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  • Danny Alexander – 2011 Speech to the IPPR

    Danny Alexander – 2011 Speech to the IPPR

    The speech made by Danny Alexander, the then Chief Secretary to the Treasury, on 17 June 2011.

    Few subjects are as open to misunderstanding and misrepresentation as public service pensions.

    Pensions are vitally important to all of us, but they are also both complex and long-term.

    Pensions for public service workers even more so, not least because it’s a benefit for one part of the population, that’s paid for by all of us.

    And this debate takes place at a particularly sensitive time, because everyone is under financial pressure right now. People in the public service are facing the second year of a pay freeze…and job insecurity is a feature for some, as the Government gets to grips with the enormous budget deficit.

    Everyone in Britain is facing a rapidly rising cost of living. And millions of private sector workers have taken pay freezes or worse in the last 3 years.

    So just as public service workers want to protect their pensions, millions of other taxpayers are asking why is it fair that they should be asked to pay more tax to fund public service pensions, especially as the value of their own pensions is falling. In fact, in the private sector, very few know what they will receive in retirement at all, and they receive considerably less or nothing at all by way of employer contributions. Of course, over 12 million are making no provision at all.

    And on top of that, the State Pension Age is already rising to 66 with further rises thereafter, and taxpayers across the country are adjusting to this reality. To a longer working life… to pay for a longer retirement.

    It is absolutely wrong to pretend that public servants can be insulated from the pressures that everyone else are facing. It is unjustifiable that other taxpayers should work longer and pay more tax so public service workers can retire earlier and get more than them.

    It is the employees who are benefiting from longer life and generous pensions, but it is the taxpayer who is picking up the tab.

    In this context, it should not be a surprise that the debate on the future of public service pensions is often polarised between two extremes, neither of which is based on fact.

    On the one hand, there are those trades Unions who seem to believe that pensions for public service workers should not change, irrespective of the huge economic, demographic and social changes going on around them.

    On the other hand, there are those equally misguided voices who seem to think that the public service should be the front runner in a race to the bottom.

    Between these two, the Chancellor and I believe there is an indisputable case for reforming public service pensions to ensure that they are affordable, sustainable, high quality and fair in the face of huge demographic changes.

    Reform that ensures that the costs of providing pensions to our workforce are affordable, not just now…but in the decades to come.

    Reform that is sustainable by ensuring that the financial implications of longer lives are fairly shared between employees and other taxpayers.

    Reform that also corrects the huge unfairness in the current arrangements, where low paid workers subsidise the rewards of the highest paid.

    And reform that ensures that public service workers continue to receive among the best, if not the best, pensions available.

    We have been engaged over the last few months in discussions with the TUC about these issues. These discussions have been constructive, positive, and frank. There is a commitment on behalf of both the Government and the Unions to seeing these talks through. And these talks will continue this month and later in July.

    So it is all the more disappointing that there are a minority of Unions who seem hell bent on premature strike action before these discussions are even complete. To justify strike action, they are misrepresenting the Government’s position and feeding their members scare stories.

    I say to members of those Unions, a strike now might be in the union boss’s interests, it is not in yours. Don’t let them sacrifice your pension for their political platform.

    Only 1 in 5 PCS members voted for strike action on Wednesday. That in itself demonstrates how the vast majority of PCS members realise strike action is unjustifiable.

    Of course, it may be that those who oppose change think that they can force the Government to change its mind. This head in the sand approach is a colossal mistake. This Government will reform public service pensions. This is the time to shape that change not to try and block it.

    The history of reform is littered with examples where people simply deny the facts, deploy their myths and dig their trenches. They may hold out for a little while, but eventually reality bites. And when it does, change is urgent and uncompromising.

    Instead, where people seize the opportunity for change and seize the chance to shape their future, a much better change can happen. Lord Hutton, the former Work and Pensions Secretary, has created the chance of a better change. And our offer is by far the best that is likely to be on the table for years to come.

    Today, I want to set out the case for reform and spell out how our proposals would affect public service workers, as well as taxpayers.

    The details are very important here, and I will set them out shortly. But let me sum up our position to the vast majority of public service workers:

    We are all living longer. That means more years spent in work, as well as in retirement. To keep the best pensions in the country, you will have to contribute more. Those contributions will support your pension, not subsidise the pensions of top earners. So when you do reach retirement age, the pension you receive will be broadly as generous for low and middle income earners, as it is now. At the same time we are protecting the pension that you have earned to date. We are reforming for the future, but we will not touch the pension that you have already earned.

    Working longer and paying in more may not be what public service workers want to hear, but it is simply a fact of life for every single person in this country, whether you work in the public or private sector.

    On the other hand, pensions broadly as generous for low and middle income earners as they are now, will not be welcome to those who want to decimate public service pensions. But I believe it is absolutely right to offer the best pensions in the market to people who spend their lives serving the public.

    That is not the wanton destruction that has been either predicted by some, or demanded by others. Instead, it is a fair and affordable proposition that can be sustained for decades. Thanks to Lord Hutton, it is a proposition around which cross-party consensus can be built.

    Case for reform – Living Longer and linking the NPA to the SPA

    Let me explain the argument for reform in more detail.

    Lord Hutton, led the Independent Commission on Public Service Pensions which produced its final report in March this year. The Commission provided a fundamental structural review of public service pension provision.

    I want to pay tribute to Lord Hutton for his clarity of analysis and his far reaching proposals which the Government has accepted as the basis for consultation.

    It is that review that has provided the clear and compelling facts on pension reform.

    And the facts are these:

    Firstly, we are living longer. As Hutton has said himself, ‘longevity [is] the main risk to the sustainability of public service pensions’.

    The average 60 year old today is living ten years longer now, than they did in the 1970s.

    But that also means we are spending longer in retirement. As the Hutton report says, with a retirement age of 60, approximately 40 to 45% of our adult lives are now spent in retirement, compared with around 30% for pensioners in the 1950s. Hand in hand with that, we are drawing a pension for much longer than used to be the case. Instead of taking up a pension for 20 years as it was in the 1950s, public service employees are taking up a pension for about 30 years, a 50% increase… each and every one of us will be retired for longer and picking up our pension for longer.

    And the number of pensioners will continue to increase dramatically. The Hutton report expects that over the next 30 years, the number of UK citizens aged over 70 will nearly double… rising from 7.3m, to almost 14m people.

    This is a fantastic development for society, but it also presents a financial challenge.

    And the costs have already risen dramatically…total payments to public service pensioners and their dependents were almost £32bn in 2008-9, an increase of a third in real terms over the last decade.

    But whilst it is the individual public service employee that reaps the benefits of receiving a pension for longer… as things stand, it is not the employee that’s paying extra for it.

    In fact, personal contributions compared to taxpayer contributions have gone down. For instance, when the Teacher’s Pension Scheme began, employee and taxpayer contributions were equal at 5%. Today however, current members pay around 6% with taxpayers contributing more than double that at 14%.

    This huge disparity is replicated across public service schemes where the taxpayer consistently pays more. NHS employee contributions vary from 5.5 to 8.5%, whereas the taxpayer again contributes 14%. Civil service employees contribute between 1.5 and 3.5%, whereas the taxpayer contributes 19%.

    As Hutton said, “improvements in longevity have…increased the cost of paying public service pensions”, but given the lack of reform, he also cautioned that “these costs have generally fallen to the taxpayer, either through increased employer contributions to schemes, or as a direct subsidy from the Exchequer when benefit payments are made”

    The private sector woke up to this shift over the last two decades, started to change, and in many cases abandoned their defined benefit schemes altogether. Some suggested, wrongly, that the State had no choice but to follow suit.

    Whereas once public service pensions were the benchmark that the private sector measured itself against, they have become so out of touch with increasing longevity, that no-one looks to emulate them anymore.

    Take as an example a highly paid London Head Teacher retiring with an annual pension of £42,000 a year and a lump sum of £126,000. To get that in the private sector you’d need a pension pot of around £1.6m. Even more staggering…take a top civil servant earning around £200,000 at retirement, receiving £100,000 a year in pension and a lump sum of £300,000. To get that in the private sector you’d need a pension pot of £4m.

    But too often private sector reform was a race to the bottom.

    We have already said that we will not join that race.

    We have chosen defined benefits because we know that public service workers place huge stock in having the certainty of a guaranteed and defined pension in retirement.

    But we will only continue our defined benefit schemes as part of wider reform.

    We must address the imbalance between employee and taxpayer contribution.

    Why should the general taxpayer have to work longer before drawing their pensions, when public service workers don’t? Why should the general taxpayer have to pay taxes supporting public service pensions for workers retiring earlier than them?

    Most people, most public service workers included, know that’s unfair.

    It’s only right that public service workers , like everyone else, work that bit longer and contribute that bit longer to their pension.

    For that reason, we are proposing to link the Normal Pension Age to the State Pension Age. That is, we propose linking the age you can draw your occupational pension, to the age that you can draw your State pension. And the two would continue to track each other in the future as we as a society benefit from greater longevity.

    Through this change we would move the proportion of adult life spent in retirement for public service workers back to about a third – that’s roughly where it was in the 1980s.

    The exception is the uniformed services – the armed forces, police and firefighters – where the pension age has historically been lower to reflect the unique nature of their work. We accept Lord Hutton’s recommendations in this case that 60 should be the benchmark Normal Pension Age for the uniformed services.

    For those that would change, as I said, we are still protecting those benefits that you have accrued to date under the old scheme. But not only would we protect those amounts, we would protect when you can draw them.

    As such, you would still have and you could still draw that first part of your pension at the retirement age you were originally expecting.

    Case for reform – final salary scheme and move to career average scheme

    The second argument for reform is that a scheme based on the ‘final salary’ is inherently biased against low earners.

    The current scheme works against those employees who stay on a low salary over their career, compared to those who receive a high salary, for the few years towards the end of their career.

    For top 20% of earners, the median annual pension payout is £42 for each £100 paid in. In contrast, the bottom 20% of earners can generally expect just £30, for every £100 they pay in.

    In some instances, the higher earners can receive up to twice as much in benefits per pound they put in compared to the lower earners.

    Of course, a more successful career will lead to a more generous pension. But in some cases, the high earner ends up with a pension that amounts to 90% of their average salary, whereas the low earner receives just half of their average salary.

    It’s unfair on the lower earners who lose out because they didn’t make the salary leap in the final years of their career. And more often than not it’s women rather than men… typically and unfairly the low earners in their career, who are discriminated against the most by this bias.

    For that reason we are proposing therefore that for future pension accruals, the defined benefit will be linked to the average salary over your career and not your final salary.

    A career average scheme would guard against the risks and costs that come from individuals jumping to higher salaries in the last few years of their career. It would mean that everyone will get broadly the same amount for every pound they put in. This would be an inherently fairer system for the future.

    Case for reform – conclusion

    Those are the facts.

    Under the current system, as we live longer, current levels of contributions are unfairly balanced between the employee and taxpayer.

    Under the current system, the final salary scheme is unfairly biased towards the higher earners.

    The case for reform is clear and compelling.

    As Lord Hutton says himself, and let me quote …“there will need to be comprehensive reform.” Change is needed to “make public service pension schemes simpler and more transparent, fairer to those on low and moderate earnings, better able to deal with the changes that we know are coming to our economy and our society, and will therefore help ensure greater prospects for sustainability over the longer term.”

    Our promise

    But at the same time, we need to ensure that public service pensions remain among the very best available. We want them to be the benchmark against which all other pension provision is compared.

    Public service pensions are an important and valued part of the remuneration offered to public servants and they ensure dignity in retirement.

    In Hutton’s words, reforms must “balance the legitimate concerns of taxpayers about the present and future costs of pensions commitments in the public service, as well as the wider need to ensure decent levels of retirement income for millions of people who have devoted their working lives in the service of the public.”

    In that spirit, first and foremost, we remain committed to defined benefit pensions. That means that every public service worker will receive a guaranteed amount in retirement – not an uncertain amount based on the value of an investment fund or cash pot like most people in the private sector.

    This is a substantial benefit.

    I also want to make it absolutely clear that we are fully committed to protecting the pension that has been earned to date.

    It has been suggested that through our proposed changes, we would be stripping workers of the benefits that they have already accumulated.

    Let me say categorically, this is not true.

    The benefits that you have already secured under the current final salary scheme would be protected.

    Let me be clear what this means: for what you have accrued, the ‘final salary’ which is used to calculate that pension would be the one you have when you eventually decide to retire or leave the scheme altogether.

    And again, for what you have accrued, we would not be changing the age at which you can claim those benefits. You could still draw that part at the retirement age that you were originally expecting to claim it.

    We will honour, in full, the benefits earned through years of service. No ifs, no buts.

    So to those who are surreptitiously advising scheme members to pull out of their pension now – and, yes, this is happening – I say stop. You should be ashamed at advising people to act against their own best interests.

    Reforms already announced

    As well as the longer term proposals that we are currently consulting on, as part of last June’s Budget and Spending Review, we have already taken immediate action that affect public service pensions.

    Firstly, we have already changed the way the value of the pension tracks inflation. We have switched to the Consumer Prices Index instead of using the Retail Prices Index for benefits, including public service pensions. The CPI is already used to set the inflation target by the Bank of England. It is the appropriate index to use in future. The CPI better reflects everyday prices and provides a better reflection of the inflation that people actually experience.

    Secondly, from April 2012, we will be phasing in an increase in pension contributions. This is vital to redress the imbalance between taxpayer and employee contributions to pensions discussed earlier.

    Indeed, Hutton’s Interim Report concludes that “there is a rationale for increasing member contributions to ensure a fairer distribution of costs between taxpayers and employees.”

    And in fact the last Government had already agreed with the Unions that there needed to be an increase in employee contributions. That agreement would have resulted in around £1bn extra of employee contributions to take place next year.

    The Government said in the Spending Review thatit will implement progressive changes to employee contributions, equivalent to three percentage points on average, which will lead to an additional saving of £1.8 billion a year by 2014-15, to be phased in from April 2012. We are in discussions with the Unions about implementation of our proposal, but this would mean a total of £2.8bn in extra employee contributions by 2014-15.

    But 3.2pp is the average increase. The increase will not be the same for all levels of income.

    We are proposing in particular that the lowest earners will face the least, or even zero increase in their contributions. Our proposal would not increase contributions at all for those earning less than £15,000 a year, and we propose a limit of 1.5 percentage points increase for those earning up to £18,000. This would be progressive and fair. It would help to ensure that the increase in contributions will not cause people to opt out.

    It would be in keeping with the Government’s strategy to protect the lowest earners… as we have done by raising the income tax threshold… and as we have done by taking tough decisions on a pay freeze, whilst accepting recommendations from the Pay Review Bodies to provide a £250 pay rise for public service workers earning less than £21,000 pounds.

    Furthermore, we have been clear that for all income brackets where there is an increase in contributions, this increase would be phased in over 3 years. Our proposals would mean that in 2012, 40% of the increase will apply… approximately the same amount that had already been agreed between the Unions and the previous Government through the ‘cap and share’ arrangement. In 2013, 80% of the increase will apply, and 100% in 2014.

    Both the changes to CPI and the changes to contributions are vital to putting pensions on a fair and affordable footing in the short and long term.

    No further changes

    We have already instituted the change to the CPI and we are consulting with the Unions on the increase in contributions. We are determined to see both these changes through as a first step to reform.

    We are also consulting with the Unions on reform for the longer term. Our proposals to link the Normal Pension Age to the State Pension Age, and shift to a Career Average Salary Scheme would see pensions through not just the next five years, but the next generation and beyond.

    We are not looking to make any other changes to how you contribute to your pension.

    I am also aware that our consultation on the Fair Deal policy is a major concern for Trades Unions. The consultation closed on Wednesday and we will carefully consider all the responses we have received.

    Conclusion

    We are undertaking wide and open consultations to ensure that we can reach agreement on a fair level of the pension benefit, fair to public service workers, and fair to the general taxpayer.

    Most public service workers will understand that something’s got to change.

    But they also want to be reassured that they will still get a good pension in retirement.

    These proposals strike that balance. And here is our promise to you:

    We will honour your accrued pensions in full.

    We will continue to provide a defined benefit pension; and

    We will ensure that public service pensions remain amongst the very best available, and will provide low and middle income workers withs a pension broadly as good as what you have now

    At the same time, public service workers must understand, that the current system has to be fundamentally reformed. For that reason our proposals would mean that public service workers would:

    Contribute more to their pensions

    Work to a later age before drawing their occupational pension

    Move to a career average salary as the fairest basis to calculate the pension benefit.

    I fully appreciate that reform of public service pensions is a sensitive issue, but we must realise that it is an unavoidable one.

    Lord Hutton said himself that “how people are treated in this process will be as important as the changes to pension schemes themselves”. I wholeheartedly agree with him that establishing a relationship of trust and confidence between the Government and public service workers is critical to the success of these reforms.

    I hope I have offered clarity and reassurance as to the Government’s proposals. In reforming public service pensions, this Coalition Government is attempting to strike a fair and affordable balance between the legitimate interests of public service workers and the costs faced by other taxpayers. This is not an attack on public sector pensions, it is an attempt to protect them for the long term. I hope you will agree that we have that balance right.

    Thank you.

  • Mark Hoban – 2011 Speech to DLA Piper

    Mark Hoban – 2011 Speech to DLA Piper

    The speech made by Mark Hoban, the then Financial Secretary to the Treasury, on 6 July 2011.

    Thank you for inviting me to speak here today a little over a year since we first came to Government.

    And a year on from inheriting a rather unenviable economic situation.

    The largest peace time deficit on record

    An unbalanced economy still jittering from the crisis

    And a financial sector climbing a steep path to recovery, but hindered by vast regulatory uncertainty.

    The last twelve months however have given us cause for cautious optimism.

    The budget deficit is falling from its record highs.

    Output is growing as we rebalance away from debt-fuelled consumption to investment and export

    Half a million new private sector jobs have been created in the last year – and that includes an extra 25,000 jobs in the Square Mile alone.

    And we have set in motion some of the biggest ever changes to regulation of our financial sector to set the foundations of a more stable economy.

    But herein lies the challenge. As the Chancellor said in his Mansion House speech two weeks ago, we have to confront the “British dilemma”.

    As a global financial centre that generates hundreds of thousands of jobs, a successful banking and financial services industry is clearly in our national economic interests.

    But, whilst we strive for global success in financial services, it’s clear that success should not come at the cost of wider economic stability.

    We have to answer how we can create a successful, competitive and stable financial services sector.

    And added to that we need a financial sector that earns the trust of its consumers.

    What is often missed in the account of the financial crisis, is that it was also a crisis of trust between consumers and the financial system.

    Before the crisis, consumers fell prey to predatory practices of some banks, such as mis-selling of Payment Protection Insurance; during the crisis consumers lived in fear of losing their lifelong savings; and now consumers often feel that banks are unfairly refusing credit, altering fees, or changing overdraft facilities.

    As we emerge from the shadow of the financial crisis, we have an opportunity to tackle this crisis of trust. To reshape financial services for the future. To forge a system that is stable, competitive, and fair for consumers.

    And in the last year we have already made significant progress towards that goal.

    Independent Commission on banking

    On coming to Government we established the Independent Commission on Banking to consider structural and non-structural reforms to the UK banking sector to promote financial stability and competition. In April it produced its Interim Report. A hugely valuable contribution to the domestic and international debate on regulatory reform.

    As the Chancellor said in his Mansion House speech we accept in principle the two key recommendations of the report.

    Bail-in instead of bail-out – so that private investors, not taxpayers bear the losses if things go wrong

    And a ring fence around better capitalised high street banks to make them safer, and to protect their vital services to the economy if things go wrong.

    Of course the Commission will produce its final report in September, and we look forward to its final recommendations.

    Domestic regulatory reform: macro – and mirco-prudential regulation

    In the mean time we have also embarked on fundamental reform of our domestic regulatory system.

    It was the failure to foresee and prevent the crisis that has undermined trust in the sector of course, but also in the regulatory authorities. The tripartite system failed spectacularly in its responsibility to monitor and mitigate the systemic risks before the crisis. We are addressing these failures.

    We are establishing a permanent Financial Policy Committee inside the Bank of England. Its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous inter-connections and stop excessive levels of leverage before it’s too late.

    We are also abolishing the Financial Services Authority in its current form, and creating a new Prudential Regulation Authority with a focus on micro-prudential regulation. It will bring judgement to the vital task of regulating the soundness of individual firms that manage risk on their balance sheet. We are ending the tick box culture that dominated the tripartite system of regulation.

    Three weeks ago the Interim FPC met for the first time, followed by the publication of the latest Bank of England Financial Stability Report. Both warned of continued sovereign and banking strains stemming from the Euro area and urged banks to use periods of strong earnings to store capital and build resilience against these risks.

    These changes to regulatory supervision are essential to ensure that we more effectively monitor and address micro and macro prudential risks. They go a long way to regaining the trust of consumers in banks and the regulators.

    Consumer at heart of regulation

    But we need to go further. We have to place the consumer at the very heart of the regulatory system. Effective prudential regulation alone is not enough to deliver optimal outcomes for consumers.

    In order to deliver the best outcomes for people, businesses and the economy, we need three further things:

    Firstly, a competitive market that delivers efficient prices, a diversity of providers and products, and the innovative provision of new products and services that meet consumer needs

    Secondly, consumers with the capability to engage with the financial system and take responsibility for their actions

    Thirdly, consumers that are supported by robust, fair and proportionate consumer protection measures which build confidence in the financial services industry

    Competition. Capability. Confidence.

    We are embedding this ethos in the new regulatory framework.

    And the new Financial Conduct Authority will be central to this.

    As the new conduct regulator, it will have the single strategic objective to protect and enhance confidence in the UK financial system.

    It will do this by promoting efficiency and choice, the bedrock of a competitive market….securing appropriate protection for consumers…and protecting and enhancing the integrity of the financial system.

    Competition

    Overlaying this, the FCA will also be under a statutory duty to promote competition, as it exercises its general functions.

    Competition is vital to driving better outcomes for consumers and we fully expect that the FCA will be pro-active in executing this duty.

    We expect the FCA to pro-actively increase transparency and disclosure across financial markets.

    And in the future I would fully expect that the FCA to take the lead when it comes to tackling competition issues that cause consumer detriment.

    Taking the example of payment protection insurance (PPI). In this scenario the stronger competition duty and powers we envisage for the FCA would have allowed it to take targeted action to intervene swiftly, and tackle head on the ‘point of sale advantage’ that credit providers had.

    In other cases, where the FCA identifies a structural competition issue of concern, we are also providing the FCA with the power to initiate a referral to the OFT. And we are putting a duty on the OFT to set out its response. In this way, we believe the FCA and the OFT’s roles will complement each other in future, improving competition and outcomes for consumers.

    Capability

    But competition alone is not sufficient to deliver better consumer outcomes. We also need consumer capability and confidence.

    Taking consumer capability first, it is vital that consumers have the capacity to take positive control of their finances, make educated financial decisions for themselves, take a more active role in managing their financial affairs.

    Continued disengagement from the financial world threatens to leave many people unprepared for the unexpected or for later life – but it also risks exposing many customers to unresponsive financial services firms insufficiently focussed on their customers’ needs.

    And we are tackling this head on. Only three weeks ago I spoke at the launch of the Money Advice Service, set up by government, which offers free and impartial financial advice to consumers – to help them take charge of their personal finances and play a more proactive role in the market.

    It will help many people start to save or invest for the first time, but it will also help people get a better deal as more demanding, better informed customers.

    At the same time, we have consulted on developing a new suite of simple financial products. Products that consumers can easily understand and that set the benchmark by which to compare other products and brands in the market. Products that should be aimed at the mass market, that should be available without regulated advice, that help people make sense of the market. And I will be announcing next steps on simple products shortly.

    Confidence

    But even with greater competition and greater consumer capability, there will be instances where we need to go further to deliver optimal consumer outcomes.

    Competition and consumer capability needs to be buttressed by protection.

    As such the FCA will have a clear objective to secure protection for consumers.

    To that end the FCA will have a new power to publish the fact that it has taken action against a misleading or inaccurate financial advertisement.

    The FCA will also have the power to ban products or to restrict certain product features. Again, looking back at the PPI, in a similar situation, the FCA would have the tools and authority to prohibit the selling of PPI products, such as the single premium PPI, until firms redesigned them and demonstrated that they could sell them safely.

    This new power will enable the FCA to intervene more quickly and decisively where it spots a problem by imposing a temporary ban with immediate effect for up to 12 months. It will also enable the FCA to render unenforceable any contracts made in breach of the ban.

    And we are also providing the FCA with the power to disclose the fact that it is taking disciplinary action against a firm or individual.

    This new approach will act as a significant deterrent to firms and help establish best practice.

    We have faced strong resistance from the industry on these proposals, but we will not shift.

    These changes are absolutely essential if we are to deliver a real change in the conduct of regulated firms, instil greater confidence in financial products and services, and incentivise financial institutions to think of their consumers first. Of course, however, we are building necessary safeguards on the use of these powers to ensure that they are used appropriately.

    We also want to see improvements in the market for consumer credit. In December last year the Treasury and the Department for Business, Innovation and Skills published a joint consultation on transferring responsibility for consumer credit regulation from the Office of Fair Trading to the FCA.

    We believe bringing consumer credit into the same regulatory regime as other retail financial services can deliver strong protections for consumers; remove duplication and burdens on business; and improve market oversight.

    Looking beyond regulation, both Departments are also carrying out a joint review of consumer credit and personal insolvency to ensure that we have a framework that is fair to consumers and fair to the industry. This review takes a broad scope looking at advertising of consumer credit, store cards, bank charges, and also covers all aspects of the consumer credit lifecycle, from the decision to take out a loan through to its redemption, including what happens when things go wrong.

    We will publish summaries of the responses that we have received to both the review and the consumer credit consultation before the end of the month. The Government’s response, and our decision on the most appropriate regime for consumer credit, will follow later in the year.

    With such a transformed regulatory environment it is important that the regulatory and advisory bodies work together to protect consumer outcomes. We are putting measures in place to ensure that the FCA will take into account information provided by the Financial Ombudsman Service and the Money Advice Service. And so that the Ombudsman Service can communicate it concerns about a product or service as clearly as necessary, we are also permitting it to publish determinations where it considers it appropriate.

    None of these changes however, absolve individual firms of responsibility for the products they offer. The fact that a product has not been banned will not constitute a stamp of approval. Just as we want consumers to be able to take responsibility for their decisions, firms must remain accountable for their actions.

    There remains the risk that the FCA won’t be able to prevent all conduct failings. And in those instances we need to ensure that the matter is handled decisively and efficiently by the regulator. We must ensure that we learn the lessons of the years of uncertainty for consumers – as was the case with mis-sold Payment Protection Insurance.

    We are entrenching greater clarity and transparency in the redress process to ensure that the FCA really grasps the issue promptly and effectively, and provides consumers with confidence that they will receive swift, fair and consistent redress.

    Conclusions

    We have come a long way in a year, to answer the British Dilemma that I referred to at the start. We are reforming regulation of the financial sector create a market that:

    Underpins a more stable economy.

    Supports a wider economic recovery.

    Delivers the best outcomes for consumers.

    It’s in all our interests to have a safer, more secure and more resilient financial sector motivated by sustainability, stability and consumer welfare.

    Last month, we put out our blueprint for reform and draft legislation for further consultation and pre-legislative scrutiny. And this week, we published a consolidated version of the Financial Services and Market Act as amended by our draft legislation.

    I look forward to your continued input as we implement our reforms.

    The engagement and ideas of those companies and organisations represented in the room tonight is critical to the success of this new framework.

    We need to get this right today, to avoid another crisis tomorrow.

    Thank you.

  • Mark Hoban – 2011 Speech to the London 100 Group

    Mark Hoban – 2011 Speech to the London 100 Group

    The speech made by Mark Hoban, the then Financial Secretary to the Treasury, on 30 June 2011.

    Introduction

    It’s a pleasure to speak with you today about the challenges and opportunities that confront the Insurance Industry. As with the entire financial sector, the Insurance industry faces an unprecedented period of regulatory overhaul and economic uncertainty.

    But we know that we are starting from a strong base.

    Indeed, the UK insurance industry accounts for almost a third of all financial service jobs in the UK.

    It controls over 13% of investments in the London stock market, which is more than held by pension funds, and significantly more than held by banks. It is the largest insurance centre in Europe, the third largest in the world, and accounts for 8% of total worldwide premium income.

    This isn’t a position that the industry has earned overnight, nor is it a position that we are entitled to as a result of past triumphs.

    Rather, it takes innovation and adaptation to stay ahead of the game…

    But if London is to remain the best place to do business, then as markets, products and services evolve, regulation must evolve as well.

    The financial sector and the economy are still in the midst of a delicate recovery following the recent crisis.

    As we grow our economy and we reform our financial services, we are caught in what the Chancellor described in his Mansion House speech as “the British dilemma”.

    One the one hand we want a strong, vibrant and successful financial sector to support economic growth and provide thousands of jobs across the country. On the other hand we cannot afford the sector to pose a risk to the stability and prosperity of the nation’s entire economy,

    The last financial crisis cost the taxpayer billions of pounds.

    But this is a situation that we cannot afford to repeat.

    Or course, we’re all aware that the last crisis was one of investment and retail banking excess and domestic and international regulatory failure.

    Though in the last crisis, the Insurance industry wasn’t directly implicated and came out relatively unscathed…it is not entirely immune.

    Regulation of the financial system as a whole, needs to change.

    Domestic regulation

    It was the failure to foresee and prevent the crisis that has undermined trust in the sector of course, but also in the regulatory authorities. The tripartite system failed spectacularly in its responsibility to monitor and mitigate the systemic risks before the crisis. We are addressing these failures.

    We are establishing a permanent Financial Policy Committee inside the Bank of England. Its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous inter-connections and stop excessive levels of leverage before it’s too late.

    We are also abolishing the Financial Services Authority in its current form, and creating a new Prudential Regulation Authority with a focus on micro-prudential regulation. It will bring judgement to the vital task of regulating the soundness of individual firms that manage risk on their balance sheet, particularly banks and insurance companies.

    But we recognise, of course, that banks and insurers engage in very different types of business. The inherent characteristics of an insurance business model are different to those within a bank’s. This is why we are proposing to provide the PRA with a specific statutory objective for its insurance responsibilities. Insurance regulation will not take a back seat to deposit-taker regulation in the PRA.

    Last week the FSA published the PRA Insurance Regulation document providing more information on the future regulatory approach in that sector. In particular, and in response to concerns expressed by industry stakeholders, the PRA will have a dedicated mutuals supervisory team in order to develop specialist expertise in the sector.

    The PRA will also be responsible for securing appropriate protection of policy holder expectations with respect to with-profit policies. Balancing the insurance objectives of policyholder protection and general objective of firm financial soundness.

    More widely, the new Financial Conduct Authority will play a critical role in consumer protection. Its single strategic objective will be to protect and enhance confidence in the UK financial system.

    In that role, the FCA will oversee the conduct of financial services firms, the operation of markets and the protection of consumers with new powers to ban the sale of toxic products.

    We recently issued the White Paper and draft legislation on these reforms. It is absolutely vital that we get these reforms right. We need a financial sector that continues to propel growth but doesn’t put our stability at risk.

    But we can only get there through your help. I encourage you to work with Treasury officials as we consult on the White Paper and draft legislation.

    International regulation

    But of course domestic regulation is not enough. Financial services are a truly international industry, and regulation needs to reflect that fact.

    There is a great deal of work happening at the European level as you are already aware.

    Firstly, I want to touch on the ECJ Test Achats case. A burning issue no doubt for many of you.

    As the Government has said before, we are extremely disappointed by this decision, but there is no right of appeal. The judgement goes against the grain of a common sense approach to equality. Of course, nobody should be treated unfairly simple because of their gender, but financial services providers should be allowed to make financial decisions on the basis of sound analysis of risk factors, including gender.

    However, we need to abide by the ECJ ruling so this morning I have announced the Government’s position on the Judgment. It is our view that the judgement only applies to new contracts for insurance and related financial services entered into on or after the 21 December 2012. That means, that any contracts with gender-sensitive pricing of premiums and benefits concluded ahead of that date, can continue unchanged after that date.

    Early indications are that this is an interpretation shared across Europe. That said, we fully understand the need for legal certainty. The European Commission has already said it will issue guidance on the interpretation of the judgement, and we welcome this step. However, we are continuing to press the Commission to make an amendment to the Gender Directive to give legislative effect to the judgement

    Elsewhere in Europe, we have the important role of the new European Insurance and Occupational Pensions Authority.

    We are keen to work with EIOPA as it develops, and ensure that it delivers higher and consistent standards of supervision across the EU, and most importantly of all, helps create a level playing field across Europe.

    By doing so, EIOPA can take a major step in completing a single market in insurance, creating new international opportunities for the UK sector.

    Of course, however, the big ticket item is Solvency 2.

    Solvency 2 is vital to creating a deeper, single EU insurance market and helping to drive a more competitive and sustainable industry. Through Solvency 2 we must ensure that we deliver proportionate and risk based regulation, and do not arbitrarily raise requirements in a knee-jerk response to the last crisis.

    We have worked with the industry to identify the top priority issues for the UK, and to broker a sensible deal with the European Commission and other member states on these issues.

    We have made great progress. Not least by securing recognition across Europe that helping the industry to maintain its role as a stable long-term investor is critical to long-term economic growth. The Commission’s proposal for a Matching Premium for UK annuities will be key to this.

    But the debate is not over, and we need to sustain our efforts over the next few months. I encourage you to stay engage in this debate.

    It is only through your engagement that we can build the solid evidence to base future regulation. It is only through such evidence that we can ensure that we implement regulation that is credible, effective and proportionate.

    And we’ve already seen how constructive engagement can be through our parallel reforms to the tax system. In particular, I know many in the Insurance sector have keenly followed our reforms to introduce an opt-in exemption from corporate tax for the profits of foreign branches of UK companies. This will make the UK a more attractive location for the headquarters of pan-European insurers. This change is a vital part of a shift to a more territorial system of taxation, reflecting the fact that UK business has become more internationally diverse.

    Ultimately if we fail to get regulation, and taxation, right for the Insurance secor, it won’t simply be to the detriment of the industry, it will be to the detriment of the wider economy.

    It will impact on bank funding, on infrastructure investment, and it will impact directly on people across the country through their savings and their pensions.

    Savings and investment

    All of you present know how intertwined the Insurance industry is with the country’s savings habits. And as a Government we are committed to tackling the chronic lack of savings that preceded the financial crisis.

    Before the financial crisis, one in four households had no liquid savings

    UK household debt was almost 100% of GDP compared to 61% in Germany and 50% in France

    And even today, almost 60% of people do not have a pension.

    Instead, we want to build an economy more strongly built on the back of savings and investment. We are creating the right conditions to support higher savings across the board.

    By introducing a duty of automatic-enrolment on employers, more employees will qualify for a minimum quality pension scheme from 2012. That means another 4 to 8 million people can start saving, or can save more into a workplace pension scheme. And I know that this is something that the ABI have broadly welcomed.

    We have also removed the outdated requirement to annuitise by the age of 75, thereby giving people more choice and flexibility over how to use their savings.

    We are committed to ensuring that a greater and broader spectrum of society have the opportunities, capacity and trust in the system to take personal responsibility for saving.

    We have launched the Money Advice Service to ensure consumers have the skills and understanding to engage with the system. And I have to take this opportunity to thank Otto for all his work on this agenda and all the support he has provided to the Treasury.

    And, we are consulting on the development of simple financial products to ensure consumers have choice and confidence in their investments.

    Our goal is a savings landscape that creates the incentives for people to address their security and protection needs. Our challenge to you is how will you meet these needs?

    Conclusion

    I’m sure you’ll agree that we’ve come a long way in just a year. A long way to rebalancing our economy away from debt-fuelled consumption, to more prudent saving.

    And a long way to reaching a much needed settlement to the “British dilemma” and the role of the financial sector in our wider economy.

    We still have a long way to go and we are continuing to work tirelessly on domestic and international reform.

    It is in everyone’s interest that we get these reforms right. And tt is vital that we continue to work with the industry, including those of you present today, to do so. I look forward to working with you in the years to come.

  • Mark Hoban – 2011 Speech at the Investment Management Association

    Mark Hoban – 2011 Speech at the Investment Management Association

    The speech made by Mark Hoban, the then Financial Secretary to the Treasury, on 9 June 2011.

    Introduction

    Since building work began on the Mansion House in 1739, Monarchs, Prime Ministers and even Lord Mayors have come and gone, but this building still stands in the heart of the world’s global financial centre.

    Many have contested London’s claim to be the global financial centre, but none have been successful. London and the UK’s continued pre-eminence has not been through luck or through entitlement, but has been a consequence of the ability of the financial services sector to exploit new opportunities, new markets, new products- meeting the needs of investor, firms and consumers as they arise. It is innovation and adaptation and not luck nor fate that lies at the heart of our prominent position.

    Our challenge today is how to make sure that the UK and particularly the asset management sector adapts and innovates to remain a world leader.

    Fund management accounted for almost 1% of UK GDP in 2009, provided employment for over 50,000 people, and over a half of all UK households’ investments and pensions are looked after by the fund management industry.

    By international comparison, the UK is one of the largest markets in the world for fund management. Assets managed by the UK fund management industry total over £4 trillion. Only the US surpasses this figure.

    The UK remains a premier centre for fund management because of our proportionate regulatory framework, our range of efficient fund structures, and our highly skilled and highly professional workforce.

    The Government’s plan for growth, announced in March 2011, seeks to build on these strong foundations. We are removing the barriers to enterprise, we are creating the most competitive tax system in the G20, and we are creating a more educated workforce. These changes are the bedrock for economic growth, and a springboard for our financial services.

    We cannot be complacent. Our history does not give us an entitlement to remain a successful global financial centre.

    It takes innovation and adaptation to stay ahead of the game. There was a time when we had jobbers and brokers literally running from one another to execute trades. Competition would revolve around who could be closest to telegraph machines to get the latest news on developments on South African goldmines or American railways and use this knowledge to make a profit before news spread

    Technology has changed.

    Today, it takes a split second to execute a trade, as we increasingly shift to a world of automated and computerised trading.

    Where High Frequency Traders jostle to be the closest to servers to use a nanosecond’s advantage to make a profit before information spreads widely.

    But if London is to remain the best place to do business, then as markets, products and services evolve, regulation must evolve too.

    To ensure that we maintain our competitive edge to protect the integrity of markets and to ensure we are secure against new risks.

    Financial crisis and reg reform

    Indeed, we are still emerging from the shadow of the biggest financial crisis in almost 100 years. A crisis that necessitated unprecedented Government intervention to save the system from itself….and from total collapse.

    But this is a situation that we cannot afford to repeat.

    We are pursuing an ambitious agenda of regulatory and market reforms to ensure that is the case.

    Markets change and regulation must keep pace.

    But herein lies the challenge.

    How do we ensure that we implement regulation, that is proportionate and sustainable?

    How do we ensure that reforms lead to a more resilient, stable and sustainable financial sector that reinforces rather than undermines economic growth?

    We must not succumb to regulation that stifles the competition, innovation, and openness that have made the UK a leading global financial centre.

    But consumers must have confidence that when they enter into financial transactions with regulated firms, those firms will conduct themselves appropriately. This is why the Government is creating a new dedicated and specialist conduct regulator, the Financial Conduct Authority.

    The FCA will have new powers to protect consumers and enhance confidence, including a new product intervention power. I think with, for example, the growth of structured products, this power will better enable the regulator to tackle problems earlier, before they give rise to widespread consumer detriment, resulting in costly redress payments and reputational damage to the industry.

    But product intervention is only a complement to, and not a substitute for, consumer protections around the point of sale. And the FCA must use its new power appropriately and proportionately. The expertise in, and the responsibility for, designing products which meet the needs of consumers and distributing them appropriately ultimately lies with you: the industry.

    Of course, action at a domestic level will not be enough. Financial services are a truly global industry and regulation must reflect that fact.

    There are already a host of financial services directives being negotiated or implemented in Europe, a feast of acronyms…EMIR, MiFID, UCITS, AIFMD…We also need to make sure that this balance – between openness and opportunity and consumer protection – is also struck at the European level.

    European Regulation

    And we have already fought this battle on the Alternative Investment Fund Managers Directive.

    In just a few short months we successfully negotiated a complete reversal of the Council’s position on the directive, as a result of credible, evidence based arguments, developed through engagement with industry.

    We insisted that the Directive must be internationally consistent and non-discriminatory.

    As we respond to changing financial markets, we must continue to ensure that regulation is in the best interests of financial consumers and investors, in the best interests of London as a financial centre, and in the best interest of the single market.

    This is especially the case in the ongoing MiFID review. Markets have developed significantly since MiFID was originally enacted and it is right to look at how we respond these developments.

    The issue of High Frequency Trading and Dark Pools is a prime example. Unfortunately ‘Flash Crash’ has a perfect media ring to it and provides the perfect clarion call for a host of commentators and politicians demanding tighter regulation of those markets.

    However, we must be careful not to implement regulation where there is no robust evidence base to the detriment of liquid and efficient markets.

    To that end, the Government has established a Foresight project to undertake a detailed assessment of how these markets may evolve and how this will affect financial stability and competition.

    Arbitrarily reducing trading options now, will prove more costly in the long run. Through greater use of technology – and proportionate and effective regulation – the Single Market has the potential to become even more integrated.

    It’s true that we still remain a long way off realising the full potential of a single capital market. There remain a number of barriers to this goal…but, we have an opportunity to make progress in this area through the proposals for Central Securities Depositories to establish common standards for Settlement Systems, and also through the Securities Law Directive by harmonising investor protections and rights.

    But we also have to ensure that we do not erect new barriers in our haste to regulate after the crisis.

    In EMIR we believe that the clearing obligation and obligation to report trades must apply to all derivatives, not just OTC. But at the same time, we don’t want to stifle markets or create monopolies in clearing houses. Instead, we have to ensure harmonisation of operational standards of Central Counterparties to facilitate competition, reduce costs, and improve service quality.

    Evidence Base

    If we are to demonstrate that reforms are in Europe’s best interest, we need regulations that are proportionate and founded on evidence, not whims.

    We need to drive regulation through the quality of our evidence rather than the quantity of our bluster.

    The European debate over corporate governance and stewardship is a case in point. The UK was early in assessing the implications of the crisis and putting this analysis into the public domain. It showed the need to enhance, not replace, the UK’s comply-or-explain based model. But despite this, there are still some in Europe with doubts. More evidence is needed.

    But I recognise that the Government cannot build this evidence, nor win the argument, by working in isolation – we need your help, your advice and your evidence to drive change forward. We need the help and support of the buy side because you are uniquely placed to tell us how much these reforms will cost our pension funds and our equity ISAs.

    The buy side can be a powerful voice in establishing the link between market reform and consumers, as well as making sure that proposed interventions are robustly justified by evidence. I would encourage you to continue to collectively engage in Europe and work with European partners where it is most effective to do so.

    Engagement

    Ultimately, we are at our most effective when Government, the industry, and its customers share the same goals and approach.

    That’s why, we have already convened several industry expert groups to ensure that we have a full understanding of the potential impacts of various Commission proposals on regulation, and also how we can bolster UK competitiveness through tax and regulation.

    Officials in the Treasury have already met with over 100 firms from the buy and sell side to discuss the major directives.

    UCITS and tax transparent funds

    It is as a direct consequence of our work together that we are driving through a number of changes to maintain the UK’s lead as a centre for asset management.

    We are already working with the industry to make sure that the tax treatment of offshore funds, investment trusts and OEICS are updated so that UK fund management can remain competitive with other jurisdictions.

    At the European level, we have already seen proactive and concerted engagement bear fruit with respect to the UCITS directive.

    As you are aware, UCITS IV introduces new opportunities, particularly with the Management Company Passport and Master Feeder structures.

    It is as a result of your input and suggestions that we are introducing changes to enable the UK industry to take advantage of these opportunities.

    We are amending tax law to accommodate the conditions introduced by the Management Company Passport. Removing any risk that a foreign UCITS fund may become taxable in the UK as a result of having a manager resident in this country.

    Without this change UK resident managers would be placed at a competitive disadvantage compared to their overseas counterparts both in expanding their business and in retaining current business where management is consolidated.

    The Government also wants the UK to be the home for Master funds, and to do this we want to develop the most suitable vehicle working with industry to meet the real demand for a tax-transparent vehicle in Britain.

    This year’s Budget announced that the Government will legislate to introduce a Tax Transparent Fund, from 2012.

    Since the Budget, the Government has been working with industry to establish the areas for consideration in our forthcoming consultation. We will publish details of our consultation on Tax Transparent Funds tomorrow, but I can announce tonight that in order to allow more time for detailed consultation but also to bring these funds in on schedule, we have decided to bring them by regulation rather than Finance Bill.

    This approach will allow for an extended period for consideration with industry – ultimately developing a better regime

    Conclusion

    As the investment management sector changes, we need to make sure that regulation- both domestic and European- keeps pace. This does require a partnership with the industry: Government and regulators need to understand the challenge you face and you need to understand where there are constraints.

    But I am confident that together we can produce better services, better tax and better regulatory frameworks which together will deliver what we are all here to do- secure better returns for investors.

    Thank you.

  • Anneliese Dodds – 2020 Comments on Financial Crisis in Households

    Anneliese Dodds – 2020 Comments on Financial Crisis in Households

    The comments made by Anneliese Dodds, the Shadow Chancellor of the Exchequer, on 21 August 2020.

    Even before coronavirus hit, many families in the UK were living on the breadline and this report confirms that the crisis has only made things worse. A third of all adults had no savings going into this crisis, and we now see that millions of families have been forced into debt.

    Sadly the government’s action only risks making this worse. Rather than targeting support to where it is needed most, as Labour has called for, the government is insisting on a one-size-fits-all withdrawal that will plunge us deeper into a jobs crisis and force even more people into dire financial straits. They must change course.

    Over the longer-term, the Government must look at why so many families lack financial resilience in the first place, tackling insecure jobs and poverty wages and providing a proper safety net by replacing Universal Credit.

  • Danny Alexander – 2010 Speech to the Inverness Chamber of Commerce

    Danny Alexander – 2010 Speech to the Inverness Chamber of Commerce

    The speech made by Danny Alexander, the then Chief Secretary to the Treasury, on 27 August 2010.

    Introduction

    Thank you.

    It was pointed out to me that I am the first Cabinet Minister from the Highlands since Baron Irvine was Lord Chancellor back in 2003.

    Yet this is where I felt the similarities between us end.

    As he is probably best remembered for spending nearly £60,000 of public funds on hand-printed wallpaper. While the only person likely to decorate my walls is my daughter – Isabel – and her rates tend to be far more reasonable.

    And this is an excellent place to start, for much of what I will be looking to achieve in the run up to November will focus on the elimination of unnecessary expenditure, while prioritising funds on the areas that matter most to the UK.

    So it’s a great pleasure to be in Inverness today, for my first major speech as Chief Secretary. And to be able to set out the steps we, as a Government, are taking to control public spending and restore confidence in our economy.

    For the decisions we have made since the election – and the actions we will take over the ensuing months – are essential to returning our economy to a sustainable path.

    We have steadied the ship, but if we wish to remain on course we must deliver on the plans we have set out.

    Defence of the Government’s position

    It is impossible to exaggerate the seriousness of the situation we inherited, or the risks to Britain – and to the Highlands – if we had continued on the same course.

    With an economy that was limping out of the longest recession since official records began.

    With almost 2.5 million people unemployed.

    Historically low levels of private investment.

    And a Budget deficit that was due to peak at £166.5bn – the largest in the G20.

    With no clear plan for getting it under control.

    A legacy that had the UK spending four pounds for every three it raises in taxation.

    Yet there are those in Opposition who deny the need to take action and clean up the mess they left behind.

    Who pretend that we could wait years before dealing with the deficit.

    This could not be further from the truth.

    There is nothing credible about denying that the deficit is a problem. There is nothing responsible about pretending it can be solved without making difficult, and sometimes painful, choices.

    For those who deny the need to reduce borrowing – unable to kick the destructive habit – would put our economy at far greater risk of recession.

    Yes it was right to take action to stop the banks collapsing. The stability of our economy depended on it.

    But economic stability now depends on having a credible plan to restore the public finances to a sustainable footing.

    We only need to look at the Euro area – and the recent turbulence in sovereign debt markets – to understand the cost of delaying difficult decisions – endangering jobs, growth, investment and control of your economy.

    This is why we now have a credible plan to deal with the record deficit. And why we will stick to it.

    To tighten the public finances by a total of £113bn by 2014-15.

    With around £30bn coming from tax measures.

    £11bn from the welfare reforms announced at the Budget.

    £61bn from departmental expenditure.

    And another £10bn from lower debt-interest.

    The necessary steps to ensure that we live within our means in the future.

    Mervyn King agrees that “it is essential to take measures this fiscal year to demonstrate the genuine commitment and determination of the new Government.”

    The OECD have praised our Budget, saying it provided “the necessary degree of fiscal consolidation over the coming years to restore public finances to a sustainable path, while still supporting the recovery.”

    And the head of the CBI has said “The Chancellor has achieved his twin objectives of setting out a credible plan for the public finances and producing a convincing growth strategy for the longer-term.”

    So I am determined to see this through, to deliver on our commitments.

    Fixing the nation’s finances is not just the right course of action, it is the only course.

    It is unavoidable, it is necessary, and it is fair. And we will stick to that principle of fairness in our spending decisions.

    But always remember that there is nothing fair about having an ever growing burden of debt for our children to inherit. That is the least fair, the least progressive option of all.

    And the Spending Review is the next crucial step in this process.

    We need to cut public spending, but that is not an end in itself. It is an essential step on the path towards long-term, sustainable, and more balanced growth.

    Growth and Fairness

    We are seeing some very early signs that the economy appears to be heading in the right direction.

    The private sector is growing.

    Employment is on the rise.

    And exports are recovering in response to improving global demand.

    But we must remain cautious.

    I agree with Mervyn King when he says that we are likely to face a choppy recovery.

    To expect an easy ride after the biggest economic crisis of our lifetimes – and with the debt problems this Government has inherited – would be asking too much.

    And I know well how difficult things are for many local businesses here in the Highlands. I have held 28 surgeries in the last 2 weeks in communities right across this area, and at almost every one a local business came to discuss issues they were facing. Most often – but not always – access to finance from the bank.

    There are also some fantastic examples of innovation here in the local economy. Only today, I opened Fujitsu’s new office in Inverness, part of a substantial investment to deliver services and cut costs for the Highland Council. And I looked round the world class exhibition of housing innovation at the Expo.

    So it is crucial that our choices are driven by clear principles and objectives, led by the need to promote a more sustainable model for economic growth and prosperity.

    At the Budget, we took some significant steps to support the private sector, to lead the economic recovery.

    Setting out our ambition to create the most competitive corporation tax regime in the G20.

    Minimising burdens on businesses through a ‘one-in, one-out’ system of regulation.

    And starting the process of banking reform, with improving access to finance. We know more is needed on that issue, which is why we’re making it a priority.

    The Spending Review will have a strong focus on lasting economic growth.

    So as we scrutinise every pound of Government spending, we will identify those areas that do the most to promote sustainable growth and prosperity.

    We will also work with the private sector – with businesses and entrepreneurs ,such as yourselves – to identify the drivers of growth. Broadband access, transport infrastructure, the green economy being three that I know matter a great deal here.

    And we shall address the social barriers that inhibit individual progress, as this is the surest way to maximise national success.

    For as the Deputy Prime Minister set out last week, our determination to tackle the deficit and support economic recovery is matched by our determination to create a more socially mobile society.

    Getting people back to work, promoting fairness of opportunity, and ensuring that all parts of the UK are able to prosper.

    With this approach, the Spending Review will promote a fairer and more sustainable model for growth. By working in partnership with the devolved administrations to create an economy that is better balanced – where the benefits are more evenly spread across all people and regions of the UK.

    But while one key driver behind spending decisions will be investing in the recovery, another will be public sector reform.

    Empowering People

    As part of the Spending Review, I am overseeing a complete re-evaluation of the Government’s role in providing public services.

    We are doing this because the Spending Review is not just about reducing spending, it must also be about fundamental reform.

    Reform driven by very simple ideals – to give more power to people, to communities, and to those working on the front-line.

    Reform to get ‘more for less’, by harnessing the skills capacity and abilities of our public servants.

    Reform to ensure that budget reductions don’t just result in a salami slicing of public services.

    There is no hiding from the fact that there are difficult choices ahead. Public sector workers are understandably worried about their jobs, their future pay and their pensions.

    We have already announced a 2-year pay freeze – with modest rises for those earning under 21k.

    This cost reduction will help to protect jobs.

    And is exactly the sort of thing that has been happening in the private sector over the last 2 years.

    But I also believe that our reforms – where individuals will have more freedom and greater responsibility – will make the public sector a more attractive, as well as a more efficient place to work.

    This is crucial – because the experience, the dedication and the commitment of people working in the public sector is critical to delivering the improvements we need.

    The previous Government took a top-down approach – they believed that Whitehall (or Holyrood) should micromanage every action from Ipswich to Inverness – this has stifled innovation and created excessive bureaucracy.

    We have already started to sweep away this centralised approach, ending the complex system of Public Service Agreements.

    Freeing professionals from top-down targets and unnecessary interference.

    And we will continue to devolve power away from Whitehall and put it into the hands of local people and communities.

    Enabling public sector professionals to deliver a service that is tailored to the specific needs of their area, and where the users – the public – have the ability to shape the services they receive.

    So in October, I will set out a completely new approach to public sector performance and accountability – a new Public Services Transparency Framework.

    Where the guiding principle is not accountability through a centrally designed system of targets and processes. But accountability to people.

    A system that gives professionals more freedom to decide how best to run their own services, in partnership with their local communities and other sectors.

    One where Departments will be responsible for publishing information to allow taxpayers to judge for themselves if we’re delivering on our commitments. And enable the public to hold Departments and Local Authorities to account.

    Providing democratic, rather than bureaucratic, accountability.

    It may seem obvious, but this is a radical shift from the failed, restrictive and centralised system of the last decade. Cutting public spending must not be an excuse for greater centralisation, but a spur to decentralise, to empower, to engage.

    It will empower local communities and those working on the frontline. As I have no doubt that people in the Highlands or elsewhere are far better placed to say what is needed in their local area than the faceless man from Whitehall.

    That is why the public consultation we have been running on the Spending Review has been one of widest ever undertaken by government and has already generated over 100,000 contributions.

    From frontline workers in Stornoway to policy experts in London, we have been seeking suggestions about where savings can be made.

    It is great to see the excellent Highland Council working hard to listen to people as it makes tough spending decisions too.

    Conclusion

    There is little doubt that, in the months ahead, we will all face some tough choices.

    I didn’t come into politics to cut public spending. But, like most people in the Highlands, I know it has to be done.

    As a politician, you don’t choose the time when you have the opportunity to govern. But you do decide how you respond to the challenges of your times.

    The question is not what we have to do – we have made our judgement as a Coalition as to the scale of change that is needed – but how we do it.

    So the spending decisions for which I am responsible will be guided by clear principles:

    To support private sector growth that lasts, that is more balanced across the people and places of the UK.

    To promote fairness and opportunity.

    And to devolve power away from Whitehall – empowering communities and front-line workers, giving them more responsibility and control for delivering their public services.

    The Spending Review is not just about next year, or the year after that. It will pave the way for the long-term success of the UK, our economy, and our people.

    There is no hiding from the fact that we’ll have to make some difficult choices.

    But the action we will take in October will put us back on a secure footing and allow us to plan for a better future.

    We are all in this together.

    And the Spending Review we will produce in two months time will show that this is the case.

    Not only during the testing times, that we have all been through.

    But for good times as well, once the recovery is secured.

  • Jesse Norman – 2020 Speech to ICAEW Virtual Conference

    Jesse Norman – 2020 Speech to ICAEW Virtual Conference

    The speech made by Jesse Norman, the Financial Secretary to the Treasury, on 20 August 2020. Spelling errors issued in Treasury text corrected, but confused wording left in.

    Introduction

    Thank you very much indeed, Frank and I also thank Anita, Daniel and all of your team and the team that set up this amazing event. I have to say when you told me it was three days of online streaming and dozens of speakers and thousands of watchers, I thought this was nothing less than the Glastonbury of tax. I congratulate you on pulling that off. I think it’s an extraordinary achievement.

    Of course I am not really surprised, that this conference is going ahead, because the tax community is always ready, willing and able to embrace digitisation, and I’m going to come on to that a little later in my remarks.

    Frank, you’ve done that very brilliant chairman thing of roping in fifteen different topics that I’m going to talk to you about, and I’m happy to take questions any [sic] of those in questions, but the three areas I’m going to focus on are:

    HMRC’s response to Covid-19 and the pandemic

    the core question of how HMRC focusses on its main business – that is collecting tax

    and then, something I care very deeply about, and I’m thrilled that we have been able to make massive progress on in

    the last few months, which is the 10 year plan we’ve for HMRC to create a trusted, modern tax administration system

    Let me start by saying that, of course I am absolutely proud of what HMRC has done in relation to Covid. I think it’s been an astonishing set of outcomes for them. But I also think that HMRC, and it’s one of the lessons we’ve learnt is this, can’t operate in a vacuum. It needs trusted stakeholders, it needs a tax system that’s working, it needs many, many organisations and people around it to be as effective as it is and would like to be.

    The ICAEW make an enormous difference, and its members too. So whether they are identifying areas for improvement, or helping us to consult, or improve schemes – thank you, and thank you ICAEW members very much indeed.

    I should also say, that we are coming to this, as you will appreciate, in a very specific economic context, certainly unlike any other in recent experience. We’ve now formally entered recession for the first time in eleven years. This is a highly unwelcome development although, alas, not surprising given the wider situation.

    The Chancellor has made perfectly clear his view that there will be hard times ahead, and last week’s figures confirm the truth of that statement.

    And of course, it’s true that hundreds of thousands of people have already lost their jobs, despite the incredibly valid efforts that HMRC and my Treasury officials have been engaged in, trying to protect the economy and protect businesses and protect employment.

    It’s sobering to reflect that many more people will almost certainly face redundancy or unemployment in the next few months.

    Having said that, I do think the work HMRC does can play an absolutely vital role in trying to mitigate the damage the pandemic is doing, and HMRC is at the centre of this activity too, as we’re going to discuss.

    You will appreciate that none of our public services will be doable if it wasn’t for the funding that comes through tax revenue, and that’s of course the core of HMRC’s responsibilities.

    HMRC at the forefront

    You don’t often hear HMRC ministers talking about them being at the forefront of delivering huge and successful new programmes, in record time and at the centre of the government’s response to a crisis, but that is what HMRC has done. As I say, I think it’s a tremendous achievement.

    Let me say also, we are acutely aware that by no means every aspect of every scheme is perfect. This process has been done at a blistering pace. We have been pulling together schemes as quickly as we can, and officials have been working around the clock to make sure that we deliver programmes that deliver the maximum good for the maximum number of people as quickly as possible, with the minimum of fraud.

    It might be worth just touching briefly on the results. The furlough scheme so far has helped 1.2 million employers claim just under £36 billion. HMRC also helped around 2.7 million self-employed people claim nearly £8 billion in grants, and helped employers by reimbursing some of the costs of statutory sick pay for COVID-related absences.

    In the case of Eat Out to Help Out, some 85,000 restaurants have now registered and the total amount claimed is £180 million, from 35 million covers claimed.

    So these are huge numbers, and to put that all in place at such speed is a considerable achievement.

    What I think is less noticed, but to me at least, and to you as tax connoisseurs, no less important, is that HMRC has also implemented more than 60 policy changes and easements, and they include things like:

    the deferral of tax payments through the VAT system and deferral of Income Tax Self-Assessment payments due in July 2020

    introducing a temporary relief for customs duty and import VAT on PPE and other medical supplies used to help combat Covid-19

    assisting in the production of millions of additional litres of alcohol hand sanitiser. HMRC set up a specialist team who moved very quickly to increase production of denatured (undrinkable) alcohol which has proved very important in fighting the virus

    It’s very interesting how brewers and distillers have also moved very quickly into that market and have created new markets for themselves. I’m not going to pass by this issue without singling out the Black Mountain Botanicals distillery in my constituency – who have done exactly that to great effect.

    So that’s the wider context, but of course that in itself, raises the question of where do we go from here. Is there going to be a ‘new normal’ for HMRC, and what does that new normal look like? For HMRC that does mean a refocussing and a reconsideration of the key principles by which they operate, again focussing wherever possible on supporting individuals, supporting businesses, protecting the taxpayer and ensuring the money comes in to fund public services.

    Where we go from here

    So what are those key principles?

    The first one will be that HMRC will continue to collect the tax due, but do so, as far as possible, in a way which supports taxpayers in the work they are doing and in particular, supports businesses that are supporting their employees. We want businesses to be doing the right thing and we want to do everything we can to support them in the way they do that.

    HMRC should communicate transparently and openly. That is very important. The consent on which a tax authority exists, and the consent of the wider tax system requires open and transparent communication.

    It’s of course always vital, for similar reasons, that HMRC should continue to be professional, fair and even-handed in their dealings with taxpayers.

    Where HMRC introduced temporary arrangements that have improved taxpayers’ experiences or created operational improvements, they need to, where possible, to build on these changes to deliver long-term sustainable solutions.

    Finally, HMRC must continue to collect the money that pays for the UK’s public services, and that means continuing to prioritise tackling serious fraud and criminal attacks on the tax system, while making it as easy as it can be for individuals and businesses pay [sic] the right tax at the right time, without difficulty.

    So those principles really remain unchanged, but I think extended in some key areas. Let’s talk a little bit about how that might work.

    Of course, HMRC will still issue penalty notices, they should take a sympathetic approach to those who are struggling to pay their tax or file their returns. HMRC will accept the impacts of COVID-19 as a reasonable excuse, if properly evidenced, and will offer longer periods to request a review or appeal a decision.

    Similarly, HMRC has restarted debt collection activities and it’s absolutely right that it should do so. Of course they recognise, and I recognise that some individuals and businesses remain in uncertain financial circumstances.

    So HMRC will initially focus on collecting debts from taxpayers who are least affected by COVID-19 and most able pay [sic] their tax debts. Having said [sic] if you or any of your members’ clients have concerns about their ability to meet tax obligations, to get in touch with HMRC now, to see how they can be supported through deferrals or Time to Pay or any of the other measures that we’ve introduced to make sure they have adopted every measure to which they are entitled.

    So that is the full picture, but that in itself yields to consideration of what the future will bring, and there you get into the issue of HMRC’s 10-year strategy and all the work we’ve been doing on the tax administration system.

    HMRC’s 10 Year Strategy

    You and your members will have seen that last month we published the 10 year Tax Administration Strategy. I am delighted about that, it is fantastic to be able to put a 10 year process out there, so people have a proper sense of the direction in which we’re heading and can plan accordingly. Software providers can, I hope, flood into the market with new databases, platforms and apps which assist people to pay tax effectively and have the best possible interaction with the tax system.

    That whole plan, as your members will know, having probably read it and costed it closely, is a strategy of focus and collaborative improvement. I think has the potential to yield huge benefits. If you read it, you will see that collecting tax, while an important function, is by no means the only aspect of that plan. It’s also very important to support HMRC’s ability to act to improve our national resilience. It’s been able to do that with the furlough scheme, and that’s surely a very important function for it evolving over time.

    I also think the process of nudging people into digitisation isn’t just good for them, and many people have voluntarily adopted MTD for VAT already, but also has a tremendous potential productivity benefit for the economy as a whole. We have a long tail of businesses in the UK which are quite low on productivity, so this has a much wider potential economic benefit.

    So those three areas, tax, resilience and productivity are all at the centre of this plan. What does this involve? Well it means greater flexibly [sic], resilience and responsiveness in the tax system. It means improvements to businesses’ digital skills, and it means a series of measures focussed on reforming the tax administration in a way that reflects the modern economy, so that it is working in real time, it is allowing people and businesses to pay the right tax, without tax becoming a burden or too intrusive or difficult. And of course, it does enable the government to continue to support the economy and businesses and individuals at times of crisis.

    So that does that mean in practice [sic]. In the first case, it means extend Making Tax Digital (MTD) and pressing on with digitisation as they have done in countries like Denmark, Finland, New Zealand, Australia and many others. That’s very important.

    Having successfully introduced a new, digital VAT service for business we will be:

    – extending MTD for VAT to VAT-registered businesses with turnover below the £85,000 VAT threshold from April 2022

    – introducing MTD for Income Tax Self Assessment for businesses and landlords with business and property income over £10,000 from April 2023

    – consulting on the detail of MTD for Corporation Tax in Autumn 2020

    So we are giving businesses, individuals and the software industry a long lead-in time to ensure people have time to prepare for this change. And for Income Tax Self Assessment taxpayers we’ll have the threshold so that those earning under that sum can opt out if they wish, though one of the fascinating things has been that many businesses have chosen to opt in to MTD despite not being covered by it as they fall below the threshold.

    We think this is the start of a really interesting process as we continue to embrace technology,

    And what do we want to see from that? Well we obviously want to see greater use of real-time information. That’s a vital component – it’s currently very hard for the taxpayer to have an immediate picture in real time of tax liabilities. It’s a big change, but it does help the government. Let’s be clear that if we had a more up to date picture of taxpayers’ financial positions would have enabled SEISS support to be better targeted for those who needed it. Quarterly reports submitted before the introduction of SEISS would have given us almost a further full year’s data, and this would have enabled us to pay SEISS grants based on self-employed workers most recent trading levels. There will be a very concrete improvements [sic] to people’s lives and the resilience of their businesses coming out of these potential changes.

    We also want to explore options for timely payment of taxes, and I realise different sectors face different challenges in this regard. The delays in the UK system can make it hard for people to manage cashflow, particularly for the newly self-employed, whose first tax bill could be up to 22 months after they start trading. We want to open a debate, a wider discussion, about the pros and cons of bringing tax payment more into line with the increasingly real-time nature of tax reporting and other taxpayer services. Of course that also has the effect of helping people to avoid a cashflow crisis at their end and stops them falling into debt, so that has some benefit. We also want to push ahead towards a secure, easily accessible single digital account. We want taxpayers to have one complete financial picture which draws on different sources of information and enables HMRC to provide a more tailored service to their needs.

    Alongside that, but very importantly for the ICAEW and your members, we want HMRC to improve services for agents / representatives, who we regard as an integral part of the wider tax system, and we want to support them and help them do what they can to support their clients, and of course we want to raise standards in that area.

    And the final thing, the bit that often gets forgotten. I know none of this is big box office in political terms…but even in this bit, the thing which tends to get forgotten the importance of modernising the Tax Administration Framework. Our current framework is somewhat complex and somewhat out of date. It needs to be simplified and it needs to be brought up to date. And the goal of that is to allow HMRC and taxpayers to benefit from advances in the use of technology and data, for example by simplifying processes so that businesses need only register once with HMRC for all taxes, and to stop this current system where people have to go around navigating different rules, processes and deadlines for different taxes, and having to sign up with the tax authority on several occasions.

    Wrapping up

    So this, taken together, is I think quite a significant and important moment. Actually, I think it’s important for the country, not just the tax work. I think it forms a coherent package of change, and a long term package of change.

    Therefore I am very excited about it.

    I want to reiterate my sincere thanks to the ICAEW for their collaboration already – both with officials and with me personally – in taking this strategy forward. I am absolutely committed to working very closely with you and with the industry and agents tax profession to understand and improve the tax administration system over the next few years.

    I am now very happy to take questions and thank you everyone again for inviting me to this conference.

  • Lucy Powell – 2020 Comments on Job Losses at Marks & Spencer

    Lucy Powell – 2020 Comments on Job Losses at Marks & Spencer

    The comments made by Lucy Powell, the Shadow Minister for Business and Consumers, on 18 August 2020.

    These job losses are devastating for the workers involved yet they also tell a much bigger story about the threat to our high streets. The scale of job losses was not inevitable but the incompetence of this government means we’re now seeing wave after wave of redundancies, and store closures.

    Labour has called for a Hospitality and High Streets Fightback Fund to support businesses in distress and to save jobs now. Ministers must change course.

  • Thangam Debbonaire – 2020 Comments on Housing Costs

    Thangam Debbonaire – 2020 Comments on Housing Costs

    The comments made by Thangam Debbonaire, the Shadow Housing Secretary, on 13 August 2020.

    Everyone deserves a secure, affordable home, whether they own or rent. The UK is in recession for the first time in 11 years, and more people are likely to struggle with the cost of housing.

    So far, the Government has prioritised tax breaks to landlords and second homeowners. It needs a plan to tackle the jobs, homelessness and housing crises.

  • Layla Moran – 2020 Comments on UK Entering Recession

    Layla Moran – 2020 Comments on UK Entering Recession

    The comments made on Twitter by Layla Moran, the Liberal Democrat MP for Oxford West and Abingdon, on 12 August 2020.

    Even during a recession, everyone should have the security to live life as they choose. We need a Universal Basic Income, decent investment in public services and a greater focus on wellbeing – for a sustainable, fair recovery that leaves no-one behind.