have done that as well as introduce the super deductions. The Government’s argument is that 99% of the business investment that is undertaken will be covered by the annual investment allowance, but to then go on and give a super tax deduction of 130% flies in the face of that argument. If we look at the record of tax reliefs, most of which, historically, have never been reviewed by the Treasury, we see that they mount up year after year, decade after decade. Some of them go back nearly a century, but they are never reviewed, and that is often with scandalous effect. On the entrepreneurs’ allowance, even the Government had to accept that that was an abuse of an allowance. People were walking away with large amounts of benefits without in any way demonstrating their entrepreneurial skills. It is the same with the patent box.

Let me now come to the tonnage tax. I have been lobbying on that now for nearly 15 years. The tonnage tax was introduced by John Prescott—by the way, I hope that all of us will send our best wishes to him in the hope that his recovery from the severe stroke that he had is going on apace—as part of a strategy to revive British shipping. The purpose of it was to give a tax allowance to shipping companies so that they would then employ more UK seafarers, and employ them on a decent wage as well. Year after year, we argued about it with the Government—the Labour Government got into this one as well. Large amounts of money were going to these shipping companies, but the jobs were not appearing. In fact, we were losing UK seafarer jobs. Seafarers were largely being recruited from abroad, and in some instances were not even being paid the minimum wage. The tonnage tax was linked to the training of officer cadets, not ratings, and a limited number of officer cadets were recruited by the shipping companies. As a result of lobbying—I was there in a meeting with the Minister—we did get a bit of flexibility, whereby if a company was not recruiting officers, it was able voluntarily to recruit ratings and still qualify for the tax.

Let me just explain to the House the tonnage tax figures. The tonnage tax was introduced in 2000-01. Its cost—£2.165 billion. How many jobs do hon. Members think have been created, that we know of, for £2.165 billion? Does anyone want to intervene with a figure? All we know about, on the record, is 75; that is £28 million a job.

[Christine Jardine (Edinburgh West) (LD)]

Almost as good as they get!

[David Linden]

That’s about as much as Geoffrey Cox gets!

[John McDonnell]

Don’t tempt me.

Those are the only figures that we have, but I thought that we should be generous and say that there were, on average, 25 jobs a year at least. We do not know, as all we have is the figure of 75. In the case that there were 25 jobs a year, we are still talking about, at best, £4 million to £5 million a job in subsidies for the British shipping companies. I do not know what other Members think, but there is an issue of productivity here, is there not? That is the sort of problem that we have when we get into relying on tax reliefs to stimulate the economy and jobs growth.

Let me make a final point on tax reliefs. As the hon. Member for Glasgow Central and my hon. Friend the Member for Ealing North have said, the failure to link these tax reliefs to the achievement of net zero means that we are undermining the ability of the Government to intervene effectively in the economy in order to ensure that we are all signed up to tackling climate change.

I also thought that the Government were going to come forward with amendments in legislation to prevent companies with any record of tax avoidance from being able to qualify for tax reliefs at all, but that is not in this legislation. We are therefore in a situation where we are giving tax reliefs to companies that we know have in the past engaged in tax avoidance. Of course we all welcome the tax avoidance measures that the Government have introduced, but this legislation is an incredibly slow, incremental development. We need to go so much further, with full transparency and enforcement.

When we are trying to enforce against tax avoidance, the one thing that we must not do is open up opportunities for new forms of tax avoidance, but the Office for Budget Responsibility, the UK Trade Policy Observatory and the TUC have said that the introduction of freeports is the new opportunity for tax avoidance schemes, for the displacement of jobs from one area to another with no overall benefit, and—this is exactly what the TUC is saying—for the undermining of trade union rights; and we know what that will do for workers.

I have welcomed the Government’s investment in HMRC. I was sitting here years ago when the first major cuts to HMRC were introduced, and we saw the results. It was an undermining of the work to address tax avoidance and evasion. However, as other hon. Members have said, unfortunately the new jobs have gone into chasing compliance issues as a result of covid, and not into increasing the operation to address tax avoidance.

Those are the issues that I just wanted to comment on. I actually came here to make one specific point and put forward one proposal with regard to local government, but as there are not people rampaging to speak in the debate, I thought that I could at least comment on some wider points.

The point I wanted to make is about what is happening with regard to local authority finance. I thought that as part of the Budget, the comprehensive spending review and then this Bill, the Government would bring forward what has been promised for some time now—a fairly radical reappraisal of local government finance with the potential for reform that would provide local authorities with the resources, as well as a relatively independent source of income, that would then embody their ability to engage in genuine levelling up across our society, as raised by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams). But the figures show that local government funding from central Government grant is about £16 billion a year lower today than it was in 2010. Cumulatively, that is a reduction over that 11-year period of £100 billion in central Government support for local government.

That means that before we can even talk about levelling up, we need levelling back. We need to give councils the power to invest in local services in their communities again. The hon. Member for Broadland (Jerome Mayhew), who is not in his place, raised the importance of the Budget for local communities, and I agree. This Bill should be doing that, but apart from the occasional grant to individual communities—on, unfortunately, a sort of pork barrel basis—there does not seem to be an overall strategy to enable it to happen. As I said during the Budget debate, we have seen the impact, with the cutting of funding for nearly 900 children’s centres, 940 youth centres, 738 libraries, and 1,200 bus routes. Local government was mentioned only once by the Chancellor in the Budget speech. There was no acknowledgement of what councils have endured over the past 10 years—that includes Tory, Labour, Lib Dem and SNP councils—or the debt crisis that is now engulfing many town halls in our country.

I was hoping that we would at least get the opportunity of some resolution of the debt problem of local councils within the Finance Bill, or would have the opportunity to prepare amendments to enable that to happen. Creatively, we will see whether we can bring amendments forward in that way, but that is made more difficult by the amendment to the law motion not being brought forward by the Government. Many councils across the country are in debt. In recent years, three section 114 notices have been issued, in the case of Tory as well as Labour councils, and dozens more have applied for and received emergency Government loans.

Some time ago, as part of their pushing local authorities to try to seek alternative local funding sources, but also as part of their commercialisation agenda, the Government forced councils into a position where many of them sought to compensate for the lack of Government funding by borrowing from the Public Works Loan Board to buy investments with revenue-producing potential. Some of those investments have proved to be risky misjudgments. Admittedly, this has happened across the board, with all political parties in control in different council areas, but the Government have to take some responsibility for the mess, because they have forced those local authorities into that sort of speculative behaviour, which is also beyond their levels of experience and expertise.

In addition, there has been a complete lack of oversight from both the Department for local government, under its various names over recent years, and the Public Works Loan Board, which has lent the money to those councils. The accounts of the Public Works Loan Board reveal that over £2.8 billion was lent last year and over £3 billion was generated in interest income. That is extraordinary: it is robbing Peter to pay Paul.

Councils are under huge financial pressures, and they now owe £71 billion in debt to the Public Works Loan Board. I want to see whether we can amend this legislation to reduce the interest rates to councils. The Bank of England base rate is still 0.1%, so every pound spent on interest by councils—it is the same for central Government—is £1 less spent on social care, children’s services, street cleaning, bin collections or whatever. The average interest rate charged by the Public Works Loan Board is 3.57%. That is 36 times higher than the Bank of England base rate. What we need in the longer term is stronger oversight of loan applications and for the Public Works Loan Board to charge interest at the Bank of England base rate.

In the meantime—this is why I was hoping that the Government would move somewhat in this legislation—to deal with the high interest rates and the high levels of debt, we need some form of debt jubilee for local councils. That could be a zero rating on all existing loans before we move to the Bank of England base rate on all new loans. More expansively, it could recognise the failure in recent years from central Government to oversee and the impact of Government austerity cuts, which have led to the debt crisis in local government. The Treasury arguably should fund a partial debt write-off for councils. With more than £70 billion in principal debts, plus interest rates, even a 20% write-off could free up nearly £15 billion for local councils to spend in the coming years.

That is the proposal I wanted to argue for in this debate. It would be welcomed cross-party in local government and would relieve many local councillors from the appalling decisions they will have to make in the coming months between increasing local council taxes and, more importantly for many of them, another round of cuts in public services, because of the high interest rates they are having to pay and the interest charges that are falling upon them.

The final point I will make in this Budget debate is to return to the points that a number of Members have made. This Finance Bill does not seem to relate to the Government’s strategy overall, and it certainly does not relate to the needs of our communities. I worry that after the experience of covid, people are looking increasingly to the Government to provide leadership. This Budget, the comprehensive spending review and certainly this legislation do not provide that. The Bill will increase the levels of concern and insecurity that unfortunately are impacting on our communities. I find it a disappointing piece of legislation, and I hope that by way of amendment we might be able to improve it. In that way, we might at least meet some of the challenges our communities face, tackle some of the poverty and deprivations, end austerity and maybe give a bit more hope to the communities we represent.