The Irrelevance of the Lords Reform Bill

Eddie Hodgson 

Image © UK Parliament

Reform of the House of Lords has been taking up much of the headlines in the newspapers over the last few days. It must be the silly season when such an irrelevant subject grabs the attention of the leader writers.

Most of the (mainly) pro Tory newspapers are accusing the Lib Dems of blackmailing the Conservative Party by threatening to oppose boundary changes (that favour the Tories) if they oppose Nick Clegg’s proposals for Lords reform.

It is hard to see why anyone should care about this. The only significant facts in the proposals are that:

  • The aim is to have 300 members of the reformed House of Lords
  • The term of office for each member will be 3 parliamentary terms (15 years)
  • Members will be paid a salary

The reasons why this proposal is unnecessary and irrelevant are:

  • Assuming a salary of £75,000 per year, this will cost the taxpayer £22.5m a year. The Government should be looking at better ways to spend this considerable sum of money.
  • The present system is not perfect but it ‘ain’t broke’ so there is no need to fix it.
  • The proposed reforms would mean simply that parties nominate individuals who would vote along party lines, hardly much change from having a second House of Commons. We already have a parliament voted in along party lines and we don’t need another one.
  • The proposals are merely Nick Clegg’s attempt to show that he is trying to get Lib Dem policy enacted. This is one of the dregs left in the Lib Dem manifesto, the most important parts of the manifesto now either abandoned by Clegg for a taste of power (such as abolition of tuition fees) and others having been roundly rejected by the electorate (AV).

The main reason, however that the proposals are irrelevant is that there are much more urgent priorities for this Government than reforming the Lords.

People generally care about four main things: health, jobs, homes and friends. The Government has failed the electorate on at least two of these issues, jobs and homes. Ask any young person and they will tell you that all they want is an opportunity to work, not an internship or work experience stacking shelves at Tesco, but a real job. Usually one can rely on the market to create jobs but the market is essentially self interested and will not create opportunity unless it is in the market’s interest.

Governments on the other hand exist to carry out a duty towards the electorate. The duty is to take responsibility, where the market won’t, to ensure that the people have the opportunity to find work. That means creating jobs or incentivising the market to create opportunities. With jobs people become bigger consumers and the market itself benefits. People can afford to take out mortgages or pay rent again. But this won`t happen while the market is in ‘stall’ mode. 

One particularly poetic measure would be to disallow the enormous amounts of tax losses run up by the major banks over the past few years. Without a rescue from the taxpayer many of the banks would have gone bust and those who received no direct aid benefitted from the market recovery engineered by Government intervention.

The point of disallowing the losses would mean that they could not be offset in future (or current) years against bank profits, with the result that the banks would have to pay more tax in the future. Certainly as the Government is now a major shareholder in certain banks the effect would be fairly neutral to an extent but where there are outside shareholders (as in the majority of cases) the increased tax receipts could be very significant.

As an example, Barclays PLC disclose in their 2011 report that they have gross tax losses at 31 December 2011 of £2,299m for which they haven`t recognised a deferred tax asset. This is down from £6,178m in 2010. They have also recognised an asset (that is the tax benefit calculated at the current tax rate) of £1,493m.

Other banks are equally awash with losses that they will be able to use to reduce their tax bills in the future. Assuming say 5 banks with losses of £5,000m each gives £25bn which at 22% would be a benefit of £5.5bn – a useful amount of money for the government to use in order to help provide employment opportunities.

The reason this would be poetic justice is that the lack of market appetite for creating jobs largely stems from the banking crisis and the havoc it has caused to business. The additional tax that should accrue when the banks return to profit (as they are already doing in some cases) should be used to provide incentives to employers – such as an exemption from employer NI contributions for new ‘first job’ employees taken on (whether graduates or school leavers) for a limited period and dependent on a fixed period of employment at commercial rates of pay. Other uses would be to fund infrastructure and repairs – not a high speed rail link that no one needs but such mundane things as mending potholes and other essential repair and construction works.

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