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House of Commons

Thursday 24 January 2008

The House met at half-past Ten o’clock

Prayers

[Mr. Speaker in the Chair]

Oral Answers to Questions

TREASURY

Northern Rock

1. Bob Spink (Castle Point) (Con): What assessment he has made of the effect the run on Northern Rock has had on the attractiveness of the UK to financial institutions; and if he will make a statement. [181406]

2. Mrs. Nadine Dorries (Mid-Bedfordshire) (Con): What assessment he has made of the effect the run on Northern Rock has had on the attractiveness of the UK to financial institutions; and if he will make a statement. [181407]

The Chancellor of the Exchequer (Mr. Alistair Darling): With permission, I shall answer Questions 1 and 2 together. The United Kingdom remains in a fundamentally strong position. London remains the leader in international financial markets, and we are determined to keep it that way.

Bob Spink: Thousands of my constituents work in the City of London. They go up every day on the train. What reassurance can the Chancellor give them that his delay and dithering are not harming their job prospects?

Mr. Darling: I appreciate that London is important—not just important to the hon. Gentleman’s constituency and the wider south-east of England, but crucially important to the whole United Kingdom.

We should recognise two things. First, what happened to Northern Rock arose fundamentally because of a mistake made by its management, who had a business plan that simply could not operate when the money markets dried up for them. In relation to London generally, it is recognised throughout the world that our regulatory regime is sound and that our approach is right. London is a recognised world centre for much of the world’s financial trade, and I am determined that it should remain so in the future.

Several hon. Members rose

Mr. Speaker: Order. I am due to call the hon. Member for Mid-Bedfordshire (Mrs. Dorries). Can the Chancellor assure me that it was made clear that her question would be linked to Question 1?

Mr. Darling: Yes, Mr. Speaker, and I understood that it was linked.

Mr. Barry Sheerman (Huddersfield) (Lab/Co-op): Is my right hon. Friend aware that many people in my constituency, in the north of England, and indeed in the City believe that the Government’s handling of the
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Northern Rock crisis has been first-rate? Jobs have been preserved, the bank is being preserved, and we have an opportunity to save the reputation of the financial services on behalf of our country and the economy. Is my right hon. Friend aware that some of us are sick to death of Conservative Members who could not in any way run the proverbial chip shop—

Mr. Speaker: Order.

Mr. Darling: I probably do agree with much of what my hon. Friend has said.

As I told the House in my statement earlier this week, we are in a difficult position to which, in an ideal world, it would have been good to find a purely commercial solution. Our problem, recognised by at least some Conservative Members, is that the very market conditions that precipitated the problems for Northern Rock are continuing, and it will be obvious to those who look at what is currently happening in the financial markets that those conditions are difficult.

I believe that what I set out on Monday was the right thing to do. I want to ensure not only that we protect the interests of taxpayers and depositors, but—importantly—that we maintain financial stability. As I said to the hon. Member for Castle Point (Bob Spink) a few moments ago, we should all bear it in mind that in the City of London we have one of the finest assets in the world.

Mr. Mark Field (Cities of London and Westminster) (Con): In view of the Bank of England’s role in the Northern Rock saga, can the Chancellor give any reason why he feels that we should not appoint Mervyn King to a second term as Governor?

Mr. Darling: I have made it clear that the matter of appointments will be dealt with in due course. As I said on Monday, I intend next week to publish wide-ranging proposals to strengthen our regulatory and supervisory regime.

John McFall (West Dunbartonshire) (Lab/Co-op): I know from visits by the Treasury Committee to Washington, Frankfurt and Brussels that the pre-eminence of London as a financial centre is not in doubt, but we need to do two things: reform the tripartite arrangement and address the international dimension. That is the case whether we are talking about liquidity tests, which many countries have not undertaken, or rating agencies. Those two issues are paramount, and I hope that when the Chancellor receives the Treasury Committee’s report on Northern Rock he will not only include it in the consultation exercise, but take our comments on both issues seriously.

Mr. Darling: I hope very much that we can do that. I understand that the Committee’s report will be published fairly quickly, and once we have read its conclusions I shall accommodate as many as possible.

My right hon. Friend’s other point is equally important. This is very much an international problem. Some of the problems that are affecting banks are affecting them all over the world. We need to look at early-warning systems, and also at the position of the credit rating agencies. As I have said before, I have always regarded them as simply a source of advice for
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companies, not a substitute for their judgment. We also need to look at the recommendations for the Financial Stability Forum, which we will discuss with Finance Ministers when the G7 meet in Tokyo in a couple of weeks.

The last thing I would say is that although I can see that it is very tempting from the Opposition’s point of view to run down the City, those working in the City and people in the country as a whole deeply resent it when the Conservatives attempt to do that. Actually, the City is very important to us.

Mr. Mark Hoban (Fareham) (Con): The Chancellor blames the situation on international turbulence, but it is only in Britain that the threat of nationalisation hangs over a bank, it is only in Britain that there is a run on a bank, and it is only in Britain that £55 billion of taxpayers’ money is at risk. Is that not why the Chancellor’s own advisers, Goldman Sachs, said:

[Interruption.] His own advisers said that. By damaging that reputation, has he not put at risk jobs not only in the City of London but across the UK, as well as tax revenues and economic growth, and all because of his dithering and delay in dealing with this crisis?

Mr. Darling: Mr. O’Neill is a widely respected commentator, but his view on that particular point is not universally shared. Indeed, many people who work in the City and in London recognise London’s importance to the UK. I said a few moments ago that I thought the Conservatives’ comments were unhelpful, and the hon. Gentleman has duly obliged by emphasising that point.

On the hon. Gentleman’s other points, if he cares to look back over events of the past few months he will see that banks throughout the world have been affected by the current problem. That demonstrates that although there are huge advantages in globalisation, huge challenges can also arise, as we can see only this morning.

Mr. George Mudie (Leeds, East) (Lab): Olivant and Virgin were given preferred bidder status on the basis of a main feature of their bid being repayment of £10 to £15 billion-worth of debt. Now that that has disappeared, if another private sector bid comes in and, not having had months of scrutiny of Northern Rock’s books, expresses a wish for the 4 February deadline to be shifted slightly, will the Chancellor look positively on that reasonable request?

Mr. Darling: First, when Olivant and Virgin put in their indicative bids, that was conditional on their being able to raise commercial sources of finance. That has proved not to be possible for the reasons I set out on Monday. I also said on Monday that if any other institution expressed an interest in participating in investing in Northern Rock, we would look at that. I said I wanted proposals by 4 February, and I do not see any merit in letting this process drag on indefinitely. Regardless of where they start from on this issue, I think most Members take the view that we need to bring matters to a head, not least because the state aid approvals will expire in March. If someone comes along on 3 February,
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of course we will listen to them, and inevitably in such matters there will have to be negotiation. So far, only Olivant, Virgin and the board have expressed an interest. We will be sensible, but I do not want the process to drag on and on.

Dr. Vincent Cable (Twickenham) (LD): Further to that last intervention, is not the risk of a rapid private sale that the Government will either be trampled by an Olivant or shafted by a Virgin? In order to reduce the risks to the taxpayer, will the Chancellor assure us that the security that will be offered against the Government bonds will not include any of the £8 billion dodgy, unsecured loans, or the even dodgier Together mortgages, and that the individuals within the bidding consortiums will each be required to put up at least 15 per cent. of the equity, as specified in Financial Services Authority rules?

Mr. Darling: That is an interesting piece of analysis, and I shall study the hon. Gentleman’s remarks carefully—particularly the first part of his contribution. I have set out the principles that underpin our approach to any possible solution. As I said on Monday, we should receive proposals shortly, and thereafter we shall consider them. As I also said in the House on Monday, I very much hope we can reach a solution. A period of temporary ownership of Northern Rock remains a possibility, but as I said to the hon. Gentleman on Monday, many of the issues he raises now in relation to my proposals would also be relevant in relation to a temporary period of public ownership.

Jim Cousins (Newcastle upon Tyne, Central) (Lab): May I ask my right hon. Friend the Chancellor to avoid a situation in which either Northern Rock goes bust—that would be incredibly damaging to Britain’s reputation—or he ends up as a sort of neo-Mr. Putin, operating Northern Rock as a kind of Gazprom of the north?

Mr. Darling: I had better be careful there for a number of reasons. Suffice it to say, as I have said on many occasions, both before the Treasury Committee, of which my hon. Friend is a member, and on the Floor of the House, that what I set out on Monday offers a constructive way forward for Northern Rock and that I hope that we can find a solution, but if that does not happen, public ownership remains an option. I would much prefer to find a solution whereby we can get private sector investment in it, because I think that in the long term that would be the better option for the bank, its employees and the north-east.

Value Added Tax

3. Mr. Jim Cunningham (Coventry, South) (Lab): How many companies Her Majesty’s Revenue and Customs has taken action against for failure to pay value added tax correctly in the last 12 months. [181412]

The Financial Secretary to the Treasury (Jane Kennedy): There is a range of figures on this, and it is difficult to give an exact answer, because a range of actions can be taken. HMRC aims to help business pay the right tax due at the right time, and it tailors its response to the circumstances when that does not happen. Businesses in temporary difficulties can agree time-to-pay arrangements, but those who underpay may face sanctions.


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Mr. Jim Cunningham: I thank my right hon. Friend for that answer. Will she say what assistance she is giving small business to help with the VAT burden?

Jane Kennedy: My hon. Friend raises a very important point. To assist VAT administration for small businesses, HMRC has introduced a variety of special schemes, which may be used individually or in combination. Each of the VAT schemes addresses a slightly different aspect of the tax, and will have different benefits and costs depending on the individual business. The schemes are specifically designed to assist small businesses in their dealings with HMRC.

Mr. Henry Bellingham (North-West Norfolk) (Con): How long does it take a new company to register for VAT now?

Jane Kennedy: As the hon. Gentleman and the House know, there have been difficulties with registering new businesses for VAT, but HMRC has put a tremendous effort in to address the problems that arose. He knows that HMRC has targets to achieve. It is on course to hit those targets by the end of January, which is a week away, and its performance has improved enormously, as businesses seeking to register will discover.

Departmental Performance

4. Michael Fabricant (Lichfield) (Con): If he will make a statement on the findings of the Cabinet Office report on the performance of his Department and Her Majesty’s Revenue and Customs. [181413]

The Exchequer Secretary to the Treasury (Angela Eagle): The findings of the reviews of Her Majesty’s Treasury and HMRC were accepted in full by the Treasury’s permanent secretary and by HMRC’s acting chairman. Both Departments have responded in detail to the findings of the reviews in their respective reports, which were published by the Cabinet Office on 17 December 2007.

Michael Fabricant: I thank the Minister for her enthusiastic answer. Does she recall that in 1998 the then Chancellor of the Exchequer, now our Prime Minister, said:

He said that in respect of public service agreements. Is she aware that the HMRC capability review says that only three out of 10 targets are likely to be reached? If that is the case, how much money will now be withheld from HMRC?

Angela Eagle: The capability reviews are a new, honest, robust and open way of focusing on delivery. They are published, as are the responses to them, and I am glad that the hon. Gentleman is so interested in them. We want this public focus on capability so that we can ensure that the civil service can deliver much more effective and efficient government to make the best use of the money that this House allocates.

Rob Marris (Wolverhampton, South-West) (Lab): Tax credits introduced by this Government have helped millions of families around the country, but the
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administration of them has, on occasions, been poor. Tax credits involve a Kafkaesque situation, because if one gets on to them, one cannot voluntarily withdraw from them. I understand that the only way to get out of tax credits is by dying or by having a substantial increase in one’s income. One cannot simply say, as one of my constituents tried to do, “I want no more to do with this.” Will my hon. Friend please examine the issue?

Angela Eagle: My hon. Friend knows about Kafka and I can tell him that HMRC has found a way out of the Kafkaesque situation as part of its transformation project. His constituent should therefore be able to withdraw from tax credits if that is what he or she wishes to do.

Mark Pritchard (The Wrekin) (Con): How can cutting 600 HMRC jobs through Capgemini in Shropshire help the performance of the Minister’s Department?

Angela Eagle: The capability review had no criticism of the changes in staffing that have gone on in HMRC. On the contrary, it praised HMRC for delivering in core business and making efficiency savings at the same time. I am surprised that the hon. Gentleman seems to think that the Government should not be working to improve the productivity of public service.

David Taylor (North-West Leicestershire) (Lab/Co-op): In its report on HMRC data security, the Cabinet Office urged that in the longer term electronic data transfer should be expanded significantly to reduce the use of removable media. Will the Minister tell us what preparations have been made for that? What training might be provided for HMRC staff in the light of the fact that ICT experience in the Treasury and its broader agencies has been reduced over many years by the continued adherence to outsourcing computer products?

Angela Eagle: My hon. Friend should be assured that the interim Poynter review has already identified some of those issues. The management of HMRC are working to establish data security while the review is ongoing. We await the final findings, which will deal with those issues in more detail. I can assure my hon. Friend that I shall take on board all his points, which are fair, and that we will make changes to structures and systems in order to ensure that the highest standards can be guaranteed in future.

Mr. Philip Hammond (Runnymede and Weybridge) (Con): The capability review of HM Treasury at the end of the Prime Minister’s decade in control of it noted, among other things, that there is

Who does the Minister think is responsible for that deficiency?

Angela Eagle: We have seen an extraordinary period of success with a stable economy, strong growth, increased employment, record investment in public services and one of the strongest economic records in the G7. In 2007 we had the highest growth rate in the G7. We are determined to maintain that economic stability and success.


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