Budget 2010 - Treasury Contents


Examination of Witnesses (Question Numbers 120-139)

MR DAVE RAMSDEN, MR EDWARD TROUP AND MR ANDREW HUDSON

29 MARCH 2010

  Q120  Mr Brady: Just remind us please what is the annual contribution limit at the moment?

  Mr Troup: The annual contribution limit is ... . I am sorry, I do not have it in front of me.

  Q121  Mr Brady: From memory?

  Mr Troup: £150,000, is it?

  Q122  Mr Brady: I thought it was £200,000. You are suggesting a significant number of people on middle incomes—

  Mr Troup: If you apply a 20 times multiplier, which is the current basis, then you can see an increment to your pension from going from a middle ranking job to a senior job could quite easily take you over that. Not quite easily, but there are circumstances in which you would.

  Q123  Mr Brady: Inspiration is at hand.

  Mr Troup: Yes, inspiration. £255,000.

  Q124  Mr Brady: I wonder if you could give us some idea, either now or perhaps before tomorrow morning, of how many people working in those schemes particularly in the public sector would fall foul of a cap of £255,000 a year?

  Mr Troup: Not very many at the moment, but can I come back to my answer because in being reminded of this amount I am also reminded as to why, if you were to use the annual limit, it would be quite difficult. If the intention is to restrict pensions relief for the higher paid, you would have to pull this down quite dramatically to have any impact on the regular contributions and the regular benefits provided to, let us say, someone who is earning £150,000, whose annual contributions and the value of his benefits might be only £50 or £60,000 or even less. So if we wanted to have the impact on the individuals earning more than £150,000, you would have to bring down this £255,000 to a very modest amount indeed to have the same policy impact, and that definitely would impact on the individuals who I referred to before.

  Q125  Mr Brady: How much would you have to bring that cap down?

  Mr Troup: I do not have that.

  Q126  Mr Brady: Could you let us know that before tomorrow morning?

  Mr Troup: I do not think I could, to be honest, because I think it requires quite a lot of speculation as to what the structure of the policy would be and exactly what you were intending to do. It would require you to hypothesise what the contributions are for the threshold limit you are trying to—

  Q127  Mr Brady: But again, rather like the previous discussion Mr Fallon had with Mr Ramsden, all of those hypotheses must have been worked through in order to arrive at the conclusion this was a sensible way to proceed instead of the simpler route of simply reducing the cap.

  Mr Troup: No, I think there is an underlying policy decision here to restrict the benefit of pension tax relief by reference to income rather than by reference to contributions.

  Q128  Nick Ainger: The availability of credit has been a drag it would appear on potential growth. The Government has announced in the Budget that Lloyds Group are going to lend £44 billion this year and RBS £50 billion. What sanctions have you got to ensure that that does happen?

  Mr Ramsden: As you have flagged up, we have moved to gross lending commitments and as I recall it the sanction is, if they do not meet those gross lending commitments—which is the gross flow of lending, so we can monitor that and it is not affected by repayments which is the issue with the net lending commitments in year one—we can hold the boards of those institutions to account. When I say "we", the Government but also the Government and Treasury working with UKFI. As I understand it, they have signed up to those gross lending amounts but there is this issue with very significant repayments, which is what we saw in 2009, which meant we had to move from net lending commitments to gross, but that will also make the accountability clearer, I would argue.

  Q129  Nick Ainger: You say the UKFI will hold the boards of the banks to account, what does that mean?

  Mr Ramsden: It can do it through its advice and for example on remuneration.

  Q130  Nick Ainger: That is the stick they have, that you will not get your bonus?

  Mr Ramsden: If you follow that through then potentially, yes.

  Q131  Nick Ainger: It is aimed at the boards of the bank rather than individual officers?

  Mr Ramsden: As I understand it, and I have not got the details in front of me, that is what I understood was the agreements which have been reached with Government and the chairs of those two institutions.

  Q132  Nick Ainger: Will the Small Business Credit Adjudicator just concentrate on Lloyds and RBS or will it be looking at all banks?

  Mr Ramsden: My understanding of that, and Andrew may want to add more detail, is that it is open to the customers of all banks.

  Mr Hudson: Yes, I think that is right. The aim is to help small businesses ensure they are treated fairly when applying to their bank for finance and that is the role of this. It will work with the Business Link financial intermediary service and the adjudicator will be put on a statutory basis with powers to penalise the banks where he finds businesses are being treated unfairly.

  Q133  Nick Ainger: In many cases, and certainly customers of banks who have come to me in my constituency, often time is of the essence. How quickly will the adjudicator be able to investigate the complaint and will it be possible for the adjudicator to insist no action is taken—foreclosure or whatever it may be—on a customer while an investigation is underway?

  Mr Ramsden: Maybe in terms of the detail we could provide you with more information on that. What I would say is that we have to think about the Small Business Credit Adjudicator in the context of the much wider range of policies that the Government has implemented through the crisis but is continuing with in the recovery phase. In particular, I would emphasise time to pay, which has been very significant in terms of helping small businesses manage their cash flow which is where I think your question was going.

  Mr Hudson: In addition, the Budget announces the creation of UK Finance for Growth, which will bring together a number of products with a simplified gateway for small and medium sized businesses to access, to help; again all part of the wider landscape that Dave Ramsden is talking about, about helping with small business finance.

  Q134  Nick Ainger: There is the doubling of the allowances for small businesses in terms of capital investment.

  Mr Hudson: Yes.

  Q135  Nick Ainger: The previous panel said they felt in terms of developing growth, you needed a more level playing field between the small, medium and larger businesses, and the fact that the 40% first year allowance for short life assets has now been removed which was obviously available to larger companies. Growth is going to come from a number of directions, not just the SMEs, why did you not decide to use capital allowances for larger businesses as well as just concentrating on SMEs? I am not criticising the fact you are looking at SMEs but the fact that large businesses seem to lose out in this Budget.

  Mr Troup: I am not sure I recognise the description "large businesses losing out", all businesses have the benefit of the 40% special first year rate for all expenditure for a year, and that will not have had a strong effect on the amount of expenditure but the principal effect will have been to bring forward expenditure from future years into the early part of the recovery, and that is an important part of the policy. So simply to have continued that would have actually undermined an effect which was about supporting the recovery. The doubling of the annual investment allowance from £50,000 to £100,000, which is permanent, will actually benefit 99% of all businesses and most businesses will see the totality of their expenditure covered by this. It is true it does not give so much of a benefit to large businesses because they have far more expenditure but there are a number of other reliefs which large businesses predominantly make use of, for instance, the research and development tax credit. So to describe it as a Budget which was not for large businesses rather misses the flow of policy over the last few years.

  Q136  Mr Love: Mr Ramsden, net trade made a negative contribution to growth in the last six months of last year, yet sterling had depreciated by around 25% during that time. Why has trade been so disappointing?

  Mr Ramsden: I think you are right to focus on the issue. I would not say that performance has been disappointing. For a start, the trade numbers, as you know, do tend to move around a lot from one quarter to the next. In the second half of last year there were lots of things going on with quite import-intensive industries such as the automobile industry, which makes it hard to interpret the figures. As the Deputy Governor of the Bank, Charlie Bean, said to you when he was here in February, we do think it takes—and I agree with this assessment—time for these effects to—

  Q137  Mr Love: You think of it as a classic J-turn?

  Mr Ramsden: I think—

  Q138  Mr Love: Are you confident about that?

  Mr Ramsden: I am confident that over time the significant depreciation that we have seen in sterling will be of benefit in terms of export volumes, and I think a substitution away from imports will help to dampen imports. But these factors do take quite a lot of time.

  Q139  Mr Love: There has been a lot of talk about increasing profit margins as part of the explanation for that. Do you think that is the explanation and what would be the impact of that if it continues?

  Mr Ramsden: I think that will have had something to do with it, but what we would expect to happen in the UK's flexible markets is that those profits will encourage new people to enter those markets. The figures are affected by the fact that what we have been through in the last couple of years has been astonishing in terms of its impact on world trade and UK trade, so we have had unprecedented falls overall in imports and exports in 2009, but just looking at the figures from the early 1990s, trying to draw comparisons with earlier episodes, it did take a couple of years in the early 1990s. In 1994 and 1995, annual export volume growth rates were 9.2% and 9.4%. We are expecting a pick up in export volumes through this year and into next year; a significant pick up in export volumes but not to anything like those rates in the early 1990s because, as one of your earlier witnesses was saying, we are also assuming that import volumes stay relatively subdued.



 
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