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Oral Answers to Questions

Volume 470: debated on Thursday 24 January 2008

TREASURY

Northern Rock

1. What assessment he has made of the effect the run on Northern Rock has had on the attractiveness of the UK to financial institutions; and if he will make a statement. (181406)

2. What assessment he has made of the effect the run on Northern Rock has had on the attractiveness of the UK to financial institutions; and if he will make a statement. (181407)

With permission, I shall answer Questions 1 and 2 together. The United Kingdom remains in a fundamentally strong position. London remains the leader in international financial markets, and we are determined to keep it that way.

Thousands of my constituents work in the City of London. They go up every day on the train. What reassurance can the Chancellor give them that his delay and dithering are not harming their job prospects?

I appreciate that London is important—not just important to the hon. Gentleman’s constituency and the wider south-east of England, but crucially important to the whole United Kingdom.

We should recognise two things. First, what happened to Northern Rock arose fundamentally because of a mistake made by its management, who had a business plan that simply could not operate when the money markets dried up for them. In relation to London generally, it is recognised throughout the world that our regulatory regime is sound and that our approach is right. London is a recognised world centre for much of the world’s financial trade, and I am determined that it should remain so in the future.

Order. I am due to call the hon. Member for Mid-Bedfordshire (Mrs. Dorries). Can the Chancellor assure me that it was made clear that her question would be linked to Question 1?

Is my right hon. Friend aware that many people in my constituency, in the north of England, and indeed in the City believe that the Government’s handling of the Northern Rock crisis has been first-rate? Jobs have been preserved, the bank is being preserved, and we have an opportunity to save the reputation of the financial services on behalf of our country and the economy. Is my right hon. Friend aware that some of us are sick to death of Conservative Members who could not in any way run the proverbial chip shop—

I probably do agree with much of what my hon. Friend has said.

As I told the House in my statement earlier this week, we are in a difficult position to which, in an ideal world, it would have been good to find a purely commercial solution. Our problem, recognised by at least some Conservative Members, is that the very market conditions that precipitated the problems for Northern Rock are continuing, and it will be obvious to those who look at what is currently happening in the financial markets that those conditions are difficult.

I believe that what I set out on Monday was the right thing to do. I want to ensure not only that we protect the interests of taxpayers and depositors, but—importantly—that we maintain financial stability. As I said to the hon. Member for Castle Point (Bob Spink) a few moments ago, we should all bear it in mind that in the City of London we have one of the finest assets in the world.

In view of the Bank of England’s role in the Northern Rock saga, can the Chancellor give any reason why he feels that we should not appoint Mervyn King to a second term as Governor?

I have made it clear that the matter of appointments will be dealt with in due course. As I said on Monday, I intend next week to publish wide-ranging proposals to strengthen our regulatory and supervisory regime.

I know from visits by the Treasury Committee to Washington, Frankfurt and Brussels that the pre-eminence of London as a financial centre is not in doubt, but we need to do two things: reform the tripartite arrangement and address the international dimension. That is the case whether we are talking about liquidity tests, which many countries have not undertaken, or rating agencies. Those two issues are paramount, and I hope that when the Chancellor receives the Treasury Committee’s report on Northern Rock he will not only include it in the consultation exercise, but take our comments on both issues seriously.

I hope very much that we can do that. I understand that the Committee’s report will be published fairly quickly, and once we have read its conclusions I shall accommodate as many as possible.

My right hon. Friend’s other point is equally important. This is very much an international problem. Some of the problems that are affecting banks are affecting them all over the world. We need to look at early-warning systems, and also at the position of the credit rating agencies. As I have said before, I have always regarded them as simply a source of advice for companies, not a substitute for their judgment. We also need to look at the recommendations for the Financial Stability Forum, which we will discuss with Finance Ministers when the G7 meet in Tokyo in a couple of weeks.

The last thing I would say is that although I can see that it is very tempting from the Opposition’s point of view to run down the City, those working in the City and people in the country as a whole deeply resent it when the Conservatives attempt to do that. Actually, the City is very important to us.

The Chancellor blames the situation on international turbulence, but it is only in Britain that the threat of nationalisation hangs over a bank, it is only in Britain that there is a run on a bank, and it is only in Britain that £55 billion of taxpayers’ money is at risk. Is that not why the Chancellor’s own advisers, Goldman Sachs, said:

“The Northern Rock factor has badly dented the UK’s reputation for being the world’s pre-eminent financial centre”?

[Interruption.] His own advisers said that. By damaging that reputation, has he not put at risk jobs not only in the City of London but across the UK, as well as tax revenues and economic growth, and all because of his dithering and delay in dealing with this crisis?

Mr. O’Neill is a widely respected commentator, but his view on that particular point is not universally shared. Indeed, many people who work in the City and in London recognise London’s importance to the UK. I said a few moments ago that I thought the Conservatives’ comments were unhelpful, and the hon. Gentleman has duly obliged by emphasising that point.

On the hon. Gentleman’s other points, if he cares to look back over events of the past few months he will see that banks throughout the world have been affected by the current problem. That demonstrates that although there are huge advantages in globalisation, huge challenges can also arise, as we can see only this morning.

Olivant and Virgin were given preferred bidder status on the basis of a main feature of their bid being repayment of £10 to £15 billion-worth of debt. Now that that has disappeared, if another private sector bid comes in and, not having had months of scrutiny of Northern Rock’s books, expresses a wish for the 4 February deadline to be shifted slightly, will the Chancellor look positively on that reasonable request?

First, when Olivant and Virgin put in their indicative bids, that was conditional on their being able to raise commercial sources of finance. That has proved not to be possible for the reasons I set out on Monday. I also said on Monday that if any other institution expressed an interest in participating in investing in Northern Rock, we would look at that. I said I wanted proposals by 4 February, and I do not see any merit in letting this process drag on indefinitely. Regardless of where they start from on this issue, I think most Members take the view that we need to bring matters to a head, not least because the state aid approvals will expire in March. If someone comes along on 3 February, of course we will listen to them, and inevitably in such matters there will have to be negotiation. So far, only Olivant, Virgin and the board have expressed an interest. We will be sensible, but I do not want the process to drag on and on.

Further to that last intervention, is not the risk of a rapid private sale that the Government will either be trampled by an Olivant or shafted by a Virgin? In order to reduce the risks to the taxpayer, will the Chancellor assure us that the security that will be offered against the Government bonds will not include any of the £8 billion dodgy, unsecured loans, or the even dodgier Together mortgages, and that the individuals within the bidding consortiums will each be required to put up at least 15 per cent. of the equity, as specified in Financial Services Authority rules?

That is an interesting piece of analysis, and I shall study the hon. Gentleman’s remarks carefully—particularly the first part of his contribution. I have set out the principles that underpin our approach to any possible solution. As I said on Monday, we should receive proposals shortly, and thereafter we shall consider them. As I also said in the House on Monday, I very much hope we can reach a solution. A period of temporary ownership of Northern Rock remains a possibility, but as I said to the hon. Gentleman on Monday, many of the issues he raises now in relation to my proposals would also be relevant in relation to a temporary period of public ownership.

May I ask my right hon. Friend the Chancellor to avoid a situation in which either Northern Rock goes bust—that would be incredibly damaging to Britain’s reputation—or he ends up as a sort of neo-Mr. Putin, operating Northern Rock as a kind of Gazprom of the north?

I had better be careful there for a number of reasons. Suffice it to say, as I have said on many occasions, both before the Treasury Committee, of which my hon. Friend is a member, and on the Floor of the House, that what I set out on Monday offers a constructive way forward for Northern Rock and that I hope that we can find a solution, but if that does not happen, public ownership remains an option. I would much prefer to find a solution whereby we can get private sector investment in it, because I think that in the long term that would be the better option for the bank, its employees and the north-east.

Value Added Tax

3. How many companies Her Majesty’s Revenue and Customs has taken action against for failure to pay value added tax correctly in the last 12 months. (181412)

There is a range of figures on this, and it is difficult to give an exact answer, because a range of actions can be taken. HMRC aims to help business pay the right tax due at the right time, and it tailors its response to the circumstances when that does not happen. Businesses in temporary difficulties can agree time-to-pay arrangements, but those who underpay may face sanctions.

I thank my right hon. Friend for that answer. Will she say what assistance she is giving small business to help with the VAT burden?

My hon. Friend raises a very important point. To assist VAT administration for small businesses, HMRC has introduced a variety of special schemes, which may be used individually or in combination. Each of the VAT schemes addresses a slightly different aspect of the tax, and will have different benefits and costs depending on the individual business. The schemes are specifically designed to assist small businesses in their dealings with HMRC.

As the hon. Gentleman and the House know, there have been difficulties with registering new businesses for VAT, but HMRC has put a tremendous effort in to address the problems that arose. He knows that HMRC has targets to achieve. It is on course to hit those targets by the end of January, which is a week away, and its performance has improved enormously, as businesses seeking to register will discover.

Departmental Performance

4. If he will make a statement on the findings of the Cabinet Office report on the performance of his Department and Her Majesty’s Revenue and Customs. (181413)

The findings of the reviews of Her Majesty’s Treasury and HMRC were accepted in full by the Treasury’s permanent secretary and by HMRC’s acting chairman. Both Departments have responded in detail to the findings of the reviews in their respective reports, which were published by the Cabinet Office on 17 December 2007.

I thank the Minister for her enthusiastic answer. Does she recall that in 1998 the then Chancellor of the Exchequer, now our Prime Minister, said:

Money will be released only if Departments keep to their plans.”—[Official Report, 14 July 1998; Vol. 316, c. 188.]?

He said that in respect of public service agreements. Is she aware that the HMRC capability review says that only three out of 10 targets are likely to be reached? If that is the case, how much money will now be withheld from HMRC?

The capability reviews are a new, honest, robust and open way of focusing on delivery. They are published, as are the responses to them, and I am glad that the hon. Gentleman is so interested in them. We want this public focus on capability so that we can ensure that the civil service can deliver much more effective and efficient government to make the best use of the money that this House allocates.

Tax credits introduced by this Government have helped millions of families around the country, but the administration of them has, on occasions, been poor. Tax credits involve a Kafkaesque situation, because if one gets on to them, one cannot voluntarily withdraw from them. I understand that the only way to get out of tax credits is by dying or by having a substantial increase in one’s income. One cannot simply say, as one of my constituents tried to do, “I want no more to do with this.” Will my hon. Friend please examine the issue?

My hon. Friend knows about Kafka and I can tell him that HMRC has found a way out of the Kafkaesque situation as part of its transformation project. His constituent should therefore be able to withdraw from tax credits if that is what he or she wishes to do.

How can cutting 600 HMRC jobs through Capgemini in Shropshire help the performance of the Minister’s Department?

The capability review had no criticism of the changes in staffing that have gone on in HMRC. On the contrary, it praised HMRC for delivering in core business and making efficiency savings at the same time. I am surprised that the hon. Gentleman seems to think that the Government should not be working to improve the productivity of public service.

In its report on HMRC data security, the Cabinet Office urged that in the longer term electronic data transfer should be expanded significantly to reduce the use of removable media. Will the Minister tell us what preparations have been made for that? What training might be provided for HMRC staff in the light of the fact that ICT experience in the Treasury and its broader agencies has been reduced over many years by the continued adherence to outsourcing computer products?

My hon. Friend should be assured that the interim Poynter review has already identified some of those issues. The management of HMRC are working to establish data security while the review is ongoing. We await the final findings, which will deal with those issues in more detail. I can assure my hon. Friend that I shall take on board all his points, which are fair, and that we will make changes to structures and systems in order to ensure that the highest standards can be guaranteed in future.

The capability review of HM Treasury at the end of the Prime Minister’s decade in control of it noted, among other things, that there is

“a pressing need for greater inclusiveness and humility in its dealings with others.”

Who does the Minister think is responsible for that deficiency?

We have seen an extraordinary period of success with a stable economy, strong growth, increased employment, record investment in public services and one of the strongest economic records in the G7. In 2007 we had the highest growth rate in the G7. We are determined to maintain that economic stability and success.

Bingo

Treasury Ministers and officials have met a range of stakeholders, including representatives of the bingo industry, to discuss gambling taxation issues.

Bingo is the only mainstream gambling product that is doubly taxed, by VAT as well as gross profits tax. That level of taxation has been a primary cause in the closure of 81 clubs and the identification of a further 108 clubs as at risk. Since each club closure costs the Treasury some £700,000 in lost tax revenues, does not the Minister see the sense in removing this unfair imposition of VAT on bingo? That would be tax revenue-neutral, would prevent further club closures and would secure this popular leisure activity for thousands of people.

Obviously, we keep all taxes under review and decisions about gambling taxes are made at the Budget. It is not at all clear that removing VAT on participation fees would be enough to make some of the marginal clubs viable. I must correct the hon. Gentleman, as bingo is not the only gambling sector to face both duty and VAT. Gaming machines are liable to VAT and amusement machine licence duty. I must also tell the hon. Gentleman that in 2003, bingo saw a big reduction in its effective tax rate from 35 per cent. to a rate that ranges between 20 and 25 per cent. That is in line with all the other tax impositions on other forms of gambling.

Last autumn, I had the very great privilege of calling the numbers at the Byron bingo and social club in Hucknall. Will the Minister listen to the concerns of staff and customers, at the Byron and across the sector, about the effects that the smoking ban and the taxation system have had on the industry’s future? Will she look closely at bringing forward proposals in the Budget to help secure that future?

I assure my hon. Friend that we keep all such matters under close review. The Government have done good things for bingo, not least among them the fact that we lowered the higher rate of tax in 2003. In addition, we have removed the 24-hour rule and the membership requirements, and we have allowed maximum stakes on prize gaming machines to be doubled. We have also allowed rollovers and created the potential for much larger prizes. My hon. Friend mentioned the smoking ban, so he has not fallen into the trap of thinking that all of bingo’s problems are the result of VAT rates. They are not.

In a recent answer to me on this subject, the Minister said:

“The Government consider all relevant factors when establishing and maintaining fair regimes for the gambling taxes and keep all taxes under review.”—[Official Report, 14 January 2008; Vol. 470, c. 907W.]

Bingo clubs provide important social benefits in many communities. What relevant factors did the Treasury consider that led it to conclude that bingo clubs should be taxed more than licensed betting offices and internet gambling?

The issues with internet gambling and offshoring are obvious, but I must correct the hon. Gentleman: the changes made in 2003 knocked 10 per cent. off the effective tax rate for bingo and brought it into line with other forms of gambling. Bingo is not discriminated against.

Climate Change (Economic Impact)

The Stern review assessed a wide range of evidence on the impact of climate change and its economic costs. It concluded that the benefits of strong and early action far outweigh the economic costs of not acting. The intergovernmental panel on climate change has also assessed the economics of taking action, and come to similar overall conclusions.

I am grateful to the Chief Secretary for that answer. As he knows, the Stern report is iconic—a word that I understand could be attributed to my right hon. Friend! The report states that the Government should spend 1 per cent. of gross national product to mitigate the effects of climate change. Have we met that target? When can we hope to do so?

I am not sure that I have done anything to deserve such lavish praise from my hon. Friend, but he is right that the Stern report on the economics of climate change has changed the debate, in this country and around the world. It made it clear that the people who could suffer most from a failure to tackle climate change, or from a lack of ambition in our approach to it, are those living in the developing countries. They are the most vulnerable, and he is right to say that Stern said that the cost of not acting would be large. That is why the Government took various measures in the recent spending review to ensure that we are prepared to face the challenges posed by climate change.

Should not the committee on climate change be set up now, as a matter of urgency? It is not due to report on the 2050 target or the inclusion of aviation in that target until late 2009, and the fact that it has not been set up yet gives an impression of a lack of a sense of urgency on the Government’s part. Setting up the committee as soon as possible would send out a very good signal that the Government are intent on taking this matter forward as fast as possible.

I hear what the hon. Gentleman says, but I assure him that every step is being taken to set up the committee as soon as possible. Every action that the Government are taking makes it clear that we recognise the urgency of the situation, and we have already asked that the committee consider the new scientific evidence being produced to see whether higher targets should be set—although the target of reducing carbon emissions by 60 per cent. by 2050 remains very challenging. The Bill currently being considered in another place is pioneering and groundbreaking, and it sends a very clear signal to the rest of the world about the level of this country’s ambition.

What assessment has my right hon. Friend made of the effect of the climate change levy on industries that are high users of energy, such as the paper-mill in my constituency?

The evidence that the Treasury has collected shows that the climate change levy has reduced harmful emissions overall and has produced revenue that is useful in the fight against climate change. I recall that the levy was introduced in the face of opposition from Conservative Members. It was a far-sighted decision taken back in the early days of this Government. That shows that the Government have always had climate change at the heart of their agenda, unlike others who came to the issue more recently.

With the rapid, dramatic rise in the cost of fuel, energy and food, and in council tax, will the Government be extremely careful about imposing any more additional costs on either the individual or industry? In respect of industry, to follow up on the last question, it would be easy to make British manufacturing industry far less competitive, but we would be a fool to do so, given that so much of climate change is caused by other places and not this country, and given that there remains considerable scientific debate about the impact of climate change.

The hon. Gentleman raises an important point. There is a tension between legitimate objectives, and there is a balance to be struck, but I hope to assure him that the Government seek to strike that balance in all their actions. However, he must recognise that the Stern review identified that there are economic costs to the country and its citizens of not taking action at the appropriate level. If we do not take action on climate change, the cost of food could rise well into the future. We need to consider both the short term and the long term. He rightly raised the issue of fuel bills; we, as a Government, must ensure that we take further steps to help people who are struggling with energy costs, particularly those who face the threat of fuel poverty. He will know that, to meet that objective, we have committed ourselves to the winter fuel payment for the duration of this Parliament.

The Stern report rightly recognises that it is people in the poorest countries who will be affected most and first. In the Minister’s discussions, both at UK and European level and with China and India, will he ensure that any financial measures that are taken to impact on climate change in the UK are reciprocated in places across the globe? Given the growth in the economies of China and India, they will increasingly be at the forefront of having to tackle climate change. Will he ensure that any discussions are international, not just domestic?

My hon. Friend is absolutely right. I think the phrase that Stern uses is that hundreds of millions of people could suffer if we do not take appropriate action. It is true to say that those who would suffer most are those around the world who have perhaps contributed least to climate change. He is right to say that international action is the key. We should take some encouragement from the fact that the European Commission’s package, published this week, draws heavily on the Stern review. It shows that climate change is territory on which there needs to be constructive engagement at the heart of Europe; that is particularly relevant this week, as we have been debating those matters. We want to meet the challenges of this century, whereas others seek constantly to fight the battles of the last century, and constantly bang on about Europe.

Capital Gains Tax

7. What assessment he has made of the impact of the capital gains tax proposals announced in the 2007 pre-Budget report on the decision-making process of small businesses. (181416)

Mr. Speaker, with your permission I propose to make a statement on the subject of capital gains tax immediately after Question Time.

Would the Chancellor like to take this opportunity to apologise to the House for his half-baked, panicked proposals, which were driven by political considerations, as well as for the damage that he has done to small businesses’ planning and confidence, and for the failure properly to consult the business community? Perhaps after that he will say where he will get the money to fund his belated U-turn, which is to be announced later this morning.

I shall come to my proposals fairly shortly. The fact that we have more than 760,000 more small and medium-sized enterprises in the past 10 years is testament to the fact that this country is a good place for small businesses to carry on their operations.

EU (Co-ordinated Action)

8. What discussions he has had with his European counterparts on co-ordinating action across the EU in response to turbulence in the US sub-prime market. (181417)

I met my French, German and Italian counterparts, along with the European Commissioner, in Paris last week to discuss current market conditions. In addition to that, the Prime Minister will meet his counterparts in London next week.

In view of this morning’s announcement of very substantial losses by Société Générale, will my right hon. Friend say a little more about what practical proposals he and the Prime Minister will be putting forward to ensure that financial regulators, central banks and Governments work together right across the European Union to improve both transparency and stability in Europe’s banking sector?

I am aware of the reports from Société Générale in Paris. The Financial Services Authority is looking at the situation. As I understand it, that concerns something that happened in the bank’s operations in Paris, and I further understand that the French Treasury will make a statement later today. On my right hon. Friend’s more general point, it is important to recognise that many of the problems that we have to deal with transcend national boundaries, particularly in relation to the role of the International Monetary Fund and the forum for financial stability and what they can do to get better early warning, and the need to achieve agreement on how banks deal with off balance sheet structured investment vehicles in relation to the credit rating agencies. These are all areas where we must take international action.

We discussed some of these matters in Paris last week, and I very much hope that as we move towards conclusions, we can get the international community to move far faster than it usually does. It took 10 years to get Basel 2 agreed to, and we do not have 10 years to sort out the present problems. We need a combination of actions on the part of individual institutions to report the full extent of their exposure as quickly as possible, so that we can end some of the present uncertainty. That would help to restore stability. In addition, it will be necessary for action to be taken not just domestically, as I shall outline next week, but internationally. Above all, as I think my right hon. Friend would agree, whatever we do must be proportionate. We must avoid the temptation to have a rule and regulation for every possible eventuality, as the American Government did after the Enron difficulties earlier in this decade, which proved to cause as many difficulties as they thought they were solving.

What are the implications for major infrastructure projects such as the expansion of Stansted airport, where a Spanish company which is already heavily borrowed is the lead on that project? What implications will the crisis have for such a project? Are other projects that the Government consider to be in the national interest—I do not happen to think that that is one of them—threatened by the crisis?

I wondered whether the hon. Gentleman was changing his line on Stansted. No doubt he is anxious to make that point for his constituents, if not others. It is for BAA, which owns Stansted, to decide whether the investment that it thinks is necessary can come forward. I very much hope that it can. Yes, we have an immediate problem in relation to credit and what is happening in the markets, but we should ask ourselves all the time what we will need 10, 20 or 30 years ahead. When it comes to aviation, as I have said many times, ever since I published the aviation White Paper in 2003, the problem that we have in this country is that on successive occasions when we should have been looking to the long term, short-term decisions were taken that prejudiced the development of transport infrastructure, in particular. That is why it is important that people ask themselves what Stansted will need in 10 or 20 years. I think BAA will take the long-term view, which is extremely important.

Has the Chancellor noted that there seems to be almost universal agreement in the United States that the threat of recession following the sub-prime mortgage and credit crunch crisis can best be warded off by a combination of lower interest rates and fiscal stimulus? Does he think that the response of the European Union and of Britain should be similar, and if not, why not?

Mainly because the situation in the United States economy is rather different from the situation in our economy and in other major economies in the EU. As the hon. Gentleman rightly recognised, the big problem that the Americans have is that following the collapse of the US sub-prime market, the problem has gone on to affect the US housing market more widely. In America, the basic problem is that the supply of housing far exceeds the demand. In this country, we have the opposite problem: demand for housing exceeds supply, as we well know. What may be appropriate for the US economy is not always necessarily appropriate for other economies. As I have said on a number of occasions, because we have low unemployment, historically low inflation and low interest and mortgage rates, the Monetary Policy Committee has room for manoeuvre—as the Governor said in his speech in Bristol, I think of Tuesday evening—that was not available 15 years ago, when the previous Government got into such terrible problems. We will continue to do what is right for the UK economy, and at the heart of that is ensuring that we have a strong, stable economy and that we take the right decisions for the long term. If we do that, we can get through these problems, just as we have dealt with problems in the past.

Data Protection

9. On how many occasions in his Department and its agencies confidential data has been downloaded on to CDs without encryption in the last 12 months; and if he will make a statement. (181418)

There is no central record, as across government the protective marking “Confidential” has a broad specific meaning, and is of a lower order than other security classifications. But it is a very good question, and one of the reasons why the Prime Minister invited Professor Walport to undertake a review of security arrangements across government.

We welcome the ruling by the Cabinet Secretary, Sir Gus O’Donnell, about not taking laptops or computer drives out of offices, but there are many people out there who still believe that the Government have been at best casual and at worst highly irresponsible, and cannot understand why the natural default position is not to encrypt personal data. The Minister has once again repeated her party’s position, hiding behind the report from Kieran Poynter. Does she simply not know the details at this stage? Can she guarantee that the Poynter report will not be slipped out on the eve of a parliamentary recess, and will be accompanied by an oral statement in the House?

I am afraid that the hon. Gentleman prepared his supplementary before he heard my answer to his first question, because I did not refer to Poynter at all. But he brings me to an important point, which is that Her Majesty’s Revenue and Customs instituted new controls. We accept that what happened last November was a grave mistake and that is being corrected. Immediately, HMRC put in controls that required that all customer data transferred by CD be encrypted. I would expect that in his full report, Mr. Poynter will consider how internal processes and culture at HMRC can be strengthened to achieve appropriate data security in the future. The hon. Gentleman can be assured that the House will have the fullest opportunity to comment when Mr. Poynter is ready to report.

I congratulate the Financial Secretary. This is about the first answer to a question relating to data that did not refer to the Poynter report, because the Government have consistently refused to answer perfectly reasonable questions about the missing data, about how many discs have been lost by HMRC, or even HMRC’s tracking procedures with private courier firms, by batting them away, saying that Poynter will report in due course. Given that Poynter will not report for some months, is it not about time that the Government abandoned their brazen attempts to kick the issue into the long grass, treated Parliament with a bit more respect and started answering some questions on this matter?

I do not accept the premise of what the hon. Gentleman says. I take extremely seriously the changes that need to be made within HMRC and that are being made. Kieran Poynter, in his interim report, referred to the fact that many of his immediate recommendations had already been acted upon by HMRC in its immediate response to the circumstances. So the Government and HMRC have given a serious and considered response to the circumstance that HMRC found itself in last November. The matter is being taken extremely seriously indeed, and the House can be assured that Poynter’s final report will be presented to the House, I am sure by an oral statement.

Structural Budget Deficit

10. What estimate he has made of the UK’s structural budget deficit in comparison with other western European economies. (181419)

Cyclically adjusted net borrowing in the UK has averaged 1 per cent. of GDP over the economic cycle that began in 1997. Over the same period, the structural deficit has averaged 2.1 per cent. in the euro area, 3 per cent. in France, 2.3 per cent. in Germany and 2.8 per cent. in Italy.

Is it not the case that our structural deficit is now higher than that of many countries in the euro zone, and is it not true that the Government have squandered tax revenue in years of relatively high growth and now have no choice but to raise taxation to meet the golden rule?

As the figures that I read out indicated, that is not the case. Net debt in this country, at 37.2 per cent. of GDP, is lower than that of France, Germany, the US and all the G7 except Canada. That is the result of a strong fiscal framework and strict fiscal rules that the Government have applied in the past 10 years. We will continue to borrow only to invest, enabling the renewal of our critical national infrastructure—something that the hon. Gentleman’s Government signally failed to do.

Topical Questions

As I said earlier this month, the core purpose of the Treasury is to ensure the stability of the economy, promote growth and manage the public services and finances.

When the fuel escalator was introduced, the oil price was low—the exact opposite of what it is now. The escalator is adding huge, increased costs to British business and industry, thereby endangering their competitiveness while fuelling the flames of inflation. Will the Chancellor consider suspending the escalator?

I keep all taxes under review. Generally, our economy has remained very competitive. British industry has done very well; indeed, as yesterday’s figures showing continuing growth of gross domestic product confirm, the transport sector remains healthy. However, as my predecessor said, we need to ensure that we maintain the appropriate level of taxation on fuel.

It is difficult to make like-for-like comparisons with other countries around Europe, but I think that the level of taxation at the moment is right. We will do everything that we can to help resolve the difficulties that we have with high oil prices. It is particularly important that oil producers recognise that they have an interest in making sure that there are adequate supplies of oil. That, of course, is one of the things determining oil prices at present.

T2. I have asked the Comptroller and Auditor General to launch an inquiry into the costs incurred in rescuing Northern Rock, and he has agreed to do so. However, will the Chancellor tell the House what have been the costs incurred to date in issuing guarantees and indemnifying loans made by the Bank of England to Northern Rock, including professional advisers’ fees incurred by the Treasury? (181432)

The fees of Goldman Sachs will be met by Northern Rock. As I said to the House earlier this week, we have made guarantees but they have not been called, so there has not been a cost to the taxpayer.

T3. In the past few years, Trimdon 2000, a community group in my constituency, has received a grant of about £79,000 from the Northern Rock Foundation. Hundreds of similar community groups have received similar donations from that foundation. During his discussions on the future of Northern Rock, will my right hon. Friend ensure that the future of the foundation is secured? (181433)

As I have said on a number of occasions, I am very aware of the importance of the Northern Rock Foundation in the north-east. It depended on a significant income stream coming from Northern Rock in conditions that no longer exist. All of us, including my hon. Friend and his colleagues who represent north-eastern constituencies, would like to find a solution that helps the foundation; I know that that is also in the minds of those who have expressed interest in investing in Northern Rock. Trying to do something about it will require an effort on the part of us all, but I am very aware of the points that my hon. Friend has made.

At this time of economic uncertainty, people are looking to the central banks and their monetary policies, yet in Britain we still do not know who will be running the central bank come the summer. What exactly is the reason why the Prime Minister and the Chancellor are delaying the decision on the reappointment of Mervyn King?

I have dealt with this issue on many occasions. As I have said before, I will make an announcement—actually, Her Majesty the Queen will do so, as that is how such an appointment is announced—and it will be made at the appropriate time.

I am sure that Her Majesty will take the advice of the Chancellor and the Prime Minister when she makes her announcement. When Mervyn King was first appointed, that announcement was made in November for an appointment in June. At the beginning of this month, the Chancellor said at a joint press conference with the Prime Minister that he would make an announcement in the next few weeks; well, it has been a few weeks. What exactly is the reason for this continued uncertainty in the markets? Why cannot he simply say that he is reappointing Mervyn King? Let me put it another way. Is he looking at any other candidates for the job?

As I have said to the hon. Gentleman and to the House on many occasions, the appointment will be made at the appropriate time; that remains the case.

T4. Will my right hon. Friend consider the views of the Federation of Master Builders and those of 58 MPs who have so far signed early-day motion 669, calling for a reduction in VAT from 17.5 per cent. to 5 per cent. on repairs to and maintenance of existing buildings? Such a move would bring far more empty homes on to the market, assist home owners in making their homes energy efficient, and, importantly, assist groups such as the West Midlands Historic Buildings Trust to maintain heritage buildings such as Lye and Wollescote chapel in my constituency. (181434)

I congratulate my hon. Friend on the persistence with which she is pursuing this subject. I can assure her that I have studied the terms of early-day motion 669. Alongside the zero VAT rate for the construction of certain new residential and charitable buildings, we have applied a 5 per cent. reduced rate for certain supplies related to housing. However, the problem is that we cannot implement the early-day motion proposal under the current European Union rules because there is no vires in EU law to allow any new reduced rate for repair and improvement work on non-residential buildings. I assure her that we keep the situation under review and seek to assist whenever it is possible to do so.

T5. Some 9,400 families in my constituency receive tax credits, a minority of whom experience great difficulty with the system. What changes are my right hon. Friend’s Department making to help those families and my hard-pressed caseworker, Julie? (181435)

I suspect that my hon. Friend’s caseworker is known personally to the staff of tax credit offices. Her Majesty’s Revenue and Customs established the tax credit transformation programme to improve the services that families receive because that is very important for the success of this great project, which is now supported by parties on both sides of the House. HMRC has run several pilot projects, including a new national service to allow couples whose relationship has broken down to initiate a new single claim in one phone call. From the end of this month, it will also be revising its code of practice 26 on recovering repayments and replacing the reasonable belief test, which has caused a great deal of concern and difficulty in understanding, with a clearer test that sets out customers’ responsibilities for checking factual information alongside the responsibilities that HMRC has to fulfil.

T6. I declare that I am a policyholder in terms of having my mortgage with Northern Rock—at the commercial rate, I stress. Many mortgage holders will be concerned about the possibility of having their loans called in, forcing them either to remortgage or to sell their homes. Under the various proposals being considered by the Government, what is the likelihood of that situation coming about? (181436)

I understand the hon. Gentleman’s point; as we all know, he is not the only one who has a mortgage with Northern Rock, as I made clear the first time I made a statement after the recess last autumn. It is for the company, or whoever owns or controls it, to decide on what terms it issues mortgages or how it deals with mortgages as and when they come up for renewal. That is not something that the Government deal with.

To return to the issue of VAT reduction raised by my hon. Friend the Member for Stourbridge (Lynda Waltho), the Government said in last year’s Budget that they were seeking EU agreement to allow a reduction in VAT for certain energy-saving measures. Can my right hon. Friend give us an update on the progress that has been achieved on that?

I can reassure my hon. Friend that those discussions are ongoing. I have been involved with them at ECOFIN, and we are pressing the case for the reduction. It is gaining support throughout Europe, but we are not yet in a position where we can change the rules to achieve such a laudable change.

T7. Following the loss of child benefit data by Her Majesty’s Revenue and Customs when on its way to the National Audit Office, I asked the Chancellor what other organisations and departments were in receipt of such personal data. The written reply failed to answer that question. Instead, it said that “Most transfers of data take place under statutory gateways”—[Official Report, 3 December 2007; Vol. 468, c. 1038W.]—whatever they are. What about the data that go out of the HMRC that do not go through statutory gateways? Which departments and people are in receipt of those data, and why is there a continuing transfer of personal information, or leak, out of that department without parliamentary authority? (181438)

No transfers take place without parliamentary authority. HMRC operates within clear guidelines and rules set down by Parliament. The transfer of data is a large part of HMRC’s business. The management of personal data is a critical part of what it does, which is why it is right that we consider all of the representations that we receive from Mr. Poynter. We will also need to consider the police report when we get it. A great deal of work is being done to understand the procedures that are in place, how they work and their effectiveness in order to ensure that we have the most secure procedures possible in place.

T8. Why were the Government running such a substantial budget deficit ahead of forecast, even before the credit crunch bit? (181439)

The figures that I gave to the hon. Member for Poole (Mr. Syms) earlier show that this country has met debts at a lower level than any of our European competitors. If the hon. Member for New Forest, West (Mr. Swayne) is questioning our spending, let me quote the right hon. Member for Witney (Mr. Cameron) from his press conference last week—[Hon. Members: “Answer the question.”] Just hear me out. The right hon. Gentleman said that

“the government spending plans for the next three years are really quite tight…I think it represents a fairly tough approach to public spending.”

Given that the hon. Gentleman’s party has several billion pounds of tax cuts promised, what does he propose to do about borrowing?

I am assured that HMRC will have met the targets in place for such registrations by the end of January.

With all the publicity about Northern Rock and various other things, it is important that the Government get the message across that it is right for people to save. But it is difficult for people to open a bank account if they do not have an address, they are not a householder or they do not have a passport. People under 16 have particular difficulty in opening a bank account. If we do not get young people saving at an early age, we are not going to change the public perception of saving, or encourage more people to save. What are the Government going to do about that?

My hon. Friend is absolutely right to raise that issue. I draw her attention to what the Government have done through the success of individual savings accounts. Nearly one in three adults—more than 17 million people—now have an ISA. She is absolutely right to say, however, that further work needs to be done to encourage those on lower incomes to make provision for their later life. She will know that we have piloted the savings gateway, which is a new approach to encouraging people to save, and we are considering the results of those pilots before making further decisions about extending the pilot more widely.

Topically, I received a letter recently telling me that 31 January is my final deadline for a tax return, and encouraging me to file my tax return online, saying that that was the best way for me to do so. Given our discussions on the efficiency of HMRC recently, how come I have also been sent a letter from HMRC saying that I cannot file online? Does the left hand not know what the right hand is doing at HMRC?

The hon. Gentleman raises a fair point. There are categories of individual for whom security is a higher priority. [Hon. Members: “Oh!”] Not just Members of Parliament—there are several categories of people in that position, and HMRC does not have the facilities for them to file online. However, it is working to see what can be done to change that in future.

With British Gas about to announce profits of £750 million, why has the Chancellor rejected Ofgem’s proposal for a windfall tax on energy suppliers?

I met representatives of Ofgem about 10 days ago because I want to ensure that we have a competitive market in this country for electricity. The hon. Gentleman is right—several companies have announced significant increases for a variety of reasons, while other companies have been able to manage things differently and have not had to do that. However, Ofgem’s proposals are just that—Ofgem’s proposals.