House of Commons
Tuesday 9 June 2009
The House met at half-past Two o’clock
Prayers
[Mr. Speaker in the Chair]
Oral Answers to Questions
Treasury
The Chancellor of the Exchequer was asked—
Savings
2. Bob Spink (Castle Point) (Ind): What his most recent estimate is of the percentage of household disposable income that is saved. [278505]
The Exchequer Secretary to the Treasury (Kitty Ussher): The latest gross household savings ratio is for the fourth quarter of 2008 and it shows that 4.8 per cent. of total household resources were saved.
Bob Spink: Families saving for the future are under serious pressure, especially those with disabled children, as they come under particular pressure when the disabled child reaches 18, so saving is very important for them. What have the Government done to help those families? I ask that because some good Government initiatives that were introduced in the Budget seem to have got lost in the general credit crunch debate.
Kitty Ussher: I am grateful to the hon. Gentleman for raising this point, because the Government announced in this year’s Budget that we will contribute an additional £100 a year to the child trust fund accounts of all disabled children, with the most severely disabled receiving £200. We are doing that because, as he mentioned, we recognise the particular issues that face disabled children as they reach maturity. They can, of course, control their trust fund assets when they turn 18.
John McFall (West Dunbartonshire) (Lab/Co-op): There will certainly be a reduction in savings from household income in the Cheltenham and Gloucester area today, following the peremptory announcement by Lloyds of the loss of 1,600 Cheltenham & Gloucester jobs. Is it not the case that Lloyds has betrayed any regard for the dignity of people and their employment, and will the Minister join me in writing to the Cheltenham & Gloucester in order to ensure that people who are to be made unemployed are treated properly?
Kitty Ussher:
My right hon. Friend is absolutely right to raise this point, and we obviously hope that people will be treated with decency in what is a very difficult
time, not only for Lloyds but across the financial services sector. The question of the number of people employed by Lloyds is obviously a commercial matter for the company itself, but I am sure that Members in all parts of the House who have constituents who are affected will want to make sure that they are treated as decently as possible.
Mr. Michael Fallon (Sevenoaks) (Con): How can the Treasury properly promote a savings culture when it is led by a Chancellor who last week was scheduled to be sacked? [Hon. Members: “Where is he?”] If the Prime Minister does not have any confidence in the head of the Treasury, why should the rest of us?
Kitty Ussher: Well, I am delighted to be able to report to the House that the Chancellor is currently at ECOFIN fighting for this Government’s interests, and in particular ensuring that the UK’s interests are represented as the European Community discusses the de Larosière report, which is entirely relevant to the City of London as it deals with the European supervisory framework. I think that that is exactly the right thing for the Chancellor of the Exchequer to be doing, and it is in direct contrast to the policies of the Opposition, which are to reduce the influence of our country in Europe by leaving the European People’s party and refusing to engage.
Mr. James Plaskitt (Warwick and Leamington) (Lab): I welcome my hon. Friend back to the Treasury; it is nice to see her in the team again.
As my hon. Friend will know, the savings ratio tends to be geared to what is happening to house prices, so it is no surprise that now that we are seeing a house price deflation there is a recovery in household savings. At a time of low inflation, savers will be looking for good deals, and I welcome the extension of the individual savings account scheme in the Budget and particularly the extension of savings opportunities for those over 50. Will she and the Treasury team continue to look at some targeted further developments of the ISA scheme to assist those who are now seeking to save in new ways?
Kitty Ussher: My hon. Friend is right to draw attention to this point. People over 50 will be able to save £10,200 in their ISA from October this year, of which £5,100 can be saved in cash. We know that this will be particularly welcome as savers seek better returns on their assets. It is, of course, a competitive market out there, so I urge anybody who has been adversely affected by the necessary reduction in interest rates to have a look at the comparator tables available on the Financial Services Authority website.
Sir Nicholas Winterton (Macclesfield) (Con): Can the Minister tell me why anyone should save at this time, bearing in mind that the return they get on any savings is either nil or minimal? Is she not concerned, as I and many other Members on both sides of the House are, about the situation of the elderly, who look to the income from their savings to provide them with a sensible standard of living? What are the Government doing about those who rely to a large extent on their savings to supplement any pension or other modest or low income?
Kitty Ussher:
I do not know whether the hon. Gentleman was listening, but I just explained one thing that we are doing for the over-50s to ensure that they can get a
better return on their savings—we have increased the limits up to which they can save tax-free in ISAs. This Government’s policy is to promote saving across the whole of a person’s lifetime, which is why we introduced child trust funds—I am delighted that three quarters of parents take those up for their children; we, of course, open them for the remaining quarter. It is also why we introduced and are expanding the ISA allowances, why the savings gateway will come on board from next year and why we continue to give advantageous tax relief to people saving for their pensions.
Bradford & Bingley (Bonds)
3. Mr. Philip Hollobone (Kettering) (Con): What representations United Kingdom Financial Investments has received on the cessation of interest payments on Bradford & Bingley’s 11.625 per cent. perpetual subordinated bonds. [278506]
The Economic Secretary to the Treasury (Ian Pearson): The Treasury and UKFI receive a wide range of representations on issues relating to banks in receipt of public funds. It is not the Government’s practice to provide details of all such representations.
Mr. Hollobone: Bradford & Bingley has announced that it is going to default on the interest payments on these bonds. When it made that announcement the capital value of the bonds fell, so many people who have invested in these securities for their retirement income have lost out on both interest and capital. Given that Bradford & Bingley is effectively a Government-owned institution, does this not suggest that the Government are prioritising getting their money back ahead of their moral and legal obligation to bondholders?
Ian Pearson: This was a decision for the Bradford & Bingley board to make, judged against the objectives it had in its business plan. The hon. Gentleman will be aware that the statutory debt owed to the Financial Services Compensation Scheme is about £14 billion, and the Treasury is owed about £4 billion. He will also be aware of the normal creditor hierarchy, and I believe that it is fair that the FSCS and the Treasury should be repaid ahead of subordinated liabilities. Furthermore, he will be aware that in such circumstances the 11.625 per cent. rate of interest should have given people who were taking advantage of these bonds some sort of clue that they were making a reasonably risky investment and that they would not necessarily be ahead of others who were making less risky investments.
Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): Yesterday, we saw that Lloyds TSB was able to pay back to the taxpayer a net £2.3 billion, and the British Bankers Association today reports that bank lending to small businesses has increased over the past month. Although there is a long way to go, what do those developments tell us about the effectiveness of the Government’s strategy towards the banks?
Ian Pearson:
My hon. Friend is right to highlight the announcement made yesterday by Lloyds Banking Group. I think that it indicates that the recapitalisation of the banks and the actions that we took in January, on top of those in October, are working. We need to do more to
continue to ensure that lending is available in the financial system, be it lending for people who want mortgages or lending to business, which is vital. Well over £50 billion of additional lending has been committed this year, which should make a difference in the future. The Government need to keep taking actions that will make a real difference in helping people and businesses through these difficult economic times, rather than leave people to their own devices, as the Conservative party would do.
Miss Julie Kirkbride (Bromsgrove) (Con): Can the Minister confirm that he is about to appoint a valuer for the assets in Bradford & Bingley and that the valuer will be able to act with complete independence from the views of Ministers in valuing those assets? Can he also confirm that the valuer will be free to offer the same deal to bondholders and shareholders in Bradford & Bingley as the preferential deal offered to the same groups of people in respect of Northern Rock?
Ian Pearson: I can indeed confirm that the Government will appoint a valuer shortly. We hope to be able to do that before the recess, and a public appointments process is going on at the moment. The hon. Lady will be aware of the powers in the Banking Act 2009 and the role of the valuer—they have a remit to act independently. The valuer’s decisions will undoubtedly be a matter for the valuer, acting in accordance with his or her remit and existing legislation.
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): I congratulate my hon. Friend on the development at Lloyds. May I ask him to look further at the form of recapitalisation executed there—namely the reduction in high interest rate preference shares for normal equity—to see whether or not he could consider, in the case of Bradford & Bingley and others, using high-yielding bonds too? They could be repaid and therefore make it much easier, in terms of bank liquidity, to promote the very increase in borrowing that we seek.
Ian Pearson: My hon. Friend has a great deal of expertise in these matters, and I always listen with interest to what he says. Lloyds has made a commercial decision about wanting to repay the preference shares, and it is right to refer to the vital importance of liquidity in the financial system. As always, the Government will keep these matters under review.
Mr. Graham Brady (Altrincham and Sale, West) (Con): Does the Minister accept that it is essential that United Kingdom Financial Investments should be seen to have genuine operational independence? Will the Government therefore take early action to put that body on a proper statutory footing?
Ian Pearson: We have made a number of announcements with regard to UKFI, and as the hon. Gentleman knows, it operates on an arm’s length basis. It is right that Bradford & Bingley and other banks that have received Government funds and involve UKFI in a supervisory management role should act on a commercial basis. We will continue to ensure that we provide the right level of resourcing for UKFI so that it can undertake the work that it needs to do, which is about protecting the taxpayer’s interests.
We have to bear in mind the fact that as a Government, we have invested huge sums on behalf of the taxpayer in our banking system. We need to ensure that we do all we can to protect the taxpayer’s interests, and that is what we will do.
Inflation
4. Ms Sally Keeble (Northampton, North) (Lab): What his most recent assessment is of the effect of inflation on the economy. [278507]
The Chief Secretary to the Treasury (Mr. Liam Byrne): The Treasury’s latest assessment of inflation and its effect, and the effect of other factors on the economy, was published in the Budget. Since then, consumer price inflation was 2.3 per cent. in April.
Ms Keeble: I welcome my right hon. Friend to his new post.
In the longer term, will the Government look again at the inflation target, perhaps with a view to raising it so that as the economy moves out of recession—it is doing that, which is very welcome—the green shoots of recovery are not crushed by too early and too steep an increase in interest rates?
Mr. Byrne: We certainly have no plans to choke off growth when it returns, which is exactly why we have put so many tools and resources in place to ensure that we return to recovery as quickly as possible. The reason why we will not revisit the inflation target in future is simple: we do not see that there is a trade-off between inflation and growth, and in the medium term we believe that higher inflation will deliver higher interest rates, which in turn will dampen down our long-term rate of growth. That is exactly why, when the Chancellor published the Budget a month or two ago, he confirmed the Bank’s remit to keep the inflation target exactly where it is.
Sir Peter Tapsell (Louth and Horncastle) (Con): I had intended to congratulate the Chancellor on rising from his grave, but it appears that he is still lurking in the graveyard.
May I ask when the Treasury plans to reverse the not very successful quantitative easing programme, in order to moderate inflationary expectations?
Mr. Byrne: The Governor of the Bank of England has been very clear that quantitative easing is a tool that he needs to ensure that monetary policy operates effectively in this country. That is perhaps why we have not seen the falls in prices that have been seen in other parts of the world. We are absolutely determined to ensure that the Governor has the tools that he needs to set that measure alongside a fiscal stimulus. Together, they amount to something like 4 per cent. of the economy. We believe that that is the best way to return to growth as quickly as possible.
Adam Price (Carmarthen, East and Dinefwr) (PC): The market is factoring in expectations of a significant rise in inflation, as reflected in higher bond yields. Why is that happening, and does it not run the risk of choking off any economic recovery when it comes?
Mr. Byrne: That is exactly why the Chancellor has been clear that the inflation-busting remit of the Governor of the Bank of England remains undisturbed. What is important is that the Chancellor makes available to the Governor the tools that he needs to deliver on that inflation target. That is why it is important that it is down to the independent Monetary Policy Committee to help oversee how tools such as quantitative easing are used.
The Governor has been clear about how he will approach the question of when to stop using the tools that have been made available to him. He said in the May inflation report that that decision would be based on a judgment about the inflation outlook, so there is no change in the strategy or the approach. This is simply another way of conducting monetary policy within the framework that the Chancellor has set for him.
Mr. Greg Hands (Hammersmith and Fulham) (Con): May I, too, welcome the Chief Secretary to his new position?
Last week in Beijing, US Treasury Secretary Tim Geithner said that
“consumer spending in the United States will be restrained for some time relative to what is typically the case in recoveries. These are necessary adjustments. They will entail a longer, slower process of recovery”.
Going into this recession, UK household debt was even higher than that in the US, so why does the Chief Secretary think that the UK recovery will be so much stronger than that in the US and is he still sticking to his trampoline forecast of 3.5 per cent. growth in 2011?
Mr. Byrne: The reason why we have confidence in the forecast is that we not only acted early, but acted to ensure that a considerable stimulus was put in place. If the hon. Gentleman looks at the return to growth after previous recessions in the 1980s and 1990s, he will see that it was not dissimilar to the return to growth that we project in the years to come. But that growth would not materialise and we would not see the recovery that we project if we followed the course of action proposed by the Opposition, and took £5 billion out of the economy at the worst possible time.
Like me, the hon. Gentleman will have read closely the speech made by the shadow Chancellor, who said this morning:
“You might think that the middle of a recession is not the time to be investing in the businesses and entrepreneurs of the future, but you couldn’t be more wrong. It’s actually exactly the right time.”
Can the hon. Gentleman perhaps explain why he plans to take £5 billion out of the economy in the middle of a recession?
Mr. Dennis Skinner (Bolsover) (Lab): Notwithstanding the progress that has been made arising from the G20 and all the rest of it— [ Interruption. ] This is serious— [ Interruption. ] We won every seat in Bolsover last week, six out of six— [ Interruption. ] Not in my area. I was on the streets speaking to voters and getting them out— [ Interruption. ] You are no good at maths, either.
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