Examination of Witnesses (Question Numbers
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
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
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
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 commitmentswhich
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 onewe 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
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 takenforeclosure
or whatever it may beon a customer while an investigation
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 takesand I agree with this assessmenttime
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
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.