Common Consolidated Corporate Tax Base
Steve Baker Excerpts(12 years, 11 months ago)
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Mr Redwood
My hon. Friend is quite right. That also explains why the European Union is so keen to try to get the Irish rate up, because if it is to have a common system such as this, it would not want a weak link. The EU would see a weak link as a state that dared to set a more realistic and lower rate in order to attract business.
Steve Baker (Wycombe) (Con)
As ever, my right hon. Friend makes his points with incredible force. Does he agree if the European Union follows the policies of bail-outs and political interference with business all the time, we will keep seeing measures like this one again and again until we head towards a single centralised economic system of government?
Mr Redwood
My hon. Friend is right. The EU believes that imposing more complex and higher taxes is the answer to the deficit problem, whereas the answer to the deficit problem is growth, more business, more activity and more jobs. Everything the EU does by way of higher tax rates, more regulation, more interference and more layers of government prevents that from happening. That is the Greek tragedy that we are witnessing as we debate today.
The latest figures on the Greek Government website imply that the Greek deficit got a lot bigger in the first part of this year because tax revenues plummeted, because the economy is in worse recession, and because spending has gone up, both because they are not controlling it and because spending goes up in a recession. That is the tragedy of the European model—of the bail-out model and of “extend and pretend”, whereby we extend the credit and pretend it will be all right. It is not going to be all right and that approach is causing disaster, unemployment and tragedy.
Section 5 of the European Communities (Amendment) Act 1993
Steve Baker Excerpts(13 years ago)
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Kelvin Hopkins
In the end Governments can print money if they wish to, but the idea that we can squeeze those economies into growth is complete nonsense. We could debate these matters at great length—I would be happy to do so on another occasion—but that is not what this debate is about. I want to focus on the Government’s economic policy, which I think is profoundly mistaken.
Another point in the document is the emphasis on fiscal neutrality. The Government do not seem to appreciate that fiscal neutrality can be achieved in various ways. If we cut public spending and taxation at the same time, that is, in a sense, fiscally neutral. If we raise public spending and taxation, that is also fiscally neutral. We can also achieve fiscal neutrality by raising taxes on the rich and reducing them on the poor. Fiscal neutrality can have all sorts of different effects. If we cut taxes on the rich and raise them on the less well-off, we will drive the economy into recession, because poor people will spend less money. The marginal propensity of the poor to consume is higher, so if we tax the rich and give more to the poor, they will spend. If we give pensioners a rise in their pensions, for example, they will spend more, but if we give a wealthy person a tax cut, they will not spend.
Those are marginal changes, but my general point is that fiscal neutrality can be achieved in various ways. In fact, it is nonsense to have fiscal neutrality when growth is flatlining. We ought to have an expansionary fiscal strategy, not a neutral fiscal strategy. I might add that this is my view, not necessarily the view of my hon. Friends on the Opposition Front Bench. They are perhaps more cautious than me, but in the end I would like to think that I and others will be proved right. We have to generate growth, but it will not happen if the Government continue to operate in the way that they are at the moment.
Steve Baker (Wycombe) (Con)
As the hon. Gentleman knows, I have great admiration for him on many subjects, but does he realise that when Keynes was suggesting those fiscal stimulus packages, the state accounted for only about a quarter of GDP, whereas now the figure is up to 45% and getting on for 50%? The capacity is just not there. I would suggest to the hon. Gentleman that even Keynes would be horrified at the notion of Governments spending more from present levels?
Kelvin Hopkins
The role of the state is much larger than it was even in Keynes’s day; therefore, the state has to generate more demand. The state has a bigger role in the economy—I think that is a good thing—but we cannot withdraw from the idea of managing economies in the way that we did after the second world war. Between 1945 and the 1970s, we had a world that actually worked. We had rising living standards and the highest rate of growth in our history. We had full employment, we developed a welfare state and the national health service, and we had free tuition at universities. Since then, the neo-liberals and the monetarists have got hold of economic policy again and we have gone back to something like the early 1930s, albeit with higher living standards, at the moment, but that could so easily be destroyed if the current mistakes continue to be made.
Steve Baker (Wycombe) (Con)
I shall try to confine my remarks to three points on the report. First, the report rightly talks about imbalances in the economy. The hon. Member for Nottingham East (Chris Leslie) talked about serious systemic problems in the economy, and I agree that there are such serious systemic problems, albeit not, perhaps, those that the hon. Gentleman thinks there are.
On the first page of section 2, the report talks about debt and unsustainable levels of private sector debt. It is estimated that the UK has become the most indebted country in the world, and one sentence stands out:
“the spending plans set out in the 2007 Comprehensive Spending Review were based on unsustainable revenue streams from the property boom and the financial sector.”
The report also talks about geographical and sectoral imbalances. Given the limited time available, I will be very brief, but let me say that I feel that far too little effort has been made to explain some of these imbalances through monetary factors. Printing money has been mentioned. The problem with printing money is that it creates patterns of economic activity that can last only as long as that supply of new money. When the new money comes to an end—[Interruption.] From a sedentary position, the hon. Member for Luton North (Kelvin Hopkins) talks about the multiplier effect, and, again, he has appealed to Keynes. I have to say to him that one thing I have learned over the past few years in setting up a think-tank and talking to economists is that it is really no good at all appealing to the authority of economists. There are always several schools of thought, and one of the things they are no good at is making accurate predictions—or, indeed, agreeing with one another. I am therefore afraid that that leads us to thinking for ourselves.
One of the most important factors to do with money is something long known, called the Cantillon effect: the fact that when money is created, it always arrives in one place in the economy first. So when banks are lending money into existence and into the housing sector, of course house prices rise, the financial sector is better off and the economy reorients itself to the south-east, where the banking sector is based. Although the report diagnoses the problem very satisfactorily, I am disappointed that the monetary policy framework consists of one short paragraph. We have learned tonight that there is an appetite in this House for a serious debate about monetary policy, and the monetary framework and how it has an impact on the real economy.
Secondly, and further to my point about new money creating unsustainable patterns of economic activity, sustainable investment requires prior production and real saving. That involves individuals, families and businesses consuming less than they produce to make real savings and invest them. Easy money will not create sustainable development and sustainable growth.
I wish to allow other hon. Members to speak, so I shall make one final point. I must ask to what end we are making this report. The lexicon has suddenly developed the term “convergence programme” and I am not sure where it came from. We have talked about Maastricht, but the term has certainly only just emerged into the public debate today. Why are we converging? With whom? To what end? I would be grateful for an answer.
Finance (No. 3) Bill
Steve Baker Excerpts(13 years ago)
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Jacob Rees-Mogg (North East Somerset) (Con)
There is more rejoicing in heaven over one sinner who repenteth than over the 99 who are not in need of repentance, and it has been wonderful to listen to the hon. Member for Linlithgow and East Falkirk (Michael Connarty), because he made a wonderfully Conservative speech, saying that taxation and over-regulation are fundamentally bad things—bad for the economy, bad for business, and bad for Britain. That is absolutely true, but unfortunately it misses the point that when this Government came into office, the coffers were bare. There was no money left, and therefore tough action has needed to be taken on both spending and taxation. I want to see taxes fall in every possible area—I want taxes on income, capital gains, companies and oil companies all to be reduced—but I only want Her Majesty’s Government to do that when it can be afforded.
We need to look back at the seriousness of the situation we inherited, and at what this Government are doing. Gross debt issuance from 2008-09 to 2010-11 is £540.5 billion. That is money that has to come from savers and from foreigners, and a good chunk of it actually came from the Bank of England: some £205.9 billion—getting on for half the total—was just printed by the Bank of England. That is not a way in which any responsible Government could ever have carried on; to have done so would have been desperately inflationary.
I want to come back to the point made so eloquently by the shadow Chief Secretary about Ricardian equivalence, because that is relevant. No one is saying that every £1 in debt is necessarily going to relate to £1 in future taxation, but the broad principle is right. The electorate understand this; they understand it from their own financial affairs and they see it from the Government’s. They understand that if a huge debt is built up, it has to be repaid, and it will be repaid by them out of their earnings or their assets. We already see not far short of £50 billion a year being spent on interest payments. The British electorate know that that £50 billion is coming out of their taxes, as will the repayments. Indeed, as we get on to the repayments and refinancing, we will have a further gilt issuance of £578 billion between now and 2015. Enormous amounts of money are still being raised on the debt markets even when the Government are implementing a programme of tough cuts and some tax rises, which people do not like, but that is because of the severity of the situation the Government inherited, and if they had not implemented that programme, the confidence of the markets would have evaporated.
That confidence is what allows the Government to finance themselves. This is where the gilt market is so important. The five-year gilt is trading 5% away from its historical real average; that is 500 basis points, which is a gigantic amount in gilt market terms. The five-year gilt is usually at a 2% premium to the retail price index, but it is currently at a 3% discount to RPI. That shows that the financial markets believe that the Government have got it right.
Most economic decision making takes some years to come into effect, and I must confess that in this regard we have heard a lot of nonsense about quarterly growth figures relating to decisions on cuts taken before any of their consequences had actually come through. It takes much longer than that for economic results to happen, and I would therefore say that the figures for this quarter, the last quarter and the one before that are to the credit of the Opposition, and not as yet to Her Majesty’s Government; it will be to the credit of Her Majesty’s Government when we have got 2.5%-plus growth. The gilt market and the currency market are, however, immediate responders to Government policy, and the response that they have given is a vote of confidence. They know that the Government have broadly got it right. The currency has strengthened, and is continuing to strengthen, against the dollar—an indication, perhaps, that the United States has not got its fiscal situation as well sorted out as we have here.
Let us consider some of the specific things that the Government are doing in this Bill. I particularly welcome, as does my hon. Friend the Member for Bristol West (Stephen Williams), the increase in the tax threshold. A wonderful pamphlet produced by Lord Saatchi and Peter Warburton a few years ago asked why poor people pay tax and why we have this merry-go-round whereby we take money out of someone’s pocket and put it back into their other pocket having taken some element of it to finance our bureaucracy along the way. The more the Government can raise the tax threshold, the less of that money will be wasted as the machine churns through and the more people will be taken out of tax.
I will add one point that may not be deemed helpful. My hon. Friend mentioned that over a couple of years 2 million people are to be taken out of tax, but Her Majesty’s Government might like to know that the Chinese Government have just succeeded, by increasing the income tax threshold from 2,000 renminbi a month to 3,000 renminbi a month, in taking 76 million people out of tax. That is something for the Treasury to aim for, because that number exceeds the entire population of the United Kingdom.
The increase in the tax threshold is extremely welcome, as is the reduction in corporation tax. Being competitive on corporation tax is something that the Irish were so clever about, and may we wish them well in their fight against the European Union’s attempts to make them increase it. By reducing corporation tax we attract businesses that could otherwise go anywhere in the world. We know that businesses can move and that WPP is thinking of moving back to the United Kingdom because of the right trend in taxation. In that regard, I encourage Her Majesty’s Government to avoid any of this nonsense about a Robin Hood tax. Robin Hood was not as good as he was made out to be—particularly for the sheriff of Nottingham—but even if such a tax were as heroic as the late Robin Hood, it would still be a very bad tax for this country.
Steve Baker (Wycombe) (Con)
I was just wondering whether my hon. Friend would agree that Robin Hood actually took from the state to give back to the people.
Jacob Rees-Mogg
I am not entirely sure that that is what he did. I think he also stole from the Church, which is why I have my doubts about him; I am not really in favour of people pinching things from holy mother Church.
The other great thing about this Budget—this is why it should be welcome—is that it recognises the limitations of governmental power. Let us consider what has happened in Japan since 1990. The Japanese Government have tried loose monetary policy and loose fiscal policy, sometimes at the same time and sometimes at different times, and they have managed to take the fiscal debt to 200% of GDP without managing to achieve any growth in this period. Governments cannot command economies in the way that some socialists think that they ought to be able to do. Governments can only set the right terms for business to be done, and that is where the deregulation programme is so important.
If the Government can follow through on that programme and sweep away the burdens that stop business doing business, that is how we will be able to get economic growth. It will not be Government expenditure that leads to the economy recovering rapidly because—let us return to Ricardian equivalence—people will recognise that there is great waste in Government expenditure. It will not necessarily even be very low interest rates that will do that, although I am in favour of a loose monetary policy, because eventually we reach the point where there are no borrowers there to borrow—we may be in that position. The Red Book points out that total private sector debt is 450% of GDP. If that does not make your blood run cold, Mr Deputy Speaker, I do not know what will, because that is an extraordinary level of private sector debt and it is very hard to pretend that an economy can grow by further private sector debt being taken on. So we are back with the real opportunity being a deregulatory one for the Government to push that agenda as hard as they possibly can so that businesses can do business, investors can invest and people can work. That will then lead to the tax coming through at lower tax rates and the expenditure being made that the Government wish to make, and we will be back to the glorious time that we had when Nigel Lawson was Chancellor of the Exchequer.
Amendment of the Law
Steve Baker Excerpts(13 years, 1 month ago)
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Mr Tyrie
I note what my hon. Friend says and think that careful account needs to be taken of those points.
Another area in which it is important to have coherent policy is on the cost of fuel. This Budget gives some relief on fuel duty rises, with the cancellation of the fuel duty escalator, among other things. However, while motoring bills are being reduced, other Government policies are putting up the cost of energy for a lot for businesses and home owners in other ways, not least through the price of electricity, and the cost of rail travel is also increasing. Does all this—a reduction for motorists, but an increase for rail users and much higher energy bills—form a coherent policy? I do not know, but that needs to be carefully examined, particularly in the light of the Chancellor’s announcement of a floor price for carbon. All these issues need to be carefully examined, because a distortive energy policy will make Britain less competitive, particularly in our export markets.
In our efforts to return to sustained growth, we need to make the best use of every pound invested in our public services. Another example of the need to make sure we have coherence in growth policy has been put to me by colleagues on both sides of the House. They have asked whether spending £17 billion on a high-speed rail link is better use of the money than investing in modern rolling stock and improving the existing tracks. I suspect that millions of rail commuters who cannot currently get a seat and whose trains are unreliable and relatively slow will be interested in the answer to that question. I am very pleased that the Select Committee on Transport has just announced an inquiry into that matter, as a lot of people will await its outcome.
Steve Baker (Wycombe) (Con)
Does my hon. Friend agree that high-speed rail has the potential to be a profoundly bad economic decision for the whole country?
Mr Tyrie
What I am trying to do is not answer the questions, but pose them for Select Committees and others to try to answer. I am trying to point out that in order to generate a coherent growth strategy, a large number of policies need to be looked at in the round to ensure that we are not wasting public resources.
Court of Auditors 2009 Report
Steve Baker Excerpts(13 years, 2 months ago)
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Justine Greening
I can see why the hon. Gentleman says that, and there is always a risk that that might be the case. Interestingly, when I met the Bulgarian Minister in charge of EU funds, that was precisely not his attitude, because clearly there is a debate about what will happen to structural and cohesion funds in future, given that new member states are now involved and want to see investment to help grow their economies. They also want value for money; they do not want billions of pounds handed over if it makes no difference on the ground. As member states, we need to drive that agenda and point out that it is unacceptable for a 16th audit report not to be given the statement of assurance. At the same time, we must have a positive agenda to work with member states to improve not only our own ability to control the finances and funds that come from the EU, but the ability of other member states to do so.
Steve Baker (Wycombe) (Con)
Does the Minister accept that even when the EU controls its money within its rules, it still manages to waste it? I am thinking in particular of a beautiful hotel I visited in Spain that was in the middle of nowhere—unless one was a skydiver, there was no reason to visit the local village. It seemed a total waste of public money.
Justine Greening
My hon. Friend demonstrates exactly why there is a far broader debate to be had on the EU budget and how the money is spent. Tonight we are debating whether the money has been spent in the way that member states agreed when they negotiated how and on what basis the investment would be split between different countries and what the priorities would be for our individual taxpayers.
The Government are determined to bear down on the size of the budget as a priority. We led the debate on limiting the EU 2011 budget in a way that other member states, at the time when we began to gather support, perhaps thought was ambitious. In fact, it worked. My hon. Friend will be aware that, as we go into the fundamental debate about the financial perspective and the longer-term budget, we will also set the parameters—with countries such as France and Germany, which, alongside us, are net contributors and, therefore, absolutely want to see that money spent effectively—within which that debate can take place.
Having led the debate on the amount, there is then a need to start leading the debate within that about priorities and ensuring, as my hon. Friend says, that we do not have wasteful spending on administration or, as the hon. Member for Luton North said, by individual member states. We have to drive out waste at the EU level. That is what we are trying to do at the national level, and it is unacceptable not to go through the same process at the EU level, too.
Steve Baker (Wycombe) (Con)
It is a huge privilege and tremendous pleasure to speak in support of the Government in relation to the European Union. My only regret is that my Whip is not here to see the day.
I pay tribute to my hon. Friend the Member for Stone (Mr Cash) and the hon. Member for Luton North (Kelvin Hopkins), who have seen this farce go on for year after sorry year with these accounts failing to be signed off. I also pay tribute to the Minister, with whom I spoke briefly before the debate. She obviously brings to this matter great sincerity, professionalism and obvious expertise, and she has my full confidence in bringing the right approach to it. Having confirmed the information, I know that this is a boilerplate motion, and I say to her that it fails robustly and resolutely to condemn fraud and error in the EU. In fact, now that I know that these are not necessarily her chosen words, I might say that the motion is dreary jibberish and seems wholly futile.
A total of £11.8 billion went into this budget and only 8.3% of EU spending was given a clean bill of health. Apparently, the rest was materially affected by error. In other words, 91.7% of this public money was given out inappropriately.
I want to share with the House three instances in which public money was given out within the rules. According to Open Europe, an EU subsidy of €500,000 was given to two Swedish fishermen to scrap their fishing vessel. The subsidy was given by the Commission and the Swedish Government as part of the EU’s effort to reduce the size of Europe’s fishing fleet to address the region’s huge problems with overfishing. The subsidy was enough to pay off the fishermen’s debts and left them with a substantial amount of money to spare, according to their accounts.
Instead of winding down the business, the two fishermen bought a new boat with this EU money—taxpayers’ money—and continued just as before. Extraordinarily, the owners were open with their plans all along and did not break any rules. That is because their new boat is less than 10 metres long, which means that different rules apply and they can continue to fish in the North sea. “We said exactly what we were going to do when we applied for the scrapping subsidy,” one of the fishermen said.
We mentioned sums that are too large to imagine. A total of €8.5 billion was spent failing to improve infrastructure in Sicily. Given the lack of time, I shall not trouble the House with too much of the detail. Suffice it to say that €700 million was spent to improve water supply throughout the island, but the percentage of families who experienced patchy “stop-and-flow” supply of water increased from 33% in 2000 to 38.7% in 2008. I point out the fact that Sicily has a population of only 5 million people. The subsidy amounted to £1,700 per head—clearly not enough to rebuild Sicily, but enough, I would have thought, to rebuild its infrastructure.
Finally, an example that I hesitate to bring to the House in the present circumstances—€2.5 million was spent on an Austrian nomadic contemporary dance troupe. My hon. Friends know that I am a great fan of Austria, but I am not sure that my hard-pressed taxpayers in Micklefield, Oakridge and Castlefield, and indeed in Disraeli, where they are particularly hard pressed, should be paying tax in order to fund a group that travels around Europe meeting and dancing with other dance troupes to contribute to the development of dance. I am sure none of us would condemn the funding of culture, but nomadic contemporary dance troupes should fund themselves.
This is the 16th time that the statement has not been signed off. We should condemn this showcase of fraud, incompetence and, where not fraudulent or incompetent, inappropriate spending. We are told that we cannot withhold our money. What a preposterous situation we have reached when our constituents are being taxed and we cannot withhold money from these ridiculous projects. I hope that next year the Government will bring before the House a motion that much more strongly condemns such waste and fraud. Unless we deal with the problem, the next important question on the EU will be simple—in or out?
Justine Greening
May I say how much I appreciate the contributions made by all hon. Members across the House this evening? They were made with passion and frustration at the continued unacceptable situation of the European Court of Auditors persistently not being able to sign off the statement of assurance that we want signed off to give us the kind of confidence that my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) was just speaking about. I can tell hon. Members that I share their frustration. My task is to channel that deep frustration into positive steps to address some of our concerns.
In the short time that is left, I shall try to respond to Members on some of the points that they have raised. The hon. Member for Bristol East (Kerry McCarthy) is absolutely right to say that the procurement rules need to be simplified. The recovery rate is moving in the wrong direction, but we want to see it start moving in the right direction.
My hon. Friend the Member for Stone (Mr Cash) is absolutely right to talk about the need for improved standards. We want to work with other member states to improve the ability of the European Court of Auditor to perform its role. I absolutely agree with the hon. Member for Luton North (Kelvin Hopkins) on his frustration with the poor value for money that the common agricultural policy represents. The Government are making the case, as the previous Government started to make, that the fund must become better value for money for taxpayers. His other point about flexibility for member states to make their own decisions on how they spend the money and meet their own priorities was quite right.
My hon. Friend the Member for Daventry (Chris Heaton-Harris) is right that one part of the debate that we did not have tonight, and which I thought might have come up more, was the discharge process. He is right to point out that we have not used that process to challenge the poor financial management. I think that previous Governments have just signed that off and said that there was no need for discussion. That is not the position of this Government. We will start using the discharge process and having a discussion at the senior level, because we do not believe that we can afford not to.
Steve Baker
I welcome the Minister’s remarks, but given the figures that my hon. Friend the Member for Daventry (Chris Heaton-Harris) quoted on the European Parliament’s voting record, does she not agree that it seems rather futile to expect that the European Parliament might fail to discharge?
Justine Greening
Clearly, the European Parliament will take its decisions. I am talking about our role within the European Council and the discussions that we will have as a member state there. I can assure Members that we are talking with other member states about why we find this position unacceptable and to see what support there is for having that proper debate at the European Council meeting on 15 February so that we can resolve some of those outstanding questions and ensure that financial management becomes a priority in a way that it has not been in the past.
Question put and agreed to.
Resolved,
That this House takes note of the Unnumbered Explanatory Memorandum dated 25 November 2010 submitted by HM Treasury on the implementation of the 2009 EU budget, the Unnumbered Explanatory Memorandum dated 24 November 2010 submitted by the Department for International Development on the activities funded by the Eighth, Ninth and Tenth European Development Funds in the financial year 2009, European Union Document No. 12393/10 and Addenda 1 and 2 on Protection of the European Union’s financial interests, European Union Document No. 13075/10 and Addendum, relating to an annual report to the discharge authority on internal audits carried out in 2009, the Unnumbered Explanatory Memorandum dated 22 October 2010 submitted by HM Treasury on the European Anti-Fraud Office’s tenth activity report for the period 1 January to 31 December 2009, and European Union Document No. 16662/10 and Addenda 1 and 2, Commission Report to the European Parliament and the Council on the follow-up to 2008 Discharge; and supports the Government’s continued engagement with its EU partners to improve financial management of the EU budget.
National Insurance Contributions Bill
Steve Baker Excerpts(13 years, 3 months ago)
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Kelvin Hopkins
I shall speak briefly in support of the amendment. I strongly endorse what my right hon. Friend the shadow Health Secretary and, indeed, my hon. Friend the Member for Walthamstow (Dr Creasy) have said. Strains in the health service are already being felt, as are pressures on jobs. In my constituency, we are already seeing job losses in the primary care trust and the hospital trust.
There are obvious points to be made about the increasing costs of modern treatments and the reorganisation mentioned by my hon. Friend the Member for North Durham (Mr Jones), who is no longer in the Chamber. Even Conservative Members have suggested that that reorganisation will lead to further privatisation of the health service, and private health services are inherently more inefficient than public health services. The Americans spend twice as much on health as we do, yet millions of Americans have no proper health cover, because private sector health care is much more expensive than public sector health care. We want to keep public health care in the public sector. Indeed, I believe that even the services that have already been privatised should be returned to a full public national health service. I am sure that Nye Bevan would agree. No doubt he is turning in his grave at this moment at the thought of what the Tories are going to do to the health service, but that is a debate for another day.
However, there are other, less obvious points to be made about the health service. It is, for example, inherently labour-intensive. Unlike manufacturing, it cannot take advantage of productivity gains. Its costs rise not in line with inflation, but in line with average earnings. If we are to ensure that health service employees are properly paid, there must be real-terms increases equivalent to the rise in earnings, not just the rise in prices. In general, earnings rise more quickly than prices as the economy grows, although that is not necessarily the case at present. If we are to have a health service that is as good as we wish it to be, we must bear the employment costs in mind.
I agree with what my right hon. Friend the Member for Wentworth and Dearne (John Healey) said about what Labour achieved during its 13 years in office by increasing spending and improving the quality of the health service. The previous Tory Government had left it in a terrible state. However, although the improvements have been massive, there is still more to do. We must not allow health service funding to be threatened in the ways that have been mentioned today. Amendment 8 is important because it will ensure that that funding is protected. There are many other problems in the health service, and we must not put more pressure on it. We do not want what happened at Stafford hospital to happen elsewhere because of underfunding and understaffing in wards. We must ensure that the service is properly funded.
Steve Baker (Wycombe) (Con)
I cannot help wondering whether the hon. Gentleman realises that Buckinghamshire, for example, has inherited an underfunding of 17% per head in comparison with the national average. I am afraid that Labour did leave us a legacy of underfunding, although only in certain parts of the country.
Kelvin Hopkins
I believe that there is a massive difference between the proportion of gross national product spent on health under the Tories before 1997 and the proportion spent on it now. Although I think that we should spend more on health—I have always argued that we should spend as much on it as Germany and France, but we have still not quite reached those funding levels—we have made massive improvements.
For a long time I complained that health service spending in Luton was below the fair funding target. We lobbied our own Ministers heavily on the issue, and I think that we made some progress in persuading them to move in the right direction, but we must ensure that health funding in all areas increases as a proportion of GDP. I hope that Buckinghamshire as well as Luton North will benefit in that regard.
We must accept that improving health care sometimes means increasing rather than decreasing labour intensity. Health care will improve if a ward containing 20 beds and two nurses is given a third nurse. That is certainly true in the elderly care sector, about whose future I am seriously concerned. The fact that our population is ageing is an additional major burden for the health service. We all want to ensure that we are cared for properly when we are elderly—even more elderly than I may be at present. When we are elderly and need care, we want that care to be properly funded, so that we do not suffer in the later stages of our lives.
I strongly support what was said by my right hon. Friend the Member for Wentworth and Dearne, and I hope very much that the Government will accept the amendment.
Loans to Ireland Bill (Allocation of Time)
Steve Baker Excerpts(13 years, 4 months ago)
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Mr Bone
Mr Speaker, you would rightly tick me off if I answered that question. That is a matter for the Second Reading debate, because it is to do with the issues in the Bill. I am expressing no view on that at the moment. However, unless we have adequate time to discuss those issues, the hon. Gentleman’s point might not be clarified.
Lack of parliamentary time cannot be an excuse for this motion. The advantage of splitting the debate over two days is that it would allow a proper debate on Second Reading today. I believe that many Members would like to take part in such a debate. It would also allow amendments to be tabled in the normal way, and enable us to have a proper debate in Committee, with time for a debate and votes on each of the amendments. There would also be time for a Third Reading debate.
I understand that the Government have tabled a manuscript amendment today, although I have not seen it. That amendment has been tabled without allowing Members the time to consider it. That just shows the weakness of this procedure. If the allocation of time motion were defeated, we would have a full Second Reading debate and the Government would have to rearrange their business to provide for the Committee stage and Third Reading. The loan would still go through, but the Bill would have been properly debated and, if necessary, amended. Defeating the allocation of time motion would not wreck the Bill; it would simply give more time for proper scrutiny so that the Bill could be improved. We have already seen that the Government have tabled a manuscript amendment. What will happen if, during the 15 minutes of the Second Reading debate, a Member decides that they want to table an amendment? They just will not have time to do it.
How does the motion fit in with the principles behind parliamentary sittings? The present timetabling of our sittings is broadly based on the Jopling reforms and encompasses three principles. It is against those three principles that we should judge the Bill today. The first is that the Government must be able to get their business through, and, within that principle, ultimately control the time of the House. Secondly, the Opposition must have the opportunity to scrutinise the actions of the Government and to improve or oppose legislation as they think fit. Thirdly—this is of more interest to me—Back-Bench Members on both sides of the Chamber should have reasonable opportunities to raise matters of concern from their constituents. A number of my constituents have contacted me with concerns about this Bill.
A major role of Members of Parliament is to scrutinise and review legislation. It is a well-known fact—I doubt that anyone in the House would disagree with this—that the better the scrutiny, the better the Bill. It is also a major role of Members of Parliament who are not members of the Executive to hold the Executive to account, whichever party or parties make up that Executive. That is one of the most important roles we have as Members of Parliament. This motion removes that role. It is appalling that the coalition Government should try to stifle that essential function. I have long campaigned for more transparency and debate in Parliament. I strongly believe in strengthening the role of the Back Bencher. The erosion of parliamentary power to scrutinise legislation has been a long-adopted approach by successive Governments. This motion, I am afraid, is a step too far. Individual Members of Parliament attach a great deal of importance to scrutiny and accountability, and problems arise when the Executive try to deny us that right.
The Government have declared that amendments must be tabled before Second Reading, which is ludicrous. They ask MPs to table amendments before we have had a chance to hear what the Minister has to say. How can MPs properly table amendments when they have not heard the details and the arguments? Despite that difficulty, 11 amendments have already been tabled. The Government were forced to produce a three-page document—I have it with me—of amendments, and another five-page document on their justification for rushing the Bill through. These documents were produced only in the last few days. How can they, and the amendments, realistically be scrutinised if the Bill goes through all its stages today? It is just not possible.
The House of Lords got rather fed up with the Commons bouncing it, so it has now come up with a procedure whereby the Government have to answer a number of questions—I think it is eight—before they can get a Bill such as this through. Those questions are printed in the explanatory notes to the Bill. Let us look at some of them for a minute, and see whether the answers hold up to scrutiny.
The first question is: “Why is fast-tracking necessary?” The notes go on to explain that the proposal is for a bilateral loan, and that the timing of the UK’s proposed loan is currently unclear. They state:
“It is necessary to fast-track the Bill so that the UK’s international partners can be confident that the bilateral loan will be implemented.”
That is an absolutely hopeless answer to the question. It does not tell us why the Bill is being fast-tracked. It is ridiculous to suggest that our international partners would think that, because we had not taken another day or two to debate the Bill, the Government were not going to proceed with the loan.
The next question is:
“What is the justification for fast-tracking each element of the Bill?”
Again, there does not seem to be an answer. The notes state:
“The Bill is a short Bill, with few substantive provisions other than to provide for sums required by the Treasury”.
Yes, the Bill is short because many of the provisions deal with statutory instruments and affirmative resolutions. It is an important Bill, but it is short because many of the provisions do not go into detail. That is exactly why we need a proper Second Reading debate. I do not think that the Government have answered that question either.
The next question is a good one:
“What efforts have been made to ensure the amount of time made available for parliamentary scrutiny has been maximised?”
The answer is:
“The Bill is being published on the same day it is introduced and arrangements are being made for amendments to be accepted in advance of second reading in the House of Commons.”
How on earth does that answer the question about making time available for parliamentary scrutiny? It is like the Prime Minister being asked a question at Prime Minister’s questions and giving an answer to a completely different one. It might be a good answer, but it is not the answer to the question that was asked.
The next thing that the Lords want to know is this:
“To what extent have interested parties and outside groups been given an opportunity to influence the policy proposal?”
The answer talks about our European Union colleagues, but the key is in the last sentence, which states that
“there has been limited opportunity to give interested parties and outside groups an opportunity to influence.”
By the Government’s own admission, they have failed in regard to that question.
The next question asks whether the Bill includes a sunset clause. The Government can argue, with some justification, that it does, because it stipulates a period of five years. It does not tell us when the loans are to be repaid, but it places a five-year limit on the period in which they can be made. That is not what is normally understood by a sunset clause, however. Sunset clauses normally stipulate that in, say, a year’s time, Parliament will look again at the legislation to see whether it is correct.
The next question is:
“Are mechanisms for effective post legislative scrutiny and review in place? If not, why do the Government judge that their inclusion is not appropriate?”
The answer states:
“The Bill provides for regular reports”.
On that one, I will give the Government a tick. So far, they have passed one of the six tests. The next question is:
“Has an assessment been made as to whether existing legislation is sufficient to deal with any or all the issues in question?”
The Government do not really answer that one. They say:
“Statutory authority for such expenditure is required in accordance with the Concordat of 1932 between the Government and the Public Accounts Committee.”
I am unclear as to what that means, but it does not seem to answer the question that has been asked. The final question is:
“Has the relevant Parliamentary committees been given to opportunity to scrutinise the legislation?”
The explanatory notes were drawn up in such haste that the spelling of the question was incorrect, but the simple answer to it, as I hope my hon. Friend the Member for Stone (Mr Cash) might confirm, is that no such scrutiny has taken place.
In concluding my opening remarks, I want to say a few words about what I think is wrong. Let me state to the House how this mother of Parliaments should work in relation to timings of debates. The driving principle of reform should be the redistribution of power—from the powerful to the powerless. That means boosting Parliament’s power to hold the Government of the day to account. The House of Commons’ historic functions were to vote money for Governments to spend, and to scrutinise laws. It now barely bothers with the first, and does the second extremely badly. There was a time when legislation that had been formulated after months of civil service and ministerial deliberation was sent to the House of Commons which would pore over it, shape it and send it back, get it back, look at it again and improve it some more—Bill by Bill, clause by clause, line by line. Every piece of legislation would be put under intense scrutiny. Is it legally sound? Will it be effective? Is it worth the cost?
Let us compare that with today. Let me take Members on the journey of a piece of legislation as it passes through the modern House of Commons. It is likely to have been dreamt up on the sofa of No. 10. A Bill is drafted and it is sent to the House for a couple of hours of routine debate among a few MPs. Then the bells ring, the whips are cracked and suddenly, out of nowhere, all the Members turn up to vote. More often than not, they do not even know what they are voting for. The Bill limps through. Then it goes into Committee. The Committee’s duty is to look at the detail clause by clause, but it is packed full of people that the Whips have put there. So, surprise, surprise, the Government rarely lose a vote on any of the individual points of detailed scrutiny. Then it is back to the House to do it all again—debate, bell and then vote to wave the legislation through.
Every Bill now has a programme motion setting out how much time can be spent scrutinising and debating each part. There are automatic guillotines, and the time allowed for scrutiny is set in advance, before anyone can see whether or not a particular issue is contentious or complex. Watching a Minister in the Commons drawing out one point for an hour to fill the time, to an audience of dozing Back Benchers—that is not accountability. How can the mother of all Parliaments turn itself into such a pliant child?
Unfortunately, I cannot claim credit for that last section of my speech. It was in fact from a speech on fixing broken promises delivered on 26 May 2009 by my right hon. Friend the Member for Witney (Mr Cameron). I do not think that Ministers on the Front Bench today want to upset the Prime Minister. So they have an opportunity, before the conclusion of the debate, to say that they will withdraw the allocation of time motion, and that we will have proper debate.
For many years I have sat on the Back Benches imploring others to give more time for Parliament to scrutinise legislation. I believe that to be the fundamental role, not only of the Back Bencher, but of Parliament itself.
Steve Baker (Wycombe) (Con)
I am most grateful to my hon. Friend for giving me the opportunity to say just how much I stand behind the Prime Minister in his remarks, which my hon. Friend has so generously shared with the House. However, does my hon. Friend agree that if this bail-out is necessary at all, it is an emergency?
Mr Bone
My hon. Friend is tempting me to enter the debate, which I am not going to do, and as time is short, I shall conclude my remarks.
Time is all we have as Back Benchers, and if that is taken away from us, so is power. I urge all parliamentarians in the House to vote against the guillotine motion.
Banking Reform
Steve Baker Excerpts(13 years, 5 months ago)
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Mr Umunna
I am going to make progress, because I do not have much time.
I welcome the introduction of the independent banking commission, which the new Government were right to set up. Without pre-empting the commission, I firmly believe that we should separate retail from investment banking. There is some consensus on that, but it is a question of degree.
Mr Umunna
I am afraid I am going to continue.
Do we go for the Dodd-Frank model, which has just been implemented in the United States, or the Glass-Steagall model, which was in place from the 1930s until recently? Mervyn King has moved a little on the issue. At the Treasury Committee last week, he was very clear that he would not give his view on it until the Vickers commission reports, but Lord Turner doubts that it is possible to separate proprietary trading from commercial banking. That is why I am sympathetic to the Glass-Steagall model, but I am happy to see what the banking commission comes forward with.
I shall conclude by considering some wider issues. I should like two key outcomes from the reforms currently being implemented. First, to pick up on the comments of my hon. Friend the Member for Leeds East (Mr Mudie), we need to return to the notion of our banks as a utility. They are a utility and should be treated as such, because they are absolutely essential to our everyday lives. We have lost sight of their purpose, because we have a allowed a big, shadow banking structure to evolve while 1.75 million adults on lower incomes do not have access to basic banking services. I should like us to introduce a universal banking obligation, so that everybody has access to such services. It is a great shame that the Government have decided to do away with their commitment in the coalition agreement to introduce a people’s bank through the Post Office, because that would have been very good.
Secondly, I agree with the hon. Member for South Northamptonshire that we need greater diversity in the sector. It is dominated by a few major players, and there has been only one start-up entrant in the market, Metro bank, since 2008. In particular, I should like serious consideration to be given to breathing life into the mutuals sector. Why do we not seriously consider remutualising Northern Rock and Bradford and Bingley, as opposed to privatising them, so that we increase the diversity of providers in the sector for our constituents?
There is no magic bullet when it comes to reforming financial regulation. The previous Government made a good start; it is absolutely crucial that the coalition Government build on that.
Steve Baker (Wycombe) (Con)
Like other Members, I welcome this debate and congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on securing it. I will oppose the motion for two reasons. First, I believe that the Government have acted briskly within the terrain of the current debate. I will speak about that terrain, because I believe it should be moved. Secondly, I should like to challenge the notion that we should have a clearing house for over-the-counter derivatives.
I believe that the question of whether a clearing house should be provided, and under what circumstances, is a matter not for legislators but for the market. The problem with derivatives is accounting rules that allow profits to be recognised many years in advance, and that substantially reduce the capital requirements for derivatives in comparison with loans. That, of course, is inflationary in itself, stoking the activity that has caused the problem.
Not only has regulation of derivatives been of poor quality, but derivatives are susceptible to regulatory arbitrage. Indeed, as was mentioned earlier, financial institutions employ large teams of very intelligent people specifically to construct derivatives to arbitrage away the regulations that are put in place. A clearing house would obfuscate counterparty risk, with unintended consequences, and, as clearing houses always do, it would reduce the demand for cash balances in banks, thereby promoting inflation. For all those reasons, I believe it falls to us as legislators to create the right environment for banking, based on property and contract, not to mandate any particular solution such as a clearing house.
To challenge the terrain of this debate, I should like to take the House back to a landmark in the development of British monetary and banking orthodoxy—the Bank Charter Act 1844, also known as Peel’s Act. It represented the victory of the currency school over the banking school. The former had realised that systemic crises and banking collapses were largely attributable to the excess creation of fiduciary media—that is, claims on money not backed by a fund of actual money. The Act, introduced by Peel, therefore eliminated the practice of banks issuing their own notes. Unfortunately, the currency school had not realised the economic equivalence of notes and demand deposits, so the Act left the banks virtually unmolested in their ability to issue fiduciary media.
My hon. Friend the Member for Bromsgrove (Sajid Javid) mentioned the wall of money that hit the markets, and we might reasonably ask where that wall of money came from. It has become common practice to say that interest rates were too low for so long, and therein lies the insight. When that happens, people are encouraged to borrow and the banks are encouraged to extend fiduciary media well in excess of real savings. Low interest rates ought to indicate prior production and real savings, but when central banks deliberately suppress interest rates and issuing banks pour fuel on the fire by issuing fiduciary media, what we find is that wall of money hitting the market. In our case, that money principally headed off into the housing market.
At the heart of our difficulties is the fact that there was an omission in the 1844 Act. The deposit-taking banking system is built upon that Act and a body of case law, which have left the banks with the legal privilege of treating demand deposits as their own property. That allows the system as a whole to create a wall of fiduciary media. That is the heart of our crisis, but it is not part of the mainstream contemporary debate, and I believe that it should be.
In the last minute of my speech, I should like to touch on some other issues that have not formed part of the debate, the first of which is risk management. The entire brilliant edifice of modern financial theory is built on the assumption that risk in markets follows a Gaussian distribution, but that is not true. Market events follow a long-tailed distribution, as Mandelbrot and others showed. I very much wish that risk managers would take that into account in their strategies.
If we were to look more broadly at the money and banking system, and ask ourselves how we could characterise it, we would find central planning, legal privilege, the socialisation of risk, Government monopoly, complex regulations that are often arbitraged away and, of course, ad hoc intervention. We would not find clear property rights, freedom of contract and the consequences of bearing one’s own risks.
We have a lot to do in money and banking, but we must transcend the problem of blaming individual bankers. Yes, individuals have done much wrong, but the system is deeply flawed and we can trace its flaws back to the development of the British monetary orthodoxy. It is that orthodoxy that we must challenge.
David Mowat
I intended to address that later in my remarks, but I shall take it head on. Lehman Brothers was a bad bank and it rightly went bust. However, that affected a whole lot of other banks, which required massive Government bail-outs, because there was no firewall. Nothing in my remarks will imply that retail banks such as Northern Rock will never go wrong or need to be saved. Frankly, my hon. Friend’s example makes my point rather than contradicts it.
Two or three hundred years ago, capitalism was developed by joint stock companies, which was a clever and wonderful thing. If such companies made the right decisions and were wise, they prospered and grew. The other side of that was that companies failed if they made unwise decisions or mistakes, lost money, or failed to recognise risk—Gaussian distribution or not. In the past 15 to 20 years, unintentionally, a new type of company has emerged. Such companies are not subject to the same penalties for risk as other businesses. That creates moral hazards and poor decisions. In the end, that was a large contributing factor to what happened in this country two years ago.
The arguments in favour of a firewall are overwhelming, but what are the arguments against it? The principal argument against a firewall has been the subject of the most intense banking industry lobbying imaginable, and I hope that when the time comes to legislate, hon. Members and the Government do not bow to it.
The first argument is that such a separation implies that investment banking, derivatives and all that goes with that are casino-type activities and of less value to society. I do not think that at all. I sold my business to investment bankers, I like investment bankers and I understand why we sometimes need derivatives. I have no problem with those instruments, but I do have a problem with the fact that if the people using them mess up, they cannot go bust, because there is not a firewall between their activities and the rest of the banking world. That is the problem.
The second argument was raised just now by my hon. Friend the Member for Central Devon (Mel Stride)—the Northern Rock and Lehman Brothers example. I will not repeat what I said, except to say that Lehman Brothers should have been allowed to go bust, but should not have been able to bring in billions of dollars of taxpayers’ money after it, as it did.
The third argument is that a firewall would be too complicated: banking has now got global and is so mixed up that we cannot separate out investment banking and retail banking. Well, we can. The Basel III agreement contains a requirement that the capital considerations for each part of the banking portfolio be different. That can be done.
The fourth argument is that we can do all this with capital ratios and that if we impose them on banks we will not need this firewall, this separation. That is partly true, but actually they are not mutually exclusive—we need both—and, as was said earlier, capital ratios, unless we are careful, will shrink bank balance sheets and reduce lending at a time when we want more credit. What I am proposing would not do that.
The fifth argument is that, if we did this in this country, in front of the rest of the world, it would put our banks at a competitive disadvantage. That might be true—it is a reasonable argument—but I would say two things in response: first, the banking sector in this country is about four to five times as significant, as a proportion of GDP, as it is in any other country, so we ought to be leading the world in this regard. It matters more to us. Secondly, even if the argument is right, it is not a reason for us not to try to get the world behind us, create these firewalls and get this under control.
Steve Baker
My hon. Friend makes a compelling case. Will he consider the case of fixed-rate products—fixed-rate savings or fixed-rate mortgages—because it seems to me that such products are bound to bring the savings and loans business into contact with the investment business, through interest rate swaps?
David Mowat
I thank my hon. Friend for that intervention. My third argument was that these things are all so complicated and mixed that we cannot separate them out in the way I propose. I made the further point, however, that we have to do that, under Basel III. However, as recently as 15 years ago, firewalls were in place, so it is not that difficult and it can be done, if there is the will. The requirement on moral hazard is such an overriding necessity of capitalism that when it goes, it is terribly dangerous. And it has gone now, which is the guts of what we have been talking about for most of this afternoon.
I am not the only one saying that. Paul Volcker, who was previously head of the Federal Reserve, and John Reed—not the John Reid who used to sit on the Labour Benches, but the John Reed who used to run Citigroup—have asked for this firewall to be put back in place. The Governor of the Bank of England, too, said that of all the different ways we could choose to organise a banking system, the way we have chosen to do it in the UK is among the worst imaginable. We have to act on this. It is very important, and I hope that, notwithstanding the Vickers report, the Government will show leadership on this matter.
Draft EU Budget 2011
Steve Baker Excerpts(13 years, 6 months ago)
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Chris Heaton-Harris
I suppose so; I have heard it put in slightly more complicated terms. At the end of the qualified majority voting process, member states coalesce into different groups and it is quite remarkable that we have so many member states on our side at this time. That is something else that the Labour Government utterly failed to achieve on any occasion when it came to the budget. I think we are heading in the right direction.
I want the House to give our Economic Secretary the strong message that a number of us are simply reflecting the views of the people who elected us to this place. They see a lot of money being wasted and a lot of excess in the European Union and they know that we want to do something about it, but we need to negotiate from a very strong position. I know that the Economic Secretary is an unbelievably good negotiator. She speaks many languages when she goes abroad to talk to our European friends and those with whom we have to negotiate. I would like her to know that when she goes into those negotiations she can say, “This Government have taken a perfectly reasonable position. We are reasonable, but look at the Members of the House of Commons who are trying to represent their constituents—they are absolutely livid about the position the Government are taking just to get a half-decent cut, or maybe a standstill, in the European budget.” We are trying to give extra force to her argument—nothing more, nothing less.
I commend what we are doing in the European Parliament. My colleague James Elles, a Conservative Member of the European Parliament, has tabled many fantastic amendments, some of which might go through, because he is an able negotiator who knows the institutions very well, and some of which will not. However, we will still end up in the same position whereby, at the end of the process, the European Commission’s budget is bigger this year than it was last. That is unacceptable to the British public.
President Barroso recently gave a state of the Union address. I talk about that because I want to put into context where the argument sits now. We might be talking about the 2011 budget for the European Parliament, and I am trying to look forward to how we negotiate in the negotiations that are just opening up for the next financial framework. President Barroso put his cards on the table in his state of the Union address: not only does he want more money, but he wants to raise it in a completely different way. A former Minister for Europe talked about own resources; essentially, President Barroso would like to have a European tax. There is a debate for us to have on that.
Some people want a European tax because more member states are having debates such as the one in the Chamber today whereby their parliamentarians say, “You are spending a lot of money from direct taxation, not from the way you used to raise it.” My hon. Friend the Member for Hertsmere (Mr Clappison) referred to that and it is unacceptable in the current economic climate.
Steve Baker (Wycombe) (Con)
My hon. Friend adds a great deal to the Chamber with his wealth of experience. For those of us who are new to the EU institutions, will he explain how members of the British public may cast a vote to dismiss President Barroso?
Chris Heaton-Harris
That is a good question. I am not convinced that it is possible. There is only one way to get rid of any European Commissioner, and that is to get rid of the whole lot. That involves a process that an individual constituent— [Interruption.] No, I did not. I was way too young to be there.
Equitable Life (Payments) Bill
Steve Baker Excerpts(13 years, 7 months ago)
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Steve Baker (Wycombe) (Con)
I wonder whether the hon. Member for Derby North (Chris Williamson) has been listening to the same debate as I have. I hope that his constituents do not read his speech in isolation, because in the debate to which I have been listening Government Back Benchers have made it absolutely crystal clear that they will stand up for the members of Equitable Life.
I support this short, technical Bill, but I should like to make some wider points. I endorse many remarks that previous contributors have made, but I disagree on a couple of minor points. Those points are on the margins but, in the long term, absolutely vital, so I hope that Members will bear with me.
One key point is that the state manufactured the problem, or at least manufactured it to the extent that it is with us today: the state enabled Equitable Life to continue to attract new business when it should have folded. If I have understood correctly what I have been told, I should note that if Equitable Life had folded at the first opportunity, a smaller number of policyholders would have received 90% of their due, many years ago. Instead, state action means that very large numbers of people today are concerned about receiving much less, many years after the fact.
In government we have been handed a situation in which there is no doubt that the state must compensate Equitable Life policyholders, and it must do so honourably. That is what many of us signed up to in good faith, even though we knew that the cupboard was bare. The simple fact is that a fair sum must be found.
However, we should not pretend—as, I am afraid, Equitable Life’s own briefing note does—that by paying a demonstrably fair level of compensation, the Government would, at a stroke, restore people’s faith in saving for their retirement. This is a difficult point, but I should like to make it anyway. It is vital for the future that we reaffirm that the Government have nothing to give without first taking it. The state can only tax, borrow or debase the currency. It can only transfer wealth; it cannot create it. In the case of Equitable Life, the state has shown itself incompetent to supervise pension funds and incompetent to clean up the mess that it makes. It also turns out that the state is incompetent to run pension funds.
In my speech on 22 June, I cited “A Bankruptcy Foretold”, a paper by the Institute of Economic Affairs that set out the true scale of the national debt. I am afraid that the numbers have been updated over the summer, as the Office for National Statistics released some further figures. Writing on the IEA’s website, the author, a Mr Nick Silver, who is an accomplished actuary, points out that the state now owes, including pension liabilities, a staggering £6.5 trillion. To save Members from reaching for their calculators, I should say that full compensation for Equitable Life victims would amount to one tenth of 1% of our current national debt, including pension liabilities.
Having considered the assumptions about how that pension liability might be met, Mr Silver writes:
“Looked at this way, the UK is effectively an enormous unfunded and effectively bankrupt pension scheme, with a large speculative holding in some banks and a sideline in running a small island state off the northern coast of France.”
Perhaps he exaggerates, but having read his paper I am afraid I must suggest that he does not. That is what we have been reduced to.
We must see the Equitable Life situation in context—and it works both ways. Government Members know that the billions add up, but I am afraid that we are getting to a point at which the trillions are adding up. In the short term, we must absolutely deal with this problem; we must maintain our honour and help the members of Equitable Life.
It turns out that the state is not competent to supervise pension funds or run them. Bearing in mind the events surrounding the banking system, other Members might agree that we can fairly say that the state is not competent to supervise financial services at all. I believe that we need sound financial law, not arbitrary intervention by regulators. I am happy to say that tomorrow my hon. Friend the Member for Clacton (Mr Carswell) and I will introduce a Bill that will begin to indicate the right direction of travel.
In this Parliament, we must deliver an honourable settlement for Equitable Life policyholders. There is absolutely no doubt that we are under an obligation to do so. But let us not pretend that wealth transfers can encourage saving or that the Government have an inexhaustible horn of plenty from which to insure everyone’s risks at the expense of everyone else. If we are truly to honour our constituents, we must face the world as it is, and together construct a more hopeful future, in which the Government cease to trample the forces of social co-operation thereby manufacturing problems greater than those that they face.
In the meantime, it is clear from what we have heard today that if the Government give EMAG members a haircut of very much more than 30% to 40%, the Government will have a very rough ride.