Budget Leak Inquiry
Matt Hancock Excerpts(12 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Matthew Hancock (West Suffolk) (Con)
The hon. Member for Nottingham East (Chris Leslie) based his case on different speculation in the newspapers about the future of the 50p rate. Does the Minister not recall that when the 50p rate was introduced by the previous Government, the first news of it came from a newspaper, not the Dispatch Box?
Oral Answers to Questions
Matt Hancock Excerpts(12 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Matthew Hancock (West Suffolk) (Con)
Thank you, Mr Speaker.
Does my right hon. Friend agree with the statement made this morning:
“The last Labour government didn’t regulate the banks properly. That’s what caused the financial crisis”—
not my words but those of the right hon. Member for Doncaster North (Edward Miliband)—or does he, like me, think that it was caused not just by a failure to regulate the banks but by the Labour Government spending more money than they had?
Mr George Osborne
Of course, it was a double failure: the catastrophic failure of Labour Ministers, including the then City Minister, the right hon. Member for Morley and Outwood (Ed Balls); and the failure to get a grip on public spending. We are having to clean up both messes at the moment.
Bill Presented
Planning Applications (Appeals by Town and Parish Councils)
Presentation and First Reading (Standing Order No. 57)
Martin Caton, supported by Philip Davies, Mr Elfyn Llwyd, Andrew George, Caroline Lucas, Bob Blackman, Paul Flynn, Kate Hoey, Robert Halfon, Steve McCabe, Kelvin Hopkins and Sir Bob Russell, presented a Bill to allow town and parish councils to appeal against the granting of planning permission in their area in certain circumstances; to make provisions for Wales; and for connected purposes.
Bill read the first time; to be read a Second time on Friday 27 April, and to be printed (Bill 314).
Financial Services Bill
Matt Hancock Excerpts(12 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
I give way to my hon. Friend the Member for West Suffolk (Matthew Hancock), who has worked in the Bank of England.
Matthew Hancock (West Suffolk) (Con)
Does the Opposition’s proposal not seem to be an attempt to re-create a tripartite structure in which there is more than a relationship between one and one other? We have problems with the concept of “too big to fail”, and the example of Barings has been cited. That bank did not bring the rest of the system down: the directors ended up losing their jobs and the person responsible went to prison. Will the Chancellor consider the scale of that failure, compared with what happened in 2008 when the whole system collapsed?
Mr Osborne
My hon. Friend is absolutely right. There was a failure of regulation with Barings, but the collapse of Barings did not bring down the financial system, either in the City of London or more broadly.
Ed Balls
Yes.
I will set out what needs to be done to turn this bad Bill into a good Bill and to put the public interest, not party politics, in the driving seat in financial regulation. I will set out four objectives that should guide this legislation. The first is stability. We must ensure that we have a system of financial regulation that is robust in good times and in bad times. The second is to protect the taxpayer. We must guarantee that the public purse is protected from irresponsible decision making and wider systemic failures. The third is to be on the side of the consumer. There must be effective regulation, more competition and action on financial education and exclusion. The fourth is to support growth and employment. Let me take each objective in turn.
On stability, provisions to improve the structures for financial regulation and financial stability are at the heart of the Bill. As I have said, we support the FPC and we look forward to debating its powers. We are pleased that the Chancellor has today done a U-turn and decided that the Government will take up the recommendation of the Joint Committee that the macro-prudential tools to be used by the FPC should be properly scrutinised by Parliament. I hope that he will ensure that that happens not just when they are introduced, but when they are subsequently changed and updated. We believe that a new scrutiny committee should be established in this House to play that role. We will propose such an amendment.
On the splitting of the PRA and the FCA from the FSA—I know that these acronyms are hard to keep up with, but this is quite a complex system—it is fair to say that there are advantages and disadvantages. The jury is out. The Chancellor’s decision to put all this new and more complex architecture under the umbrella of the Bank of England, and arguably under the personal direction of its Governor, raises serious questions of accountability and clarity in decision making, as has been highlighted by the Treasury Committee and the Joint Committee.
We share the Treasury Committee’s concerns about accountability within the Bank and accountability to Parliament. As the Committee stated,
“the governance of the Bank needs strengthening and…it needs to be more open about its work. The Bank must be held more clearly to account”.
The Committee has proposed that
“the role of the Court of the Bank of England should be substantially enhanced. It should be transformed into a leaner and more expert Supervisory Board, with the power to conduct retrospective reviews of Bank policies and conduct.”
The Chancellor has said that he does not want to go down that road. He has made some moves, but we think that there is further to go to ensure that there is proper accountability. Again, we will propose reforms in Committee.
It is on the issue of crisis management and the processes for deliberation and decision making within the new, more complex structure, that we have misgivings. The Joint Committee was right to state:
“The powers and responsibilities of the Bank of England and the Treasury during a crisis are key.”
However, the Bill and the memorandum of understanding are deeply confused and opaque, as we have just heard from the Chancellor. We welcome the fact that the Chancellor has accepted the Treasury Committee’s recommendation that the Chancellor should be provided with a discretionary power to direct the Bank when there is a material risk to public funds. The British Bankers Association also welcomed that in its submission, but stated that it was
“unclear that the assignment of powers now proposed is consistent with the strategic division of responsibilities envisaged by the Government, including the proposed power of direction over the Bank.”
Article 20 of the memorandum of understanding exposes the hole. I will quote it in full:
“During a potentially fast-moving crisis, it will become especially important to ensure close and effective coordination so as to maintain coherence in the overall crisis management process. At the heart of institutional coordination during a live crisis will be frequent contact between the Chancellor and the Governor. However, the Chancellor and the Governor may agree to establish ad hoc or standing committees at other levels to support this process.”
Under the Bill, there will be three deputy governors at the Bank, a new Financial Policy Committee, two new sub-agencies at the Bank—the PRA and the FCA—and a new quartet of relationships, in which there are separate statutory responsibilities for the Treasury, the FPC, the PRA and the FCA, as well as for the MPC. Will the Chancellor hear any of the views in a crisis, or pre-crisis, from the statutory office holders? Only, according to the MOU, if the Chancellor and the Governor decide that he should. It states that there will be frequent contact just between the Chancellor and the Governor. It is inevitable that there will be a variety of views and dissenting voices, not only at senior levels within the Bank, but between the different statutory agencies, because those agencies have overlapping and, in certain types of crisis, contradictory objectives. Those different statutory responsibilities are being put under one umbrella organisation—the Bank of England.
Ed Balls
In a second. I will make the argument and the hon. Gentleman can then ask a question.
Senior and responsible figures who hold statutory offices will get to put their views to the Chancellor only if they are on one of the ad hoc or standing committees, which do not yet exist. It seems as though the Governor will decide whether they should exist at all and who should attend them. My advice to the Chancellor is that one cannot just rely on Treasury officials or gossip by the water pump. Unlike many of the Back Benchers who have intervened, I am not seeking to play a party political game; I want him to change the Bill. [Laughter.] Honestly. This is a deeply confused and highly dangerous ambiguity.
Ed Balls
I will give way in a minute. Let me just make the argument, and then the hon. Gentleman, with all his experience of crisis resolution meetings at the Bank, can share his intervention with us.
In the run-up to a crisis or during a crisis itself, having such a high degree of ambiguity in the structure and placing such a concentration of power and access to the Chancellor in the person of the Governor would be highly unstable. If the deputy governor and head of the PRA—a statutory individual, but not the Governor—the head of the FCA or the majority on the FPC believed that there would be a systemic risk from one troubled company without support from public money, the Chancellor must know about it, and in time so must Parliament. They must know about it whether or not the Governor agreed. Whether or not the Governor believed that there was or might be a risk, and whether or not he believed that the moral hazard outweighed the risk, the Chancellor must know about it.
If the Chancellor wants a personalised, twin-peak system with all the responsibilities and accountabilities of the Bank of England located in just one person, the Governor, as is set out in the memorandum of understanding that he has negotiated with the Bank and as it seemed he did at times during his speech, the Bill is flawed. The new system will be unstable and the taxpayer will potentially be more exposed. All the statutory architecture of the FPC, the PRA and the FCA will be for the birds.
If, instead, the new committees and agencies are to have a separate statutory identity with clear and separate purposes that may sometimes conflict, and with leaders who must be properly heard, that must be clarified in the Bill. That was what the Chancellor seemed to suggest at other times in his speech, and the Bill seems to suggest it in places. It must be clarified not just in the memorandum of understanding but in statute.
The Bill sets out clearly the statutory identities of the FCA, the PRA and the FPC, which seems to suggest that the Chancellor intends to move from the tripartite system to a quartet system under the umbrella of the Bank of England—the Treasury, the FPC, the PRA and the FCA. If so, he should say so clearly in the memorandum of understanding and in legislation, for reasons of accountability, financial stability and effective decision making in a crisis. We will table amendments to that effect in Committee.
Matthew Hancock
I know that the right hon. Gentleman is desperate to defend the tripartite structure that he designed—
Matthew Hancock
It is not, by far.
The accusation that the right hon. Gentleman makes undermines his point that the Bill sets out a quadripartite system. It sets out a bipartite system, involving the Governor of the Bank of England and the Chancellor. The fact that it will be delivered through the person of the Governor, who has to manage his own institution with appropriate accountability to court, means that it is a binary system rather than a tripartite one. It will therefore be better at resolving crises at the rushed times when they occur.
Ed Balls
I made it very clear that I was not defending any particular regulatory structure. I do not think the crisis was caused by institutional structures in particular, because other countries with different structures had a crisis as well. We will seek to support the Government in reforming and strengthening the system of financial regulation, including through the addition of the FPC and the new powers of the PRA and FCA. However, all those individual agencies are being given statutory authority in the Bill.
The Bill cannot be setting out a binary or twin-peak system, because there will be the Treasury and the Governor of the Bank of England, then underneath him there will be a deputy governor who is also the head of the PRA, another who is also on the Financial Stability Committee, the head of the FSA—also a statutory office holder—and another deputy governor on the Monetary Policy Committee. The Bill is designed to bring in not a twin-peak system but a quartet system, which will be more complex than a tripartite one.
There may be very good arguments for having a quartet system and for splitting the FSA into the PRA and the FCA, and I support the FPC, but the system will be more complex, not simpler. The Chancellor is trying to fudge the matter by giving the impression in the memorandum of understanding that it will be not a quartet system but a twin-peak system, because things will be sorted out between him and the Governor.
That is not an ad hominem point. Other Chancellors and Ministers from Governments through the ages have known very well that there is an inevitable conflict in financial regulation between the regulator, examining systemic risks from individual firms, and the guardians of the system, who worry about potential systemic risks on the one hand and moral hazard on the other. The Chancellor’s role is as the guardian of the public purse and wider financial stability, so there are different points of view.
My advice to the Chancellor is that to try to subsume all those points of view into a separate institution away from him, without transparency and with multiple and overlapping roles for different statutory office holders, but then say, “I’m only going to deal with the Governor,” is ahistorical, deeply foolish and flawed. If the Chancellor changes and clarifies the Bill, we will be pleased, but at the moment it is a terrible fudge.
Matthew Hancock
I am very grateful to the right hon. Gentleman for giving way again. Does not his argument—that we cannot have an umbrella regulator under which inevitable tensions are resolved, and that we must instead have separate organisations—show exactly the thinking that led to the problems in the tripartite system, under which responsibilities were segregated and separated and problems fell between stools? The FSA and the Bank were told that one was to look at the regulation of individual banks and the other at the macro-economy, and never the twain shall meet. That is precisely the problem that needs to be addressed.
Ed Balls
The Chancellor referred to his years of thinking about this legislation. I am afraid that his former adviser demonstrates the kind of muddled thinking that has got the Chancellor into this difficulty.
I am not saying that the tripartite system is the best one. I am quite happy to go along with the shift to the quartet system—I can see the advantages of the FPC and the split of the FCA and the PRA. I am not worried because individual statutory agencies will be under the umbrella of the Bank of England; I am worried because the deputy governor and head of the PRA, who has a clear responsibility, is not part of the decision-making process. That is what I am worried about. I want the MOU to say that at the heart of the system—in pre-crisis and crisis—there will be a “clear view” group, in which the Governor and his key deputies, who will have separate and sometimes contradictory statutory responsibilities, come together with the Chancellor to make the decision.
Even if the Chancellor—this is not an ad hominem point—has the umbrella of the Bank of England and the quartet system, he should want to hear from the person whom he appoints on a very large salary and in law to be the head of the PRA. What I do not understand is why that would not be written into the MOU. Actually, I sort of do understand. There is a history in the Bank of England of the Bank equalling the Governor of the Bank—of wanting to personalise the appointment—as the Chancellor has described. However, we cannot personalise something as complex as the proposed system. It is not just that the system is complicated; there are also tensions and differences of view.
My right hon. Friend the Member for Edinburgh South West (Mr Darling) is quite right that it is hard to operate a tripartite system in which there are different views, but those differences will not be avoided by burying them under the table and pretending they do not exist. Had that happened at key moments in the previous crisis, the wrong decisions would have been taken.
Matthew Hancock (West Suffolk) (Con)
It is a pleasure to follow the hon. Member for Walthamstow (Stella Creasy). She speaks with passion and determination about consumer credit issues.
We have heard much about consumer credit and accountability, and, indeed, about culpability for what went wrong. Those are important questions, but I want to concentrate on the substance of the Bill and its impact on financial and economic stability. We did not hear much from the Opposition Front-Bench spokesperson about the question of substance, but I think this Bill is one of the Government’s most important pieces of legislation so far. It is an attempt to draw the right lessons from the economic crisis, and to set out a regulatory structure that will last for years to come. I am therefore very pleased that the debate has taken place almost entirely—almost, I repeat—in a spirit of constructive criticism.
It is said that the next financial crisis occurs when the last person to witness the previous crash retires. I hope that that will be a long time from now—and I also hope that that last person may be sitting here in the Chamber today. It is important that there is a long time frame, because the Bill must be right not only when memory of the recent crash is vivid, but when the boom is booming again and once more people are saying, “This time it’s different.” Our aim must be to embed a culture of responsibility into the big balance-sheet banks, while also encouraging and supporting the broad multitude of smaller, energetic, innovating, enterprising, exporting, wealth-producing, vitality-bringing, tax-paying City firms and companies that are not underwritten by the taxpayer and that make up the vast majority of firms in the City—and that ensure that our financial services industry leads the world.
Before turning to the substance of the Bill, however, I want to deal with the two questions that have dominated the media debate: accountability and culpability. To those concerned about accountability, I add only the following few comments to the long exchanges that have already taken place. The Bill represents an important step forward. At present, the Governor of the Bank of England reigns imperial on questions of financial stability. Executive action is vested in him and him alone. By creating the Financial Policy Committee, the Bill ensures that the Governor will be the chairman of a powerful committee, but instead of his being imperial, a committee decision will carry the day.
On the question of culpability, I do not know whether the Opposition admitted that they got things wrong, but it falls to us to learn the lessons from the failures, as well as the successes, of the past. My central argument on this question is as follows. Our financial system is complex, ever-changing and interconnected. We must therefore treat it as a system and understand the human behaviour of the people in it, rather than treat it like a textbook.
First, instead of segregating the regulation of the banks from the management of the economy as a whole, as the tripartite system tried to do, we must treat them as one part of the whole system. The attempt to turn the Bank of England into a monetary authority and to leave the FSA as a micro-regulator was bound to fail because no one was in charge of the size of bank balance sheets not only in the bust—as we well know—but in the boom, too. Monetary policy works through the banking system. Banks create money and transmit interest rates to the wider economy. As finance and money are deeply intertwined, their regulation must also be intertwined. That is the first lesson to be learned from the crisis, and this Bill addresses that point.
The second lesson is not about who regulates; it is about how they regulate. The debate about whether there was too much or too little regulation is sterile and defies the facts. Instead, we should be seeking the right regulation. Between 2001 and 2008 the number of pages in the Financial Services Authority rulebook increased from 2,700 to 9,300, yet, as we know from the report into the failure of RBS, not a single FSA rule was broken at RBS. There are some vivid examples of the FSA’s box-ticking mentality. In 2006 the FSA noticed that certain financial institutions were conducting biased stress tests on their balance sheet strength. In 2004 the FSA identified Fred Goodwin’s management style as a risk for RBS, yet nothing was done. No one was held to account. The FSA also failed to regulate balance sheets or check that business models were sustainable. There were 9,000 pages of rules, therefore, but there was no view on the sustainability of the business models of banks. In fact, FSA chiefs hardly ever met senior management. The FSA had meetings with Northern Rock’s senior management eight times in the two years before the crash. Two of those interviews were conducted by phone, while five of them took place on the same day. In 2007 when Northern Rock went bust, it was on the at-risk register but the next set of meetings between its senior management and the FSA was scheduled for two years later, in 2009. The pendulum between sticking to the rulebook and allowing the authorities to exercise discretion had swung to the extreme end of using the rulebook and leaving no room for judgment.
Stephen Phillips (Sleaford and North Hykeham) (Con)
My hon. Friend is making a powerful case. Does he agree that a key point is that flexibility is required for effective regulation of the financial services sector, and that one of the problems with the previous regulatory system was that the monolith that was the FSA simply imposed more and more rules without there being the flexibility to be able to tailor the rules to the circumstances?
Matthew Hancock
That is absolutely right, and I should also pay tribute to my hon. and learned Friend’s profession outside this House, because, as in the common law, every successful system of oversight that has stood the test of time allows room for both rules and judgment. The common law is an example of a system that has built up over time and that understands the complexities of human behaviour. It has strict rules in some regards, but it also allows the exercise of judgment in order to be able to adapt to modernity and circumstances. If we move entirely towards rules and away from the exercise of any judgment, we take away that ability to adapt.
Steve Baker
My hon. Friend makes an interesting point in comparing the approach under discussion to the common law. Does he agree that a key difference is that whereas in the common law anybody can look at previous judgments and know how the law will respond to their behaviour today, under this proposal to have flexible forward-looking, judgment-based regulation we cannot necessarily be sure today how the state will treat our current actions at some point in the future?
Matthew Hancock
It would be better if we had an embedded and long-standing system in which there were those precedents, but as we do not have about 800 years to put it in place it is better to have a forward-looking system. If my hon. Friend has a suggestion as to how we can use precedent built up over time, given that we are starting from a system that catastrophically failed, I would be very interested to hear it.
Matthew Hancock
As I said, this pendulum swung too far, but why do we need to allow the authorities to exercise discretion? It is because the world we face is as we find it, not as it is written in the rulebook. Indeed, the very complexity of the system calls for simple rules, because the more complex the rules applied to a complex system, the more likely somebody is to try to game it and, therefore, the more complex the set of rules that will need to be imposed again on the system to try to account for that behaviour. We see the same thing in respect of other areas of Government policy, not least the tax system, where complexity has led to avoidance activity, which has led in turn to complexity, and so we now have the longest tax code in the world. This attitude towards regulation and oversight makes no sense in the modern world of complexity. Complex systems need simple rules.
Complexity also adds cost to businesses not targeted initially. Worse still, the complexity leads to a moral abdication, because the rules become a substitute for personal responsibility. Just as we need to allow for the exercise of discretion by regulators, we also need, within a system that promotes responsibility, to allow for the discretion of management. That is why I have concluded that we need to ensure, especially in such a high-paying business, that the sanctions for failure and for irresponsibility are strong. It is not a good enough sanction for someone simply to lose their job in an industry where it is easy to move into another one.
In the first instance, we need to move to a system where the debarring of directors is made easier, not least because when a bank is rescued it technically does not go through the current debarring rules. The FSA is right to regulate pay and introduce claw-back, but we also need, in extremis, to introduce a measure to ensure that for recklessness at the helm of a systemically important bank there is a stronger and, if necessary, criminal sanction. I hope that such a measure would never be used but, as with other areas of life where these measures are hardly ever used, it greatly concentrates the mind to know that a deep sanction exists for reckless and deeply irresponsible negligence. I hope that such a measure would be a check on hubris and would last the test of time so that it would be in existence next time there is a boom and the associated hubris.
I hope that that change, the changes in this Bill and other changes will allow those of us who support the free market, enterprise and innovation to support, unabashedly and with enthusiasm, the wealth creators, who make our prosperity possible.
Oral Answers to Questions
Matt Hancock Excerpts(12 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Hoban
The NAO’s report this morning was based on guesswork. The scheme has not been fully implemented and there are no published figures as yet on the out-turn for the scheme. Let me just say that private sector providers expect that this scheme will be more effective than the schemes put in place by previous Governments.
Matthew Hancock (West Suffolk) (Con)
Given the increasing private sector employment levels, have the Government made any assessment of the impact on those levels if we lost all credibility of economic policy by having the sort of incoherence proposed by the Opposition?
Youth Unemployment and Bank Bonuses
Matt Hancock Excerpts(12 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Rachel Reeves (Leeds West) (Lab)
I beg to move,
That this House notes with concern that unemployment has risen to its highest level for 17 years, youth unemployment has now reached a record level of 1.04 million and the number of young people claiming jobseeker’s allowance for over six months has more than doubled since January 2011; believes that cutting spending and raising taxes too far and too fast has choked off the recovery and pushed up unemployment and that it was a mistake for the Government to abolish the Future Jobs Fund; recognises that rising unemployment and the Government’s failing welfare to work programmes are leading to a higher benefits bill, which is contributing to the £158 billion of additional borrowing announced in the Autumn Statement; further notes reports that multi-million pound bank bonuses are set to be paid out this year, even in banks where the share price has almost halved; and in view of the most recent figures on unemployment, calls on the Government to take urgent action to kickstart the economy to promote jobs and growth and to reconsider its refusal to introduce a tax on bankers’ bonuses this year, in addition to the permanent bank levy, to fund 100,000 jobs for young people.
We have called the debate to raise the alarm on a crisis that is now on the verge of becoming a national disgrace—the disgrace of a few getting rewarded for failure while many more pay the heavy cost of the failure of the Government’s economic policies. However, the motion is not just a critique. It is also a call for action, a reminder to the Government that, despite the damage that has already been done, they still have a choice. There is an alternative—Labour’s five-point plan for jobs and growth could get people back into work, get our economy moving and get the deficit down in a balanced and sustainable way.
Every hon. Member who is present will have met victims of the unemployment crisis in their own constituency. They are families devastated by the arrival of the dreaded redundancy letter and afraid of what the future will bring, and parents determined to do the right thing and provide for their children but unable to make ends meet.
Matthew Hancock (West Suffolk) (Con)
The hon. Lady mentions unemployment in Members’ constituencies. Does she recognise that, based on the claimant count, unemployment in Leeds West has fallen by 106 since the election? Which of the Government’s policies would she recommend as being to blame for that?
Rachel Reeves
Youth unemployment in my constituency, like in most of our constituencies, is rising fast, whereas it was falling at the time of the last election.
Banking Commission Report
Matt Hancock Excerpts(12 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Matthew Hancock (West Suffolk) (Con)
I very much welcome the report, which, along with all the other measures, I hope will help to change the culture of finance. With that end in mind, will the Chancellor set out what he hopes we can achieve in terms of having a direct impact on individuals’ personal pay and compensation in the financial sector?
Mr Osborne
We expect the bonus pool to be lower than last year and very much lower than four or five years ago, when it was probably four times what it will be now, so bonuses have come down. We have a very transparent regime, which did not exist when we took office, with the pay of the eight highest-paid non-board executive members now having to be disclosed. Above all, however, people should pay attention to what the Financial Policy Committee has just advised, which is that banks should retain earnings to build up capital at a time such as this, not pay them out in bonuses. The Governor of the Bank of England, the Financial Services Authority and I have all made it clear that banks would do well to pay attention to that advice over the next couple of months.
Royal Bank of Scotland (FSA Report)
Matt Hancock Excerpts(12 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Hoban
That is an important question. I referred earlier to the pressure under which Tony Blair put the FSA to adopt a proportionate regulatory regime. One of the examples put to the then Prime Minister about the light-touch quality of the regime was the fact that there were only six people supervising HSBC, and even fewer have been supervising RBS. I understand that there has been almost a fourfold increase in the number of RBS supervisors, and I think that that is a much better approach. We must ensure that there is intrusive, intensive supervision, and that requires not just more resources, but a higher quality of resources.
Matthew Hancock (West Suffolk) (Con)
I warmly welcome the report. I think that the proposal to debar directors from high office in future should be implemented so that we can ensure that rewards are not received for failure at the top, but will the Minister also consider the proposal to debar others mentioned in the report who were culpable?
Mr Hoban
I think that we should give careful consideration to the idea of debarring people who have been incompetent and mismanaged their leadership of institutions. That applies to the directors of those institutions, but it may also apply to the politicians who designed the system in the first place.
The Economy
Matt Hancock Excerpts(12 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Matthew Hancock (West Suffolk) (Con)
Youth unemployment in my constituency is falling because of a work experience programme that has now been rolled out across the country. I say that to preclude the shadow Chancellor’s rebuttal. He has just argued in response to my hon. Friend the Member for Bedford (Richard Fuller) that private sector debt is a good thing. Will he have the balls to say that explicitly?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I am not quite sure we are going to allow “balls”. I am sure you can think of a better word, Mr Hancock.
Matthew Hancock
I withdraw it. Will the shadow Chancellor have the weight to state explicitly what he has just argued, which is that private sector debt is a good thing?
Ed Balls
The numbers for the hon. Gentleman’s constituency show that 8,600 families in his constituency are losing out from the cut in tax credits. [Interruption.] He is normally quite excitable, but he is really getting rattled this afternoon.
What are the facts? “We are all in this together,” yet women are being hit twice as hard as men; there has been a 100,000 rise in child poverty, according to the Treasury’s own figures; there is a four times bigger hit for families and children than for the banks, which have seen their taxes cut this year compared with last year; not 400,000 but 710,000 public sector jobs are set to go; there is £158 billion more in borrowing than was planned a year ago—£6,500 more in borrowing for every household in this country—and there is the cost of rising unemployment. That is the cost of the failure of the Chancellor’s plan. As for the Deputy Prime Minister’s contribution, we have a cobbled-together replacement for the future jobs fund that is judged by the OBR to have no impact at all on employment and zero impact on jobs. I have to say to the Chancellor and to the Chief Secretary that protecting our economy, businesses, jobs and family finances is more important than trying to protect a failing plan and their failing reputations.
Matthew Hancock
I am very grateful. The right hon. Gentleman keeps making his argument about borrowing, but is it not completely undone by the fact that according to the OBR forecasts, borrowing has fallen and is set to fall over the next five years, and then debt will fall once it is under control? Can he answer the question that neither the shadow Chief Secretary nor other shadow Treasury Ministers can answer? How can spending more money possibly lead to lower borrowing?
Ed Balls
The economics of this are clear and easy to understand, which is why both the IMF and the OECD have made exactly the point that I am making. The fact is that the Government are borrowing £158 billion more than they planned, and the deficit is coming down much more slowly than was planned, because unemployment is going to be so much higher.
The issue is the pace at which we try to get the deficit down. If we try to get it down too fast, as the Chancellor did a year ago, it blows up in our faces. Growth and taxes slow down, unemployment goes up, and we end up borrowing £158 billion more. The right thing to do is to have a staged and balanced approach, get the economy moving, get people into jobs and get the deficit down. That is the only plan that will work.
Let me make an offer to the Chancellor. It is not too late to change course, and the deepening euro crisis makes it more important for him to see sense. If he does, we will back him—a new start, a second attempt. We read in The Daily Telegraph today about the Chancellor’s recent efforts to land a plane at Manchester airport—on a flight simulator, I should add, to reassure Members. There was too rapid a descent and a crash landing on the runway, narrowly missing ploughing into the terminal building. Too far, too fast—no surprises there. However, the Chancellor had a second go. With a little help from the experts and a steadier hand on the controls, things worked better the second time round. Perhaps there is a lesson for him in that story.
Perhaps the Chancellor should take my prescription after all. He claimed last week that a balanced plan to get our economy moving and to get the deficit down was like
“the promises of a quack doctor selling a miracle cure.”—[Official Report, 29 November 2011; Vol. 536, c. 810.]
Was not the Nobel prize-winning economist Paul Krugman closer to the truth when he described Britain’s experiment in austerity as being
“like a medieval doctor bleeding his patient, observing that the patient is getting sicker, not better, and deciding that this calls for even more bleeding”?
The patient is crying out for a second opinion, and all we hear from the Chancellor is a call for more cuts and more leeches.
Mr Darling
As it happens, there is a passage in my book about the trend rate of growth. I believe that economists find it terribly difficult to work out what the right trend rate of growth is. On the point raised in the Select Committee this morning, I am surprised that the OBR has said that the productive capacity of the economy has been so reduced, partly because of lack of productivity. Part of the OBR’s problem is that it fails to recognise that businesses have retained labour through this recession in the hope that they will need it when recovery comes. One worry is that if businesses think there will not be a recovery, the people they have held on to will then lose their jobs. No doubt the Select Committee will look into that.
Let me touch on what is happening in Europe. I appreciate that it is a risky business because what is happening today might not be what is happening tomorrow or the day after that. The Chancellor touched on it and I hoped he would say rather more about what is being proposed—if, indeed, he knows.
As far as I can see, the agreement reached between President Sarkozy and Chancellor Merkel on Monday seems to be a re-creation of the stability and growth pact—and we know which were the first two countries that actually broke it. I have a feeling that they are trying to reach a sufficient political agreement to give Mario Draghi of the European Central Bank sufficient cover to do what we all know the ECB has to do in terms of intervening in the market. It does not go any further than that. Mario Draghi made a good speech last week, in which he said, “Look, we’re ready to intervene, but you lot have got to show willing.” Interestingly, that is exactly the same position that Jean-Claude Trichet took in the ECB at the last ECOFIN meeting I attended in May 2010, to which the Chancellor is fond of referring, when it was necessary for Ministers in the European Union and the eurozone to decide on sufficient action to allow the ECB to intervene.
I am glad that the ECB is going to intervene, but the agreement reached on Monday does not go far enough because it does not address the fundamental questions and fundamental problems of having a single currency without something approaching fiscal or economic union. That was not addressed and neither was the Greek problem, which will not go away because that fix will not work. The rescue fund is still a virtual one and, of course, there is the whole question of the recapitalisation of European banks, which remains for next summer.
Eric Ollerenshaw
I am grateful for the intervention. I was going to go on to say that some of these things are actually working.
One of the biggest employers in Lancaster, Northern Tissue Group, is halfway down the line of achieving extra support from the regional growth fund. That will lead to extra jobs. Oaktec, a small company that is developing innovative energy recovery from vehicles, has just got a grant from the Technology Strategy Board to take that innovation further. Those are small beginnings, but the innovation is there.
I want to suggest how we can develop that through the local enterprise partnerships and the new enterprise zones that hon. Members have talked about. One problem that my part of the north-west has had with all Governments is that every time they look at the north-west, they look at Greater Manchester or Merseyside. Although I welcome Lord Heseltine’s intervention, or should I say re-intervention, in the north-south divide and his talk of city hubs, which we are all behind, my part of the north-west also has businesses that have potential, as you will understand, Mr Deputy Speaker. With a bit of extra investment, which I hope is coming following the Chancellor’s announcements in the autumn statement, those businesses could provide a good return. I have cited two small examples—Northern Tissue and Oaktec—but there are many other possibilities in the area.
My area also has two universities, Lancaster university and the university of Cumbria, and Lancaster university does a great deal in terms of innovation. My suggestion draws on two developments that we already have. The first is technology innovation centres, which are planned for Warwick, Strathclyde, Bristol, Rotherham and Sedgefield. In 13 years, the Labour Government delivered none of them. At least we are now getting five. Germany has 59 of them. Their mission is to bridge
“the gap between research findings and outputs, and their development into commercial propositions”.
The second development is enterprise zones, the mission of which is
“to support genuinely additional growth and create new businesses and new jobs”.
The original concept envisaged only one zone per local enterprise partnership. Perhaps that idea was developed by some Treasury mandarin who had to calculate the hypothetical loss in taxes due to the hypothetical creation of the new businesses and jobs. As they will be new, I am yet to understand how they can calculate that. Obviously, I am just a simpleton when it comes to the Treasury.
In a nutshell, my suggestion is that we should allow all universities to bid to designate mini-enterprise zones on their campuses. Perhaps not all universities would take that up, but it might fulfil the other Government objective of ensuring that there are more direct outcomes for the economy from universities. It seems to me that there is nothing in the practical definition of an enterprise zone that most universities cannot fulfil.
I suggest that there would be savings to the taxpayer, because universities would not need all the investment that is required for the planned enterprise zones. By their nature, the zones would be incubators for new start-ups that would eventually have to move off campus on reaching a certain size. A mini-enterprise zone on a university campus would therefore create a quicker turnover than the planned enterprise zones. The hypothetical loss in taxes calculated by the Treasury mandarin would therefore be far less, because once a business on a campus got to a certain size, it would feel restricted and would have to move off quicker than those in the planned enterprise zones.
Matthew Hancock
I am interested by my hon. Friend’s proposal. Does he recognise that it is similar in structure to what happened at Stanford in the United States from the 1960s onwards, where the cheap start-up costs for IT firms led to the creation of Google and many other world-beating companies?
Eric Ollerenshaw
I thank my hon. Friend for that intervention. My suggestion is a hybrid scheme for which universities could bid. As part of a technology strategy, the universities could make some money out of the start-up companies through joint ventures with them, which could then be reinvested. I believe that it would cost the taxpayer less in the long run if we just let such zones happen.
To use Lancaster as an example, I can think of two or three innovative businesses on campus that are struggling to find extra funds, but that had to start paying taxes straight away. Just a little bit extra would allow them to move. By the nature of a university campus, the businesses will not be there for ever. By definition, they will have to move on and there will be a swifter turnover.
To put it simply, let 100 university zones bloom. The hon. Member for Blaydon is not in his place, but he would have liked that phrase. There is potential for growth and for new jobs. This could apply to most universities. It would be a simple thing to do, provided that we could get it through the Treasury mandarin.
Matthew Hancock (West Suffolk) (Con)
I shall continue directly from what was said by the right hon. Member for Wolverhampton South East (Mr McFadden). Our country faces very difficult economic times, as does the continent of Europe. In recovering from a debt crisis throughout the west, we face difficult challenges. I listened with great interest to the right hon. Gentleman’s speech. It closely followed the line of argument that was put forward by the right hon. Member for South Shields (David Miliband) in a speech last week. The right hon. Member for Wolverhampton South East recognised the scale of the problem and the need to deal with the deficit. Some of his suggestions were sensible; others I would not follow so closely. None the less, he was engaged in the economic argument. People across the country want to see politicians engaging directly in the economic argument about how we deal with the problem that exists now. I am not talking about the forecast that was set out before the credit crunch in 2007 and before the last election. Incomes are 14% smaller than anticipated, which is a serious problem. Most of the blame rests with the previous Administration, so it is absurd to make party point-scoring interventions on this particular issue. This is an important argument with which to engage, which is why I am so disappointed by the arguments that were put forward by the shadow Chancellor and the Labour party; they completely failed to engage in the seriousness of the economic debate.
I should like to tackle three issues that show just how much the Opposition arguments miss the point. I will not dwell on the fact that the Opposition seem to believe that borrowing is in and of itself a good thing and I will not set out any further than has been set out already the chaos of their euro policy—a policy that was changed from the Dispatch Box in response to an intervention. However, I will set out the complete failure of the Opposition on three specific points.
Karl Turner (Kingston upon Hull East) (Lab)
Before the hon. Gentleman moves on to his next point, will he accept that economic growth was choked off well before the eurozone crisis? Government Members were being warned about the situation by many people. They were even warned by me, and I have very little knowledge of the economy.
Matthew Hancock
I certainly accept that growth and the protection of the economy will be difficult because we are escaping from a debt crisis in which we had the biggest boom and the biggest bust. Certainly there are some very important domestic causes of our problems. The massive boom was funded by borrowing—both by the Government and in the banking sector. I also accept that inflation, and especially commodity price inflation, has had a negative impact on the economy as set out by the OBR. Moreover, the Greek crisis broke in the weekend after Labour had lost the election, but before the coalition was formed. The then Chancellor set out that Britain should participate in bail-outs, a position from which this Government have extricated themselves. The euro crisis certainly has had an impact and it broke in May 2010.
My first specific point is that I have not yet had an answer to a question that I have been posing on TV, on the radio and in this House, which is how can spending more money lead to lower borrowing?
Matthew Hancock
Let me set out my point and then I will take the intervention. The conditions under which that can be true are highly specific so as to be utterly extraordinary. The Lafferites on the right argue that in the case of very high marginal personal taxation rates, they can pay for themselves if they are cut, but there is little evidence of that. Margaret Thatcher said that the problem with the Laffer curve is that one does not know where one is on it.
The idea that spending can lead to a Lafferite consequence—that borrowing is lower because of more spending—has absolutely no force in economic evidence or logic.
Sheila Gilmore
It has more force in economic theory. That was precisely the point that was made during the 1930s and subsequently by Keynes. It was said that the time one should be borrowing is during a recession. We should borrow to build houses, create construction jobs and to keep people in work and not, as this Government are doing, to keep people out of work.
Matthew Hancock
I will come on to that point a little later. That is the argument that is put. The question that has to be answered is how can the extra tax that the Government get from employing people exceed the cost of employment when it is the Government who are paying the tax? It does not make sense.
Matthew Hancock
No, I will make the point in another way. If a person borrows money to employ somebody and then claims that they will get back more than the cost of employing that person through tax and lower unemployment benefits, the Government would have to pay more to themselves in tax than they spend in tax. That cannot be true in logic let alone in economics.
Angie Bray (Ealing Central and Acton) (Con)
Is the point not being missed by the hon. Member for Edinburgh East (Sheila Gilmore)? On this Keynesian argument, a person would have had to be saving during the good times, and that is what was missing from the programme of expenditure of the Labour party.
Matthew Hancock
Keynes himself argued that we need to save in the good times or, as JFK on the left put it, we need to fix the roof when the sun is shining. That argument has no foundation in economic theory or experience. I have a second argument that I want to challenge. It was put this morning by the shadow Chancellor in The Times. He said:
“The argument is whether it is better to be borrowing billions more… or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a fairer way.”
I could not agree with him more. It is better to be taking action now to get our economy moving rather than borrowing billions more, which is the policy of the Labour party. Their position, therefore, is illogical. Their argument is that borrowing is going up. However, the shadow Chancellor was forced to admit after an intervention that borrowing is falling; it is lower this year than last year and it was lower last year than the year before under Labour. It is falling in the OBR’s forecast every year. Labour members may smile, but when their argument is inconsistent with the truth, they know that they are on weak territory.
My final argument concerns the idea that low interest rates are a bad idea. The shadow Chancellor holds both that borrowing is good and that higher interest rates would be better because he has said that low interest rates “are a failure”. I put it to all Members in this House to ask their mortgage-holding constituents and their small businesses whether that is the case. The only conclusion I can come to is that the reason they hold this position is purely political so that they can oppose the cuts.
Richard Fuller
I thank the hon. Gentleman for his intervention. He makes one correct point but draws a false conclusion. It may well be true that unsecured debt did not rise as rapidly as secured household debt under the last, Labour Government, but it is absolutely not true that the last, Labour Government did not preside over one of the most massive increases in debt of any nation on earth.
In response to the right hon. Member for Rotherham (Mr MacShane), let me make four points. The first is about the potentially crushing impact of household mortgage debt. Let us compare a household deciding whether to purchase a house with a mortgage in 1997 with one making that decision in 2007, looking at the loan-to-value ratio and average house prices in those two periods, and ask how much money the average household will lose over the next 25 years because house prices were allowed to rise so much. The answer is that the average household will have £250,000 less to spend—it will be a quarter of a million pounds worse off—in the next 25 years precisely because the last, Labour Government thought that they were creating wealth by making average house prices escalate way out of the range of the average family.
As a Government we need to look at building more houses and regulating mortgage lending to maintain sustainable norms. We need to look—as we are—at simplifying planning controls and removing obstacles standing in the way of house building. At some stage we also need to analyse the impact of the reintroduction of mortgage interest tax relief, should interest rates rise precipitously.
Matthew Hancock
Should we not also consider regulating the overall debt in the economy, as was done until 1997, but then stopped?
Richard Fuller
My hon. Friend makes a good point; indeed, that is also an idea that we should consider.
The other thing that we are leaving the next generation that we need to consider is our pensions liabilities and how to resolve them. The happily titled “Project Armageddon” report from Tullet Prebon shows that the public sector pensions liability is £1.18 trillion, which is almost the same as the published, or “treaty”, Government debt of £1.11 trillion. I do not particularly want to dwell on public sector pensions, but this raises in my mind the way in which we have structured our pensions liabilities—that is, the pay-as-you-go nature of the basic pension scheme—such that we expect the next generation to pay for them rather than paying ourselves. Given that this generation will pass on such significant debts to the next generation in other ways, I have been considering various ways to change how we fund our pensions in this period.
In 2006 the Australian Government established the future fund, with 18 billion Australian dollars of seed capital. The goal was to invest in long-term infrastructure projects with a commercial return in order fully to fund the pension liability of public servants—that is, to move from a pay-as-you-go approach to an essentially self-funding system for public sector pensions. In the autumn statement my right hon. Friend the Chancellor talked about £21 billion of credit easing, which he will put through the banks via the national loan guarantee scheme. Let me suggest to the Minister that instead of putting that £21 billion of credit easing through the banks, perhaps we should create a UK version of the Australian future fund, essentially moving a portion of our pensions liability into what might be termed a hypothecated fund for that purpose. That is one thing that the Government could do that would significantly benefit the future generations that will have to pay off the debts racked up over the past 15 years.
Let me make two observations about job creation. There is nothing worse than people not having work to do when they are seeking it—hon. Members on both sides of the House think that is true. I am very pleased that the Chancellor has said that he will ask the independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets. That would be a far more effective way of addressing wage-price rigidities than calls to scrap the minimum wage or other such measures. It is an issue—I listened to a speech by an Opposition Member about this earlier—that in certain parts in the north of our country, the public sector premium over private sector pay is 20%, whereas in other parts it is much lower, at 4%. In those areas the private sector should not be priced out of the market getting people to work for it because public sector pay is set significantly higher.
In closing, let me also gently suggest to the Minister that, with national insurance contributions at 13.8%, we have a significant tax on jobs. As we look to implement our policy to take the lowest paid out of tax, may I ask him perhaps to consider the national insurance tax on jobs too?
Northern Rock
Matt Hancock Excerpts(12 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Speaker
Order. As I said to the hon. Member for Reading West (Alok Sharma), I understand that there are very strong feelings and effects on constituencies on these occasions, but the hon. Member for Blyth Valley (Mr Campbell) must not chant a chorus from a sedentary position—or even, for that matter, from a standing position. We are grateful to him for his views when he is called to speak.
Matthew Hancock (West Suffolk) (Con)
Is not the argument that we should hold on to Northern Rock for a few more years in the hope that the price will go up just a punt on the stock market, and is that not exactly the sort of attitude that got us into this mess in the first place?
Fuel Prices
Matt Hancock Excerpts(12 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Sarah Newton
My hon. Friend makes a very good point, as usual. To cover the increased costs that she mentions, TAP has had to put its price up to 41p a mile. It is worried about the future, because it may have to raise it to 45p a mile, which is what similar organisations in other parts of the country are having to charge. Given that the average journey is 25 miles, and that it is not uncommon for patients to travel 50 miles for an appointment, we can see how prices are mounting up for patients. Some are entitled to free travel, but many people on very modest incomes are not.
A report by CAB Cornwall, the citizens advice bureau, has highlighted the fact that some people are not attending hospital appointments because they cannot afford to. That is a waste of precious NHS resources and not at all good for the patients concerned. Work is being done locally to try to address that, with more NHS services being moved closer to people’s homes, but that will take time. I hope that the Minister will commit to considering what further help the Government can provide to keep these much-needed volunteer drivers on the road.
Matthew Hancock (West Suffolk) (Con)
Are there not unfair differences in the local price of fuel as well as the national price? In Haverhill, in my constituency, fuel is up to 10p more expensive than in nearby Bury. Is that not patently unfair?
Sarah Newton
It certainly is, and I am sure that that is the experience of drivers right across my constituency and Cornwall.
We have heard from all Government Members who have spoken that they absolutely understand that the Government’s priority is to reduce the deficit and sort out the nation’s finances. People in my constituency broadly understand that. However, I hope that we can ensure that cuts are made and revenues increased fairly, so that they do not adversely affect some of the most vulnerable and poorest people in my constituency who are being affected by the lack of volunteer drivers to take them to hospital.