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House of Lords

Wednesday, 24 February 2010.

3 pm

Prayers-read by the Lord Bishop of Leicester.

Banks

Question

3.07 pm

Asked By Lord Barnett

The Financial Services Secretary to the Treasury (Lord Myners): My Lords, I am not sure that my noble friend will find this Answer satisfactory, but Treasury Ministers and officials have meetings with a wide variety of organisations in the public and private sectors as part of the process of policy development and delivery. As was the case with previous Administrations, it is not the Government's practice to provide details of such meetings.

Lord Barnett: I cannot say that I agree or disagree with that, but I thank the Minister anyway for not answering my Question. We had a quite serious debate on this matter yesterday, when we discussed Glass-Steagall and the fact that President Obama has decided to put into practice this proposal, which I know the Minister disagrees with, as do I. In the report were also matters relating to what I referred to yesterday as the Volcker rules, whereby the investment by banks in hedge funds and other toxic assets, which was the major problem causing much of the crisis, would not be allowed. Does he support those rules, as he appeared to do much of the report, other than Glass-Steagall? If he does not, will he kindly tell us why?

Lord Myners: I am sorry that my noble friend felt that I did not answer his Question; I was seeking to be as holpen as possible. The Glass-Steagall Act was replaced by the Gramm-Leach-Bliley Act. The Volcker rule, which comes out of the G30 report that Volcker produced in January 2009, does not go back to or recommend Glass-Steagall. What President Obama has done in picking up part of the G30 report is to talk about limiting the growth of banks' liability base and addressing issues around proprietary training, private equity and hedge funds. Proprietary training, private equity and hedge funds were not part of the problem that brought the world's banking system to its knees. The system was brought to its knees by a combination of the existence of an unregulated shadow banking sector, too much dependence on wholesale funding and, at its very core, bad lending decisions. We are taking action to address those issues through a panoply of responses, but I do not think that the Volcker rule addresses the core problem behind the weaknesses of the world banking system.



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Lord Forsyth of Drumlean: My Lords, could the Minister say to the nearest billion how much the major banks contribute in income tax every year to the Exchequer?

Lord Myners: The noble Lord, Lord Forsyth of Drumlean, will of course know that I do not have that information to hand, nor am I sure that I would be able to obtain it, because it is about income tax and would require from the Inland Revenue information on the sources of income tax by occupation, which should not be made freely available to a Minister. However, as I said to the noble Baroness, Lady Valentine, in yesterday's debate, a strong, successful and responsible banking sector is a great national asset. If London and Edinburgh were in Germany or France, those countries would fight to defend the competitive advantage that we have in financial services. This Government will continue to do that and will not burden our banks with a wholly unworkable regulatory system that would distract attention from the purpose of getting credit back into the economy. Nor will we cause continued uncertainty by continuing to open up debates about whether banks should be broken up. That is wholly unwelcome and unsupportive to the economic purpose of this Government and this country.

Lord Lawson of Blaby: My Lords, the Minister got quite carried away. Is he not aware that in the process he was somewhat unfair to his noble friend Lord Barnett? The Volcker rule suggests that deposit-taking banks should be prohibited from a whole range of investment banking activities. That is far more realistic than complicated regulation, firewalls and ring-fences, which, as Paul Volcker said, will not in practice work. Will the Minister say why he disagrees with Paul Volcker on this, which I suspect is a disagreement that he also has with Jean-Claude Trichet and the Governor of the Bank of England?

Lord Myners: I have read the G30 report very carefully. I have also read the op-ed contribution by Paul Volcker in the New York Timeson 30 January. It is very clear to me that he does not propose a return to Glass-Steagall. At the core of his recommendations around proprietary trading is the importance of ensuring that banks meet customer needs and that, to the extent that that involves carrying trading risk, they must be appropriately capitalised and with appropriate liquidity requirements. That is absolutely spot on with the line that we have been taking.

Lord Newby: The House is now absolutely clear about the Minister's view about breaking up the banks in terms of reducing risk to the banking sector. Does the Government believe that there is too great a concentration of power in too few retail banks as a result of events over the past couple of years? Are the Government planning to do anything to increase the degree of competition on the high street for retail deposits?

Lord Myners: As the noble Lord, Lord Newby, knows, we have spoken to this issue. The increased consolidation in banking is a global phenomenon; the Herfindahl index of industry concentration shows an

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increase across all global economies in the banking sector. We want to see more competition and we want to see the competition that is already in place operating effectively. I believe that it is-banks are competing in a competitive way for lending propositions. That was very evident to me this morning when I met the chief executives, or their deputies or nominees, of all our major banks to talk about the competitive environment. We are also encouraging new competition through Northern Rock. Incidentally, we announced this morning that we are removing the state guarantee from Northern Rock deposits three months from today. We will ensure, as a consequence of our negotiations with the EU, that the disposals that are to be made by Lloyds and RBS will facilitate the emergence of new entrants into the banking sector. We are also encouraging companies such as Tesco in their efforts to become a significant force in UK banking. I agree with the basic premise of the noble Lord, Lord Newby, that we are wavering to a point where there is perhaps not enough competition in high street banking.

Lord Burnett: My Lords, on tax information available to Ministers, has the Treasury commissioned a study to examine how much tax would be received by the UK Treasury if every £1 million paid in bonuses was instead retained by the international bank paying the bonus?

Lord Myners: The issue of the taxation of bonuses will involve corporation tax, bank payroll tax and personal income tax. It is therefore an extremely difficult calculation to make and certainly not one that I can do in my head. I do not think that I will be able to provide the noble Lord with the answer that he seeks, but I will endeavour to do so.

Agriculture: Dairy

Question

3.15 pm

Asked By The Lord Bishop of Wakefield

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Davies of Oldham): My Lords, our goal is a dairy sector that produces for the market and is profitable, thriving and competitive. It should meet consumer needs while protecting and enhancing the natural resources it depends on to safeguard our future production. We work closely with the dairy industry through the Dairy Supply Chain Forum to develop the milk road map, and contribute to the debate in the high-level group in Brussels.

The Lord Bishop of Wakefield: My Lords, one could ask questions on this subject till the cows come home.

Noble Lords: Oh!



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The Lord Bishop of Wakefield: I thank the Minister for his kind reply. At present, however, the costs of production are more than the price that many milk producers are getting for it. What additional measures are being put in place, alongside the emergency measures of the dairy fund, for the future continuance of the dairy industry?

Lord Davies of Oldham: My Lords, the emergency measures are important, but I think that the right reverend Prelate will appreciate, as will the whole House, that we are concerned that the dairy industry should establish itself for a profitable future. That means larger herds and a concentration of dairy production. We welcome the fact that Europe is thinking along the same lines. As we are better placed than many other European countries' dairy industries, we look forward to improved fortunes for the dairy industry in the future.

Lord Davies of Coity: My Lords, I wonder whether the Minister agrees that to ensure the future sustainability of the dairy sector, we should re-establish the Milk Marketing Board?

Lord Davies of Oldham: My Lords, this Government always go forward rather than back.

Lord Plumb: My Lords, I speak as an ex-dairy farmer. Does the Minister share my concern and understand the anger of many dairy farmers throughout the land who have seen their herds decimated through bovine TB? Forty thousand cattle with TB were lost or slaughtered last year; I think it was 41,000 the year before. And so it goes on. And so it will go on this year. Some of those animals and herds have been totally decimated. One can therefore understand the reaction. What is the cost to the taxpayer of dealing with the problem? Furthermore, what is the cost to the nation of the loss of production of both milk and dairy products that could be produced in this country, when we are in fact importing millions of litres of milk which would be totally unnecessary if only this disease could be got under control?

Lord Davies of Oldham: As the noble Lord will know, we also export a considerable amount of milk. However, I entirely accept his point. The Government are greatly concerned with exactly the issue he identifies-the horrors that bovine TB visits on the dairy herd and, in fact, cattle in this country. If we thought that there was one straightforward answer that would solve the problem, the Government would of course leap on it. We are all too well aware of the agony of the situation for farmers and of the costs to the country. However, I emphasise that there is no clear evidence that the culling of badgers will solve the problem; in fact, the process of culling might make the problem more difficult. However, we are carrying out a project to trap and vaccinate badgers in six areas in England which have a high incidence of bovine TB in cattle. We are also watching the Welsh experiment, where a badger cull is being carried out in a limited area. We are of course open to persuasion that progress could be made along those lines.



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Lord Greaves: My Lords, the Government recently announced the appointment of an ombudsman to deal with relationships between supermarkets and their suppliers. How long will it be before this ombudsman is able to take action that results in dairy farmers being paid a fair price for their milk by all the supermarket chains?

Lord Davies of Oldham: My Lords, the Minister in the Commons, my right honourable friend Jim Fitzpatrick, already chairs a dairy industry supply chain forum which meets twice a year and has gone some way to tackling some of these issues. The noble Lord has identified a very important issue indeed: the relationship between the power of the supermarkets and producers in this country, which affects the dairy industry as much as it does other industries. That is an issue on which, as he indicated, our proposal with regard to the ombudsman is designed to make progress.

Baroness O'Cathain: Does the Minister really think that having his right honourable friend chair a meeting twice a year will satisfy those poor dairy farmers? Does he know how many dairy farmers leave the industry each week? That is the problem: two meetings a year. It is not good.

Lord Davies of Oldham: My Lords, we appreciate the difficulties of the dairy industry: we are all too well aware of the collapse of a significant part of the industry last year. However, I emphasise to the noble Baroness that there are very good reasons why we should believe in the growing prosperity of the industry against a background in which it becomes increasingly market-competitive. It is quite clear that, whereas others have had an advantage against us through the existing subsidies of the old CAP regime, Europe is changing on that perspective, from our persuasion. We will be better placed to take advantage of the future regime.

Pay Restraint

Question

3.23 pm

Asked By Lord Sheldon

The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the Pre-Budget Report 2009 announced that across the public sector the Government would be seeking a 1 per cent cap on basic pay uplifts for 2011-12 and 2012-13. The Government are also seeking to limit uplifts to 1 per cent in 2010-11 for key public sector workforces not in multi-year deals. In the private sector, the Government have a role to play in preventing undesirable practices. However, in general, private sector remuneration arrangements are a matter for employees, directors, the employees' unions and those involved in the negotiation of agreements.

Lord Sheldon: My Lords, I thank the Minister for that reply, which was very useful. However, the public and private sectors have in the past been influenced in different ways by the Government, industry and the

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public. Do we not need an even closer agreement, particularly over the next four years, than we have had in the past? Also, what is the Minister's reaction to waivers by Varley, Hester and Daniels? Does he expect other bankers to follow their example?

Lord Myners: I thank my noble friend for his two questions. Since 1997, public sector earnings have increased by 27 per cent in real terms, and private sector earnings by 21 per cent. Public sector wages have increased, but that is after a period in the 1980s and 1990s when public sector pay lagged significantly behind the private sector. This led to considerable problems of morale among those working in the public sector, who felt that their contribution was not being recognised and was being denigrated. That has now been adjusted; there is no difficulty in recruiting and retaining people in the public sector. I would expect pay awards across all forms of employment to take account of the economic reality.

I commend those bankers who have volunteered to waive their bonus grants. My noble friend named them. The onus will now fall on Mr Stephen Green at HSBC and Mr Peter Sands at Standard Chartered to conclude whether they, too, should waive any bonus entitlement that they might be granted.

Baroness Noakes: Given the size of the deficit, why should public sector pay increase at all?

Lord Myners: We have made it clear that people are entitled to be appropriately rewarded, but we believe that that can be achieved within a regime of restraint which we expect to be evidenced in the private and public sectors. As such, we have set a target of 1 per cent over the next two years. That is an appropriate degree of restraint and we expect public sector employees to act accordingly.

Lord Tomlinson: Does my noble friend agree that rather than just concentrating the discussion on pay restraint, we ought equally to emphasise the need for improvements in productivity? What really matters is the unit cost of production and the quality of services being provided in many areas of the public service. We must be at least equally concerned about productivity increases, and not concentrate just on restraining pay.

Lord Myners: I entirely agree with my noble friend, and that applies to both the public sector and the private sector.

Baroness Williams of Crosby: Does the Minister agree that a tax system that falls very heavily on the lowest paid, who in this country start paying taxation before their income reaches even £10,000 a year, is not helpful in trying to achieve pay restraint, and that a system which allows so many people to place their money in offshore havens is not conducive to pay restraint?

Lord Myners: There were many nuances in the question of the noble Baroness, Lady Williams. Of course, this Government have done a great deal to protect the most vulnerable in society through benefits and credits, in addition to supporting a progressive tax system. Our approach is to ensure that the tax system works to the benefit of the many and can be contrasted

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with the approach of those on the opposition Benches whose first priority on tax is to abolish child trust funds in order to allow multi-millionaires further protection against taxation on inheritance. That is a lamentable policy which will be rejected by the nation.

Lord Lea of Crondall: My Lords, the hypothesis coming from the Opposition Front Bench on this seems to be: public sector, bad; private sector, good. Does my noble friend believe that there is a free market in the private sector when remuneration committees at the top end of business all want to be in the top quartile of earners, all scratch each others' backs and thus create growing inequality in the country? This is not a free market; it is a sort of ramp for those who set each others' pay at the top end of many of these organisations.

Lord Myners: I am much encouraged by what has been happening in the private sector where there has been a move towards much more restraint. Remuneration committees, aided and supported in their effort by shareholders, are now asking far more challenging questions about the advice that they receive from remuneration consultants. But it is an observable fact that over the past 30 years, for no obvious economic justification, the rewards of those at the very top of industry and commerce have grown exponentially compared with the rewards elsewhere in the workforce.

Lord Tebbit: Can the Minister turn his attention back to the question asked by the noble Baroness, Lady Williams? Is it not true that at the bottom of the stack, in that crucial area where total income is between about £5,000 and £10,000 a year, those who seek to get away from benefits and back into work suffer higher rates of loss of their money through tax, national insurance and benefit loss than any of the wealthy are prepared to pay, even under this Government?

Lord Myners: I thought when the noble Lord, Lord Tebbit, said that he was going to redirect me back to the question of the noble Baroness, Lady Williams, it would be about those in offshore locations. I could not for a minute understand why the Opposition Bench would be inviting me to address people in tax havens offshore and their political contributions. I agree with the noble Lord that any tax system that has a regressive kink in it as a result of people coming out of benefit is less than perfect, and we have worked assiduously to address those concerns, although the experience of Governments throughout the world and in this country is that there will always be anomalies. We should always seek to address those whenever we can; we should not deter people from self-sufficiency and withdrawing from benefit to earn an honest day's crust with the self respect and esteem that flow from that.


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