Loans to Ireland Bill

John Redwood Excerpts

Wednesday 15th December 2010 Commons Chamber

[Mr Cash]

I have just abstained on Second Reading for one simple reason. I had intended to vote for it, but I remain gravely dissatisfied by the answer that I received from the Chancellor regarding the increase in the amount specified in clause 1. I do not want in any way to misrepresent what he said, but as I understood it, it was that that was all right because it was about exchange rates. However, anybody who examines clause 1 carefully will notice that subsection (4) states:

“The Treasury may by order made by statutory instrument substitute a greater amount for the amount for the time being specified in subsection (3)”,

which is £3.25 billion.

The next two provisions simply determine whether any increase will be subject to affirmative or negative resolution. An order would be made under the negative resolution only if the increase is to do with exchange rates, but I can see nothing to say that an increase under subsection (4) would be affected by subsequent provisions. I was bound to take great exception to that. It is a serious matter, because we simply do not know what the greater amount would be. We are totally exposed, subject only to affirmative resolution, which cannot be amended. Such a measure would simply go through on a whipped vote, just as the rest of the Bill doubtless will. That is why I abstained on Second Reading.

Amendment 3 addresses the definition of “Irish loan”. I was staggered when I looked carefully at the Bill, because clause 1(2) states that “Irish loan” means simply

“a loan to Ireland by the United Kingdom.”

The background is the recent debates on economic governance, and the origins of the European financial stability mechanism and the alternative eurozone facility, which as someone pointed out is as much as €440 billion, which is easily enough to cope with the Irish situation. There is a very close interconnect at all points between the so-called bilateral loan proposed in the Bill and the mechanism that I described.

The difficulty is that there is an overall determination to do as much as possible by way of integrating with Europe when it is quite obvious to anybody that this is the time for us not only to step back, but to desegregate from the European venture. I believe very strongly that the technique that is consistently employed in all spheres of activity is to say, “We don’t like what goes on in the EU, but we can just go along with it. Alternatively, to satisfy the Eurosceptics or Eurorealists, as they prefer to be called, we can make parallel arrangements along the lines of what we would have done if we were in the eurozone.”

The research paper helpfully supplied by the Library states:

“It is worth noting that the bilateral element”—

assuming that that is what the Bill is—

“of the UK’s support is broadly equivalent to what the UK would have provided if it were part of the eurozone-only EFSF.”

In other words, we would have provided the loan anyway. The Minister may well say that that is not his intention, but that is what Library researchers believe, and they are often right.

[Mr Redwood]

A portion of the total loan package is contingent money for Irish banks—they may or may not need it. Is my hon. Friend worried that they could come back for even more, and that clause 1(4) could allow an extension of our loan for Irish banks?

[Mr Cash]

Yes I am. Treasury civil servants are exceedingly clever and may know of pitfalls, but they might not fully explain them to Ministers. Of course, the Minister takes ultimate responsibility, but the question is: what is the effect on the daily lives of the people whom we represent? That is the issue on which we have to concentrate.

Under the circumstances, I am extremely dubious about the way in which the whole thing has been put together. In particular, I would mention what I will call the mechanism, as compared with the facility. I had an exchange earlier about the mechanism with the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), who said, “This is all going to be done by qualified majority voting.” However, that is not the case. Within the mechanism as it is set out, the request comes from the member state; it is only the final arrangement that requires qualified majority voting. Indeed, the EU sent in the European Central Bank and the International Monetary Fund in flagrant contradiction of the provisions of article 3 of the regulation in question.

In fact, the EU was operating the provision as if it were already law, when it was not. That it is typical of the European Union. It keeps on telling us about the rule of law, but when it suits, it completely ignores the law. What happened was unlawful. I also believe that it was unlawful in respect of article 122, which was the legal basis used to create the mechanism. I do not need to go into detail, but article 122 concerns natural disasters, energy supply and things of that kind. Anyone who looks at article 3, article 122 and the other provisions that they mention would reasonably conclude that they should not be used for the purposes of sorting out an unmitigated mess that was created by banks, as well as by the Government of Ireland and other parts of the European Union. Therefore, I am afraid that the answer that I received from the former Chancellor—that there really was no alternative to what was done, because such decisions are reached by qualified majority voting—does not stack up. If what happened was unlawful, it should have been resisted and, because of the consequences, it should, if necessary, have been taken to the European Court.

[Mr Redwood]

My hon. Friend has great legal expertise. I understand that the European Union is trying to negotiate an amendment to article 122 of the treaty in order to put the matter beyond doubt. Would that be retrospective, or could that undermine the current position?

[Mr Cash]

That is a very good question. I doubt very much whether an attempt to make the provision retrospective would remedy the mischief.

I am afraid that the question of illegality taints the Government’s position as well, and I shall explain why—the Minister will know all the detail, because I think that he was the Minister responsible. There is provision for the European Scrutiny Committee under Standing Order No. 143 regarding scrutiny and scrutiny reserves. It so happens that the European Scrutiny Committee was not set up until November—a few weeks ago. However, I have here a table setting out the dates that shows that the date of deposit was 25 May 2010. The decision was taken on 9 May at ECOFIN, which happened to be 48 hours before the coalition was pushed through. In the case of ECOFIN’s decision on the financial stability mechanism, the table states unequivocally that there was an override of both the European Scrutiny Committee and the Lords. On both counts, the then Government and the current Government breached the scrutiny arrangements. Indeed, it is quite extraordinary that the explanatory memorandum that accompanies the documents in question, and which should have been presented much earlier, was presented on 15 July. I know that the Minister will not dispute that, because it comes from Government documents. There is a serious worry about the manner in which this matter has been manipulated.

Just before the proceedings began, we were presented with another document, which reinforces my concern. If my amendment 3 were accepted, the Bill would read: “In this Act, ‘Irish loan’ means a loan to Ireland by the United Kingdom other than a loan by virtue of any provision by or under the European Communities Act 1972.” I am very familiar with the way in which interweaving goes on, not only as Chairman of the European Scrutiny Committee but because, for the past 26 years, I have watched this process of integration and the manner in which, by extremely clever and adroit manoeuvring, we get further and further integrated into these arrangements. The mechanism is an open-ended invitation until 2013, as I ascertained during an exchange with the Chancellor of the Exchequer. Until 2013, we are stuck with the present arrangements.

I am sometimes a bit of a Cassandra, in that I make prophecies—more like predictions—about certain events, find out that I was right and then find out that nobody took any notice until they had happened. On this occasion, I am going to say that it is extremely likely that, if Portugal gets into really deep trouble—and perhaps Spain, too—that will happen before 2013. If this greater amount is interwoven into the stabilisation mechanism, or even if it is not, the mechanism itself will entrap us in the arrangements which, although not yet permanent, will go on until 2013.

I also think that the Government are struggling a bit in relation to article 122, under which this measure was introduced—unlawfully, in my opinion—because the Commissioner responsible, a Mr Sefcovic, has stated that the Commission is still considering whether to use article 136 or article 122. Against that background, the Van Rompuy Committee is sitting and might already have concluded that it would be appropriate to have a permanent mechanism in place only under article 136, and therefore only by reference to the eurozone. That would be a plus, but it would not alter the fact that, between now and 2013, we are at risk.

I am concerned about the deficient wording in clause 1(2), because not excluding what might be done under the European Union effectively leaves it open to the European Union’s continuing to weave its way into the arrangements, despite the fact that they are described as a bilateral loan. Some people might say, “Ah, but you have to understand that when the explanatory notes talk about a bilateral loan, they mean that.” It does not say that in the Bill, however. Furthermore, we have had some unpleasant experiences with explanatory notes in the European Scrutiny Committee recently, as anyone who wants to read the report that we have just issued will see. The explanatory notes in question were positively misleading, and distorted the legal position. That is a matter that we will be pursuing in Committee, when we ask whether parliamentary sovereignty or judicial supremacy should prevail. I do not need to go into the detail of that now, but the fact that a bilateral loan is mentioned in the explanatory notes has been severely vitiated by our experience of the explanatory notes to the European Union Bill.

Autumn Forecast

John Redwood Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Osborne]

I am not aware that the OBR makes that forecast, but obviously everything we are doing—whether increasing free nursery care provision for some of the poorest two-year-olds or introducing the pupil premium—is designed to encourage social mobility and to give those on lower incomes a chance to increase their incomes over this Parliament.

[Mr John Redwood (Wokingham) (Con)]

I thank the Chancellor for the guarantee of no bail-outs for other European countries. Does he think the European Central Bank will make available all liquidity needed by major banks in euroland, as it should do because it tells us they are all solvent?

[Mr Osborne]

Obviously, the ECB is independent so I will not speak for it. What I have said about the European financial stability mechanism is that we now have a verbal agreement—I will, of course, want to secure it over the coming weeks—that that mechanism will not form a permanent part of the bail-out mechanism that the eurozone wants to put in place from 2013, and we will not be part of that bail-out mechanism. Indeed, if it requires a treaty change, our consent to that change would, of course, be required.

Banking Reform

John Redwood Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

I beg to move,

That this House, concerned that no action has so far been taken which would prevent a recurrence of the financial crash, calls upon the Government to establish a clearing house for approval of all financial derivatives and to set in place alternative mechanisms to remove the implicit taxpayer guarantee, other than to purely deposit-taking banks, in the event of any future banking collapse.

The motion is on the Order Paper through the good offices of the Backbench Business Committee, and I take this opportunity to congratulate the Committee and its Chair on the way in which, in my view, they have already opened up Parliament to valuable new procedures and paved the way for important debates that might otherwise not have happened. I hope and believe that this might be one of them.

I begin with the words of the managing director of the International Monetary Fund, Dominic Strauss-Kahn, who a few weeks ago told Stern magazine that he thinks a second financial crisis is almost inevitable given the paucity of reform and the vulnerability of the financial system, and that next time round it may well be impossible to persuade taxpayers to fund bail-outs. I do not believe that is an exaggeration, and the latest travails of the eurozone serve only to underline those fears.

It is worth noting that we in the UK have more bank lending as a proportion of our gross domestic product than even the Irish—some £7 trillion, which is five times our GDP. If we are to prevent a repetition of the financial crash, it is clear that its causes must be identified and dealt with by appropriate means. I argue that those causes, in the main, include: an over-lax monetary policy that encouraged an excessive leveraging culture; extreme light-touch regulation that left too much to the markets; the development of a vast global market in credit derivatives, which were not well understood, and which Warren Buffet, the world’s second richest man, notably described as

“financial weapons of mass destruction”;

the role of enormous bonuses, which drove recklessness; a banking structure so over-concentrated in the lead banks that when disaster struck, they were judged to be too big to fail, with catastrophic consequences, as all hon. Members well know, for national debt and the budget deficit; and a banking model that linked speculative investment with retail deposit taking, both of which were protected by an implicit taxpayer guarantee. I hope that that description is accepted on both sides of the House.

All those causes need to be dealt with, and yet none has been. Given the limited time, of which I am very conscious, I want to concentrate on the most important. First, financial derivatives are a perennial candidate for causing the next crisis, because they add opacity and leveraging to the financial system. Credit default swaps, a £65 trillion market, and collateralised debt obligations, which are one of the most common derivatives, urgently need regulation.

[Mr John Redwood (Wokingham) (Con)]

rose—

[Mr Meacher]

I will give way to the right hon. Gentleman, but having heard what Mr Speaker said, I am reluctant to take more interventions, precisely because this is a very short debate—only three hours—and many wish to speak. We already have a six-minute limit, and I have too often been at the back of the queue, unsuccessfully waiting to be called at the end.

[Mr Redwood]

I am grateful to the right hon. Gentleman, and I shall refrain from intervening at great length for the very reason he gave. Will he explain to the House why over the past decade the UK banking regulator allowed the huge expansion of balance-sheet risks of all kinds, and why it did not demand more cash and capital?

[Mr Meacher]

I mentioned light-touch regulation in the City of London, which we have had since the Thatcher era and through the Blair era. I believe that that needs to end. We want not excessive but adequate and proper regulation, and for the past three decades, in the so-called neo-liberal era, we have not had it.

Derivatives should be approved by the regulatory authority before they can be issued. At that stage, they can be either prohibited or accepted, perhaps with certain conditions attached. The key point is that transparency is essential. It is worth noting that the recent Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to achieve that by requiring that all derivatives are traded on public exchanges.

Linked to that is the role—or perhaps the scandal—of the credit rating agencies in allocating a spurious status to some highly dubious securities. Light-touch regulation in this country has evaporated into virtual deregulation. Credit rating agencies were paid by the very institutions whose credit worthiness they were supposed to be assessing. By granting the highest rating, as they so often did, they made it easier for the banks that were securitising and further repackaging debt to create the greatest possible number of securities with the lowest possible regulatory cost. That practice should never have happened, and I believe that it should always be prohibited where there is a serious conflict of interest, as there was in that case.

Financial Assistance (Ireland)

John Redwood Excerpts

Monday 22nd November 2010 Commons Chamber

[Mr Osborne]

I very much welcome what the right hon. Gentleman has said, and of course I agree that it is in our national interests, and indeed the interests of other European Union member states, that we bring some stability to Ireland. He is right, as his question implies, to focus on the banking system. The situation in Ireland is different from the situation that Greece found itself in earlier this year, with which he had to deal when he was Chancellor.

On the question of the breakdown between the amount of money going to the banking system and the amount going to fund the sovereign, I am afraid that I cannot give the right hon. Gentleman the exact figures, because they are still being negotiated, but I would say that most of the money will be used to take the sovereign out of the market for a period, and a substantial minority of the amount will be required for a fund to help the Irish banking system.

[Mr John Redwood (Wokingham) (Con)]

Given that the very large loan to Greece on 2 May did not stop the rolling euro crisis despite the promises from many of the participants at the time, will the Chancellor assure the House that Britain does not stand ready to lend more money to other eurozone members in the event that the Irish loan package does not mark the end of the crisis either?

[Mr Osborne]

I was very clear that the bilateral loan was given because of the very specific economic relationship between the UK and Ireland, the interconnectedness of our banking systems, the fact that we share a land border, and the importance of the Irish banks in Northern Ireland. Those specific reasons led me to believe that it was right to provide a bilateral loan in these circumstances.

Finance Ministers’ Meeting (Ireland)

John Redwood Excerpts

Wednesday 17th November 2010 Commons Chamber

[Mr John Redwood (Wokingham) (Con)]

As the Irish Government need a workout and not a bail-out to deal with their risks and credit problems, should not the British Government support them and resist the foolish intervention by Germany, which is trying to use this as part of a power grab for the EU?

[Mr Hoban]

Let me repeat the remarks that my right hon. Friend the Chancellor of the Exchequer made earlier today. To an extent, they reflect the concerns raised by my right hon. Friend. He said:

“Britain stands ready to support Ireland in the steps it needs to take.”

Oral Answers to Questions

John Redwood Excerpts

Tuesday 16th November 2010 Commons Chamber

[Mr Gauke]

The intention is to strengthen HMRC’s capability to collect taxes. If that involves making use of private sector expertise to collect additional debt, which is the intention, that is surely a good thing that should be welcomed by all parties.

[Mr John Redwood (Wokingham) (Con)]

Given that the Irish Government have said that they neither want nor need a bail-out, will the Chancellor support them at ECOFIN and put off those people in the EU who seem to want to make a crisis out of a problem?

[Mr Osborne]

There is an enormous amount of speculation about Ireland at the moment to which I do not propose to add. The Irish Government have said clearly that they have not sought assistance and that they are taking difficult steps to deal with their fiscal situation. They will make further announcements about their Budget situation in the next few weeks. I make the general observation that what is going on at the moment highlights the fact that concerns about sovereign debt issues have not disappeared and we should be grateful that, thanks to the actions of this Government, we have moved Britain out of the financial danger zone.

Equitable Life (Payments) Bill

John Redwood Excerpts

Wednesday 10th November 2010 Commons Chamber

[Mr Hoban]

The hon. Gentleman makes an important point, which gives me the opportunity to clarify the make-up of the £1.5 billion. The figure includes the full cost of the losses to with-profits annuitants—approximately £620 million—which will be made through regular payments. However, taking into account the pressures on the public purse, the Treasury could allocate only £1 billion over the first three years of the spending review. That will cover two things: the first three years of payments to with-profits annuitants, and lump-sum payments to all other policyholders and to the estates of deceased with-profits annuitants.

It is important to start to pay off with-profits annuitants’ losses quickly, alongside the lump-sum payments to other policyholders. About £225 million of the £1 billion is for with-profits annuitants and their estates, leaving approximately £775 million for lump-sum payments to non-with-profits annuitants. The Towers Watson estimate of £620 million for with-profits annuity losses leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards. Those who are quicker at mental arithmetic than me will have worked out that the total comes to about £1.4 billion. The balance is a contingency, because the payments to with-profits annuitants are based on their longevity. We hope that they live long and healthy lives, and that buffer is set aside to cover this need. That is how the maths works out.

[Mr John Redwood (Wokingham) (Con)]

Could my hon. Friend provide further clarification on the tax status of those receiving such payments?

[Mr Hoban]

My right hon. Friend pre-empts a point that I was going to refer to in the clause stand part debate. He gives me an opportunity to say now that the payments will be free of tax.

--- Later in debate ---

[Mr Hoban]

My hon. Friend makes an interesting point. It is difficult to calculate that because, as he will recognise, the tax status of Equitable Life policyholders varies. Some pay no tax, some pay tax at the 20p rate, some pay tax at the 40p rate, and some may even pay tax at the 50p rate. The value will depend on their tax status, and we do not have sufficient access to taxpayers’ records to be able to match Equitable Life policyholders with their tax records, so we cannot calculate the benefit. However, he will appreciate that it could provide a significant benefit to some policyholders, and I hope that they will recognise that when they receive their payments. We have sought to be as generous as possible in the tax and benefits treatment for that purpose.

[Mr Redwood]

I thank the Minister for an important improvement to the scheme, which I am sure is welcomed.

[Mr Hoban]

I thank my right hon. Friend. When designing the scheme, we considered seriously how to ensure that policyholders would benefit as much as possible from the payments. If we had been less generous, we would have been accused of clawing back money through the back door, and that is an impression that we want to dispel.

European Union Economic Governance

John Redwood Excerpts

Wednesday 10th November 2010 Commons Chamber

[Mr Hoban]

I think my hon. Friend is reading an earlier draft of the report, because we amended that language at the latest ECOFIN. I will come to this point in a minute, but we believe that fiscal frameworks should be political agreements and should not be driven by directives or regulations.

[Mr John Redwood (Wokingham) (Con)]

Will the Minister please confirm that the directive on budgetary frameworks for all member states will apply to the United Kingdom, that the second regulation on budgetary surveillance for all member states applies to the United Kingdom, and that the regulation for enforcement for all member states also applies to the United Kingdom? There are twin proposals in each case, some of which apply only to euro members and some of which affect all member states. Surely the Minister must confirm that that is a massive extension of European economic government, and the UK has to comply with a lot of it.

[Mr Hoban]

There is nothing new in the macro-economic surveillance processes outlined in the document and, as I have said, we are exempt from the sanctions regime that the Commission and others have proposed, which applies only to eurozone countries. Let me now make some progress.

We need to recognise that there are lessons to be learned from the economic crisis, but one lesson that stands out that is relevant to the debate this evening and to the documents is that in an open, global economy, no economy exists in isolation. The failures of economic policy in one country can be exported to other nations, and the imbalances in one economy can have an impact on others. Imbalances such as excessive domestic demand and growth can lead to asset bubbles, an over-reliance on exports or divergence in competition across countries. It is in all our interests to improve co-ordination and co-operation in policy making, to tackle those imbalances and increase the resilience and strength of the global economy.

However, in our view, increasing co-ordination and co-operation has to be consistent with national sovereignty and the accountability of Parliament. It is those principles that frame our response to the documents and our response to the global economic crisis. There is an intense global debate about those topics in the G20, the IMF and the OECD, and in Europe. We take part in those debates because, as an open economy, we have a strong interest in economic stability. We are acutely aware that imbalances and problems in one economy can have a spill-over effect in another.

--- Later in debate ---

[Mark Hendrick (Preston) (Lab/Co-op)]

rose—

[Mr Redwood]

rose—

[Mr Hoban]

I should like to make a bit more progress on this point.

It is right that we should co-operate with this process, but our co-operation should be consistent with the fiscal sovereignty of the UK. The information that we provide to assist with the surveillance will always be information that has been made available to this House before it is passed to the Commission. Everything that the Commission gets will have been in the public domain, to the extent that a member of the public will have been able to unearth the same data using Google, albeit with less efficiency.

--- Later in debate ---

[Mr Cash]

rose—

[Mr Redwood]

rose—

[Mr Hoban]

I am being bombarded by requests to give way. I shall give way first to my hon. Friend the Member for Stone (Mr Cash).

--- Later in debate ---

[Mr Hoban]

Hon. Members should think about this carefully. All that we are doing is providing more information to the Commission, and it is information that is already in the public domain and that has already been presented to Parliament.

[Mr Redwood]

Will the Minister confirm that there are two big new regulations that relate directly to the United Kingdom? One relates to budgetary surveillance on all member states, and the other relates to enforcement against “macro-economic imbalances”, as the Commission so elegantly describes them. These are new powers in new regulations. Why are the Government consenting to them?

[Mr Hoban]

The enforcement point does not apply to the United Kingdom as a consequence of protocol 15 of the existing treaty framework, because we have opted out of that part. My right hon. Friend is knowledgeable about these things, and he will recognise that the Commission makes proposals, and that ECOFIN and the European Council have set out a clear policy framework on this, as reflected in the conclusions of the Van Rompuy taskforce, which make it very clear that sanctions do not apply in the UK.

--- Later in debate ---

[Chris Leslie]

I wish I could be firmer and clearer, but we are dealing with a malleable set of proposals. The bundle of directives keeps changing, moving and morphing from phase to phase, and the directives will clearly go into a different phase when the European Council meets in December, but we can discern the rough direction of travel, and many Members will take a firm view on that.

The Minister talked about the sanctions. Yes, it is the case that they may not apply to the UK because of our opt-out from the euro, but the range of non-binding standards and early warning requirements in the event of significant deviation from the adjustment path apparently would apply to the UK; I should be grateful if the Minister would confirm that that is the case. Even if the UK is to be subject only to such commentaries, public observations or other non-binding standards, the Minister should tell the House how they would work and what the implications for us would be. Clearly, what the taskforce report calls the new reputational and political measures will be phased in progressively, but is it correct to read the proposals as also applying to the UK? In other words, is it not true that we will be subject to reporting requirements, potential formal reporting to the European Council in certain circumstances and enhanced surveillance—whatever “enhanced” may mean—if the situation dictates? Is it not also true that we will be subject to onsite monitoring from a mission of the EC—which I thought was curious, and which certainly might be of interest to some Conservative Members—and possible publication in the public domain of these reports and surveillance? Will the proposed regulations to strengthen the audit powers of Eurostat also apply to the UK, and what are the anticipated compliance costs of those changes for the UK and the Treasury? If we fail to comply with the proposed requirements, is it not the case that sanctions could be applied to the UK?

[Mr Redwood]

If this House and a properly elected British Government have chosen a certain course of action on the deficit or the balance of payments—or on whatever—how does it help to have the EU marking the homework, condemning it and using moral suasion to say that this House is wrong?

[Chris Leslie]

Well, my point is that it may or may not be a sensible move—as a pro-European I think benefit could come from it—but what is important is that we get clarity from the Government about what exactly is on the table. If there are to be treaty changes and other new regulations, the Minister has to be straight about that with the country and the House. The latest sanctions in the framework—in terms of interest bearing deposits, non-interest bearing deposits and eventual fines—may not apply to the UK, but there is a first phase to that process which is the application of standards and assessments of our economic and fiscal position, and that will apply to the UK. The motion seeks approval for the Government’s position that any sanctions should not apply to the UK because of our euro opt-out, but there are developments here that strengthen the role of the EU in respect of our economic policy, and while that may be a good thing, some Members of this House would be wary of it.

There are also wider implications for our economy and our growth trajectory. For example, I am particularly intrigued by the German argument that bondholders should have greater liability—such as in the form of interest payment holidays, or bond value haircuts, as they are known—for potential future eurozone bail-outs. The implications for UK banks and bondholders could be significant if they are embroiled to a larger extent in the crisis management mechanism. UK banks hold particularly high proportions of Irish and Spanish liabilities. A recent Bank for International Settlements report found that 22% of Irish bonds and 11% of Spanish bonds are in UK hands. There has been much discussion of whether City investors are therefore subject to higher risk, or whether the markets have already priced that in. Either way, there are indirect implications for British investors. Moreover, the new suite of policy changes affecting eurozone economic governance will not just be on paper; the changes will bite in the real economies in each of the eurozone countries and could have a bearing on their own internal growth and investment plans.

Finance (No.2) Bill

John Redwood Excerpts

Monday 8th November 2010 Commons Chamber

[Mr Hanson]

As the House will be aware, my hon. Friend the Member for Wallasey (Ms Eagle) referred on Second Reading to the fact that we want to bring forward a provision on tax relief in order to help to support the video games industry. Although, undoubtedly, new clause 1 would not do that in every respect, I want to put it before the House, so that we can have an in-principle debate about video game industry tax relief. The new clause provides an opportunity for the House to consider enhanced relief based on UK expenditure on video game production.

The new clause suggests that we might consider qualified tax relief for the video game industry, and that it should be based on strict criteria: the video game must be for commercial release; it must be a British video game, assessed on the basis of a points system; and it must meet a 25% UK expenditure threshold, whereby 25% of the total expenditure on the production and development of the video game is UK expenditure on goods or services. We intended to look at that issue, and I would have tabled a much more detailed new clause, but the advice was that we could not. I hope that I have, however, tabled sufficient proposed changes for the Government to consider bringing back at a future date, or supporting the principle of, tax relief for this vital sector in the United Kingdom.

The video games industry is a real success story for British industry, and we look to support it in detail. As I am sure that the Minister is aware, research from TIGA, which represents the gaming industry, shows that over a five-year period games tax relief could create or save about 3,500 graduate-level jobs, secure £450 million-plus in new and saved development expenditure, and generate about £415 million in new and saved tax relief. I hope that it would do so in a way that ensures that the cost to the Treasury amounts to about £192 million over five years, which would be more than paid for by the jobs and investment, and encouragement to the industry, that that would develop in due course.

My hon. Friends the Members for Dundee West (Jim McGovern), for Liverpool, Wavertree (Luciana Berger) and for West Bromwich East (Mr Watson) have been very vocal in supporting such a tax relief. I hope that the Minister will consider it in principle, so that we can begin to develop a cross-party consensus in due course.

[Mr John Redwood (Wokingham) (Con)]

If it works for this industry, why does it not work for others? Why is the right hon. Gentleman limiting it to this one industry?

[Mr Hanson]

Our proposal is based on an existing tax relief for the film industry, which has been very successful in helping to generate extra revenue for that industry and keeping production in the United Kingdom. I am sure that the right hon. Gentleman will be interested to know that the Under-Secretary of State for Culture, Olympics, Media and Sport, the hon. Member for Wantage (Mr Vaizey) said this on 13 April—I accept that that was in the middle of an election campaign, so we will take these words as being from that particular time:

“We are committed to a tax break along the lines of the video games tax credit. We have been calling for tax breaks for the video game industry for the last three years.”

In the spirit of cross-party co-operation, the hon. Member for Bath (Mr Foster), who then held the esteemed position of Liberal Democrat shadow spokesman for Culture, Media and Sport—the Lib Dem spokesmen are now all subsumed into one entity—said:

“Liberal Democrats support the introduction of a Games Tax Relief. Following consultation on the details, we would implement the Relief as soon as possible.”

At that time, my hon. Friend the Member for Wallasey, who is shadow Chief Secretary, the then shadow Culture Minister, who is now a Minister, and the then Liberal Democrat spokesperson supported this proposal, as did I. Since then, however, it has vanished without trace—until today’s debate.

The right hon. Member for Wokingham (Mr Redwood) may oppose tax reliefs generally. However, such a relief has been proved to work in the film industry to date. Unfortunately, the Chancellor of the Exchequer said in his Budget:

“we will not go ahead with the poorly targeted tax relief for the video games industry.”—[Official Report, 22 June 2010; Vol. 175, c. 512.]

I want to test with the Minister whether that is an in-principle opposition to tax relief for the video games industry. If not, is his opposition based on a poorly designed scheme by the previous Labour Government or on poorly targeted suggestions in today’s proposals? Is there, in principle, room for discussion, so that it would be possible for him to bring back, at some point, a tax relief that meets the objectives of the hon. Member for Bath, the Under-Secretary and ourselves, and that would, I hope, help to support the video games industry?

[Mr Redwood]

Just to clarify the point, the right hon. Gentleman should know that I believe that lower tax rates result in more revenue. I am delighted to see that he is now a recruit to that cause, but I suggest that he should not limit it to one industry.

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[Sheila Gilmore (Edinburgh East) (Lab)]

One thing that I have not understood—I have not understood it from either the debates that we had in the Public Bill Committee, on which I served, or the responses to the various parliamentary questions that have been asked about the video games industry and tax relief—is whether the objection is to the detail of previous proposals or this proposal, or whether there is a more fundamental objection about giving such a relief at all. At times, it seems to be suggested that it is not appropriate to give such a relief, but it would be extremely helpful to know which it was.

If the issue is the detail or exactly how the proposal is to be implemented, that could be discussed further. However, targeting such an industry—or indeed any industries—might be felt to be inappropriate. In one answer given in the Chamber last week, the suggestion seemed to be that a lower rate of corporation tax generally would be sufficient, without targeting specific emerging industries. However, a tax relief is important to a growing industry in that it allows it to get off the ground and develop in the way that it needs to. People have already spoken about the cash-flow difficulties for sectors such as the video games industry, so it would be helpful if the Minister could clarify where the Government are on this issue and what their future plans might be.

[Mr Redwood]

I am delighted that the Opposition have highlighted the example of the video games industry. However, I fear that it is only one example among many of how we are at risk of losing talent, enterprise, jobs and business development in a number of areas because our rates of taxation are now not internationally competitive. It is interesting that the Opposition, who do not normally favour lower rates, have identified lower rates—or a lower tax imposition—as the answer in this case. I hope that they will think on these things more widely, because the combination of a high marginal rate of income tax and what is now quite a high rate of corporation tax by international standards is not a good combination in an intensely competitive world, where there has been a shock to overall demand and where we are having to fight for our commercial lives in world markets.

From my point of view, there are a couple of problems with the proposals before us. The first is that going for 25% British content is a low ambition. I would have thought that one would want a rather higher rate of British content if we were formulating some special treatment for the industry. There is also a problem with concentrating on the profits that a company generates, because some companies will be small businesses with talented entrepreneurs. They might have just one good game in them that earns them an awful lot of money in a short space of time. That is when high marginal rates on apparently high earnings—they become genuinely high earnings where it is possible to sustain them—could become quite an imposition, because those entrepreneurs might get caught in the year or two of their success, but find afterwards that they are no longer able to achieve that.

The issue is therefore not just about corporation tax or profits tax; it can also be about income tax. I hope that the Minister will reassure us by saying something about how he sees our overall tax regime developing, in both corporation tax and income tax, because we have a general problem and we need to show the way to lower rates as quickly as possible in this very competitive world. I would also repeat to my hon. Friend the simple point that the evidence from the American and the British experiences is that when countries have been bold enough to cut rates on enterprise, income and profits, they have usually found their revenues increasing. It is quite obvious that the Government need a lot of extra revenue, so I would recommend that proposal to him.

Comprehensive Spending Review

John Redwood Excerpts

Thursday 28th October 2010 Commons Chamber

[Danny Alexander]

No alternatives have been put forward by the hon. Gentleman’s Front Benchers; perhaps he wants to talk to them about that.

[Mr John Redwood (Wokingham) (Con)]

The figures assume 8% inflation over the period, but if, in the first couple of years, we have a complete pay freeze in the public sector and we buy things more cheaply, as is the plan, does not that mean that cash rises can translate into real rises in the programmes that are going up in cash terms?

[Danny Alexander]

The right hon. Gentleman is certainly right to say that at the end of the spending review public spending will be higher in cash terms than it is at the moment. In real terms, it will go back to the level of about 2008-09, and in terms of a share of gross domestic product to about the level of 2006-07. People need to be realistic about the scale of what is being proposed. The big gainer from the huge deficit that Labour left us with was the department of debt interest, and unfortunately it is the cost of debt interest that we have to meet.

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[Ms Angela Eagle (Wallasey) (Lab)]

Last week’s comprehensive spending review statement has taken a huge and risky gamble with the jobs and future prosperity of millions of people in this country. This wholly unnecessary risk has been taken because this Conservative-led Government is in ideological thrall to the discredited economic mantra that shrinking the state is always the right answer. They do not state it as provocatively as Mrs Thatcher once did in the 1980s, but they believe it just as firmly. The Orange Book Liberal Democrats, led by the Deputy Prime Minister with the Chief Secretary in tow, believe it too.

Of course, the deficit has to be brought down—[Hon. Members: “Ah!”] We said that before the election and we set out a plan to do so. We also said it at the election and we have said it since. The difference between us is how the deficit is brought down. My right hon. Friend the shadow Chancellor has made it clear that we favour a different balance between spending cuts and tax rises that brings the deficit down but also protects the recovery and boosts growth. None of us should forget the backdrop to this spending review, which is families up and down the country worried about their jobs and homes. That is why the cheers and mass waving of Order Papers on the Government Benches as the Chancellor announced the largest job cuts for generations demonstrate just how out of touch they are. At that very moment at the end of his speech, the masks slipped and we saw what really motivates them. As these cuts begin to bite, the British public will not forget.

[Mr Redwood]

Given that between 250,000 and 500,000 people leave the public service every year voluntarily, for retirement or other reasons, will the hon. Lady now withdraw her statement that half a million people will lose their jobs under this Government? It can be done by natural wastage.

[Ms Eagle]

That is not my statement: it is a statement by the Office for Budget Responsibility. It is also the figure that was revealed accidentally the day before the Chancellor’s statement by the Chief Secretary when he was filmed in the back of his car with open documents. It is not my figure. The right hon. Member for Wokingham (Mr Redwood) should remember that the Ministry of Justice is already planning 14,000 redundancies, as we know from a leak, and has set aside—

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

At the end of the period, in 2014-15, the Government plan to spend £92 billion a year more, on current spending, on services than Labour did in its last year—that is a large 15% increase in the amount of cash. We need to ask ourselves why it is that every year public spending increases, yet the Government are proposing some extremely difficult or, in some cases, undesirable choices to be made in subsequent years to try to live within that rather big figure. I suggest to the Government that there are three areas that they could work on, and that their doing so would be in all our interests in this House, because if they could manage them better, they might not need to make so many of those difficult choices in the later years and would still be able to live within their totals and get the deficit down.

The first reason why there is a squeeze on some programmes that many Members do not want to see squeezed is the big rise in money allocated to pay for inflation; the plans assume quite a lot of public sector inflation over the five years. If the Government can do better at buying in goods and services—they are a very big purchaser and they say they are going to do so—they might reduce the average price of bought-in things. Instead of having positive inflation, they would have negative inflation on that part of the programme. If they can do a good deal with their employees, reassure them and get them to accept the kind of measures on pay that are being suggested—I believe that they are talking about a two-year pay freeze, for example—that will take a lot of extra inflation out of the system, because the biggest single item in these budgets is of course pay. Again, the more that we in the public sector can share the pain by moderate means, such as accepting pay restraint, the less we will have to take the difficult choices in later years that are built into the programme.

The next thing is staff numbers. A lot has been made so far in what passes for a debate in this House about having 490,000 fewer jobs in the public sector by the end of the period. These are not 490,000 redundancies. Given the large rate of resignations and retirements in the public sector to which the Chancellor has referred, I hope that most can be taken care of by eliminating posts after people have resigned or left.

[Helen Goodman]

I am most grateful to the right hon. Gentleman for giving way. Of course, in a very small-minded way, what he says is right. If those jobs are cut, where does he think that young people will get the new jobs that they need?

[Mr Redwood]

In the private sector, which is already generating tens of thousands of jobs every month. That is what we need to do. I am not saying that there should be a complete staff freeze. For example, if 480,000 a year are leaving, which was the Chancellor’s figure in the Budget, 250,000 people could be hired while still achieving half the reduction in the first year. I think that the Chancellor might have been a bit optimistic, but he referred to an 8% rate. If the percentage was half as great, the reduction could still be made in the first two years. There could be reductions of 250,000 without a single redundancy.

I urge my right hon. and hon. Friends not to pursue the redundancy route wherever possible. It is expensive, unpleasant and disruptive. I do not want to see lots of people retiring early from the administrative services on big pensions, and I do not want to see redundancy payments made with people coming back into the public sector at a later date, leaving us to wonder why all the cost and disruption has been incurred.

The next big area that puts pressure on the increased money is debt interest. I entirely agree with the Government, and with Opposition Members who knew this when they were in government, that we have to bring the deficit down before it kills the whole budget. If we allow the deficit to keep on rising, as the Opposition originally proposed, debt interest will take more and more of the increased spending and we will have to make unpleasant cuts to the things that matter. How can we reduce that debt interest burden more quickly? If we can get more cash into the public sector, starting today—we do not need to wait to start the programme next year, as is implied in the figures—we will reduce the increase in the debt day by day. If we sell more assets, we will not have to raise so much money in the debt markets, which will keep the debt down.

It is very good news that the Government’s programme has restored a lot of confidence in the markets, so that the rate at which they now have to borrow is now lower. That will obviously make a contribution to getting the debt interest rate programme down.

I have to say to the Government that I do not think that we can afford to give £80 billion to foreign countries over the CSR period. If we add the overseas aid programme to the European Union programme, the total is £80 billion over the period. I do not want to take any money away from the poorest countries or from humanitarian aid. Those are good things and I fully support the Government’s intention to carry on with them, but I do not think that there is any need to subsidise China, India or Russia—nuclear weapons powers with, in the case of China, $2.5 trillion in the bank. It is a bit odd to give China a grant when we then have to borrow the money from China to pay the grant to China. That cannot make any sense.

I believe that the Government are now going to remove the aid to the richer and more successful countries. Cannot we pocket that for a couple of years and then become more generous when we have the deficit under control? May we please get the European amounts down? They are the most unforgivable ones; poor people in Britain are paying tax to offer grants to rich countries in Europe, and that is not acceptable in the current conditions.

The more that these pressures—the grants abroad, debt interest, costs, inflation and staff numbers—can be abated, the more we will have money available to do better things with the growing programmes. It is good news that nine of the Departments have level or rising cash throughout the period, but it is bad news that one or two other Departments will find that the shoe pinches a lot. That is why I think that we need to make more rapid progress in controlling costs and staff numbers, particularly in administration, and in dealing with the debt interest programmes, so that we have a bit more free to ease those areas that will be very tight in future years.

I do not for one moment believe the figures from 2013 to 2015 anyway, because I think that they will be subject to subsequent revision because of the pressure of events. As inflation changes, we will need to revise them. As the state of the economy changes, we will need to revise them one way or the other. Let us hope it will outperform and we will have a bit more scope.

As an election draws near, politicians tend to want to spend more, so we should discount the 2013-15 figures and concentrate on what is happening now. Will the Government please bring forward as many of the reductions as possible to this year, and not wait until next year? The more we save now, the less we borrow and the more the pressure is reduced on subsequent years’ programmes.