MPs reverse Lords welfare defeats

1 February 2012 Last updated at 22:38 GMT Ministers say the proposals are backed by the public MPs have overturned a series of defeats inflicted on the government's welfare reform bill in the House of Lords.

The coalition won seven key votes in the Commons, rejecting amendments made by peers and reinstating their original proposals into the legislation.

These include plans for a £26,000 annual limit on total household benefits, including child benefit.

Ministers say they will use a rule known as "financial privilege" to ensure Parliament approves the cap.

A special committee of MPs from all parties approved the move on Wednesday.

This will mean the Lords cannot send the same amendments back to the Commons when they re-consider the bill for a final time, preventing what is known as "ping pong" between the two chambers and effectively ending parliamentary opposition.

The measure, which the government says it will also apply to Lords amendments on employment and support allowance (ESA), relates to the principle that the Lords cannot oppose tax and spending decisions agreed by the Commons.

During nearly seven hours of debate in the Commons, the government won a series of votes on controversial aspects of the bill with large majorities.

They voted by 334 to 251 to overturn the Lords amendment - tabled by a group of bishops - which would exclude child benefit from counting towards the £26,000-a-year cap on benefits to working-age households.

The cap is set at the equivalent to the average post-tax salary of a working household.

Labour say they support the cap in principle but argue that rather than one national cap - there should be local caps, set by an independent commission.

'Transitional arrangements'

In the Commons, Work and Pensions Minister Chris Grayling said that idea was "ill-thought out" and "would be more credible if it was not being made at the very last minute".

He said there were already exemptions to the cap - such as families in receipt of Disability Living Allowance (DLA) and Working Tax Credit - and outlined "transitional arrangements" to minimise the impact.

David Cameron taunted the Labour front bench and called for a reaction on welfare reforms

People who had been in work for the previous 12 months would get a nine-month "grace period" before the cap kicked in and he said people in receipt of the "support component" of ESA - for people deemed unable to work due to illness - but who do not receive DLA, would not be penalised.

Additional payments would be made to families in certain circumstances, following a similar model used when the housing benefit cap was introduced - at a cost of up to £80m for 2013/2014 and £50m in 2014/2015.

And he said the policy would be reviewed "in a transparent way" - as they would with any major policy change of this kind.

For Labour, Liam Byrne told MPs there were "dangerous flaws" in the "one-cap-fits-all approach".

He dismissed government claims that Labour had never raised the issue of a local cap before and said they had made plenty of calls for safeguards in the cap.

He said the government had already "burnt a third of the savings they proposed for this measure" - because they had got the policy wrong - and the proposal had become a "dog's breakfast".

The government's decision to use financial privilege rules has been criticised by Labour peers.

And former Conservative chancellor Lord Mackay - who led a Tory rebellion in the Lords against charges for parents to access the Child Support Agency - suggested it was "a waste of taxpayers' money at a time of considerable austerity" for peers to pass amendments which were then rejected out of hand.

'Waste of money' Continue reading the main story Exclude child benefit from overall capNot charging single parents for Child Support Agency if they've taken steps to reach a settlementExempt cancer patients from means testing of ESAMeans test other ESA claimants after two years, not one as plannedAllow young disabled people who have never worked to keep claiming "contributory" ESAExempt social tenants with one spare room from "under occupancy" penaltiesLimit reduction to lower rate of "disabled child element" of Child Tax CreditsEarlier MPs voted down Lords changes to reduce entitlements to employment and support allowance (ESA).

They voted by 324 to 265 to back the government over plans to stop young disabled people who have never worked, due to illness or disability, from being able to claim "contributory" ESA - usually paid to those who have paid a certain amount of National Insurance.

They backed ministers by 332 to 266 over plans to means-test the same allowance after 12 months for those judged capable of working at some point in future.

Four Lib Dem MPs, including former leader Sir Menzies Campbell, defied their party leadership over the issue.

And MPs voted down a peers' amendment that would have exempted some cancer patients from means testing by 328 to 265.

They also reversed a Lords amendment limiting a reduction to the lower rate of the "disabled child element" of Child Tax Credits under the new Universal Credit system, by 324 votes to 255.

Critics say the move will hit working people facing severe financial difficulties - and could cost them over £1,300 a year.

The government says it wants to target support at the children with the highest care needs - and say there will be transitional protection so those already in receipt of the benefit will not lose money.

MPs also voted to overturn a Lords proposal calling for social tenants with one spare room to be exempt from new "under-occupancy penalties" linked to housing benefit. It won the vote by 310 to 268.

It also overturned the Lords amendment calling for single parents not to be charged for accessing the Child Support Agency by 318 to 257 votes - but only after ministers said they would reduce planned upfront fees to £20.

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Europe hit by Russia gas shortage

4 February 2012 Last updated at 01:28 GMT Even Rome has seen a rare fall of snow, closing schools and the Colosseum Freezing weather sweeping across Europe has led to a shortage of vital Russian gas supplies to several countries, officials say.

An EU energy spokeswoman said eight countries had seen a reduction in gas due to increased demand in Russia.

She said the situation was not an emergency but was being monitored.

The cold snap is being blamed for scores of deaths in eastern Europe where temperatures have plunged to below -35C.

Freezing temperatures have spread to Italy and France, and the UK is also on alert for snowfall over the weekend.

"I can confirm that there has been a decrease in gas deliveries in various member states - Poland, Slovakia, Austria, Hungary, Bulgaria, Romania, Greece and Italy," EU spokeswoman Marlene Holzner said.

"It's not a situation of emergency yet," she added.

Correspondents say the sudden drop in Russian gas supplies - which pass through Ukraine - is raising fears of a repeat of a crisis in 2009 when tension between Moscow and Kiev cut supplies to parts of Europe for about two weeks.

Countries including Bulgaria, Serbia and Bosnia are almost completely dependent on supplies via Ukraine.

Gazprom, the Russian gas export monopoly, said on Friday it was supplying as much gas as it could spare.

"We are doing everything possible... all the systems are working in a stable manner," spokesman Sergey Komlev said.

Meanwhile, Ukraine says more than 100 people have died from the freezing weather, most of them homeless.

Authorities have set up nearly 3,000 heating and food shelters across the country and instructed hospitals not to discharge homeless patients.

The Polish interior ministry said that eight people died from the cold on Friday and two others died of carbon monoxide poisoning from charcoal heaters.

In other developments:

Rome has seen some rare snowfall and Venice's canals have reportedly started to freeze overIn Bulgaria, parts of the River Danube have frozen overMore than 20 people have died from the cold in Romania and hundreds of school remained closedOfficials in Paris say they are trying to cram as many homeless people as possible into shelters as temperatures plummet

Meanwhile, the UK's Met Office has put severe weather warnings in place until Sunday.

It says heavy snow is forecast across much of England and Wales with southern and central areas likely to be the worst hit.

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MPC member attacks lending cuts

2 February 2012 Last updated at 11:58 GMT Mr Posen called for new ways to provide funding for small and medium-sized businesses Bank of England Monetary Policy Committee member Adam Posen has criticised banks for not lending enough to small and medium-sized businesses.

Mr Posen told the BBC banks had overreacted and said the need to increase capital reserves was not a reason to stop lending.

He questioned if bankers were "reluctant, risk-averse jerks", or if there was a more fundamental problem.

He also dismissed banks' defence that there was little demand for new loans.

'Excuse'

Speaking on BBC Radio 5live's Wake up to Money, Mr Posen said the cut back in lending to small and medium-sized businesses had been "enormous".

He said banks had taken the "wrong risks" prior to the 2008 credit crunch.

"Now they've overreacted, not just in the UK but worldwide, and they've cut back on all kinds of lending that could be productive," he said.

"Regulators said they want capital buffers to go up, but they don't have to up immediately, so that's partly an excuse [for banks not to lend].

"When banks say it's all about no demand [for loans], that's crazy. Fees, prices and spreads on loans going to small businesses are going up, and normally prices don't go up when demand is falling."

He added that banks were choosing to roll over loans to big businesses rather than make new loans to smaller firms.

Alternative funding

Mr Posen said the problem was particularly acute in the UK due to the lack of alternative funding for small businesses.

He said he was in favour of other mechanisms that would allow investors and savers to lend money direct to businesses.

If there were enough, he said, the loans could then be packaged together to offer an attractive return to investors.

"We need to think of ways of pooling lots of business loans so they become a fit investment for big investors.

"These would need to be very vanilla, so everyone knows what's in them."

He said there were such schemes but there needed to be more, as there are in the US and France.

Falling inflation

Mr Posen also dismissed some criticisms of the Bank's programme of quantitative easing (QE), whereby it creates money to buy assets.

Some commentators have said it creates inflationary pressure in the economy, while the money created sits on banks' balance sheets and does not filter through into the real economy.

"QE is not about inflation - if it was, inflation would continue to rise, but instead we're seeing it fall and it's going to keep falling all year," Mr Posen said.

He also rejected the idea that banks simply sit on the cash.

"We buy directly from big investors like the pension funds and they invest it in the real economy."

He did, however, concede that "in the UK we don't have the structures to disperse the money into the real economy".

But he said "things would have been much worse without QE".

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Eurozone service sector growing

3 February 2012 Last updated at 09:47 GMT The Spanish service sector continues to contract The eurozone's service sector has grown for the first time in four months, although Spain and Italy have continued to post falls in business activity.

The Markit eurozone services purchasing managers' index (PMI) was 50.4 in January, up from 48.8 in December. Any score under 50 represents a contraction.

It follows a manufacturing survey of 48.8, up from 46.9 in December.

Markit said the survey suggested a recession could be kept at bay.

Chris Williamson, chief economist at Markit said: "The final eurozone PMI data indicates that business conditions stabilised following declines seen in the final four months of last year and that the region may avoid a slide back into recession."

The two surveys helped improve the composite index for January, which includes services, construction and manufacturing, increase to 50.4 from 48.3 in December.

'Slower decline'

The survey also found an increasing gap between the stronger eurozone economies, such as Germany, and weaker countries such as Spain.

The survey found growth hit a seven-month high in Germany and a five-month high in France, while ongoing downturns were seen in Italy, Spain and the Irish Republic. However, the rates of decline fell for Spain and Italy.

Mr Williamson added: "Confidence may have risen but remains very low by historical standards of the survey, linked to the fact that inflows of new business continued to fall and that lower prices often had to be offered to win sales, which will dent profit margins.

"The region's debt crisis is also by no means resolved, and any setbacks in current negotiations could easily cause confidence to slump again."

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Personal insolvencies 'down 11%'

3 February 2012 Last updated at 11:09 GMT Some families' finances were hit by rising prices during 2011 Fewer people were declared insolvent in 2011 in England and Wales than during the previous year, but the number of companies going bust increased.

There were 119,850 people declared insolvent over the year, the Insolvency Service said, which was down 11.3% on the record high of 2010.

In the final three months of the year, there was a 5.6% fall compared with the same period a year earlier.

The number of firms going bust in 2011 increased by 1.3% compared with 2010.

Debt choices

Personal insolvencies are still running at significantly higher levels than before the credit crunch. One in 366 people became insolvent in 2011, compared with a 25-year average of one in every 1,600.

Yet, the figures show a clear shift in the way people chose to deal with their financial troubles over the year.

There was a 29% fall in the number of people who were declared bankrupt, considered to be the most traditional form of insolvency, but one that puts assets such as a home at risk.

Continue reading the main story Bankruptcy: The traditional way of escaping overwhelming debt. Ends after one year, but you are likely to lose all your assets including your house to pay something to the creditorsIndividual voluntary arrangement (IVA): A deal between you and your creditors, overseen by an insolvency practitioner. Less stigma, less chance of losing your home, but involves paying some of your debts in one go or over a number of yearsDebt Relief Orders: Introduced in April 2009, these allow people with debts of less than £15,000 and minimal assets or surplus income to write off debts without a full-blown bankruptcy The total number of bankruptcies stood at 41,845 in 2011. This sharp drop meant the annual total was overtaken for the first time by Individual Voluntary Arrangements (IVAs).

Under this arrangement, an official deal is done between the individual and creditors on how to pay back debts. There were 49,056 IVAs in 2011, a fall of 3.2% on the previous year.

There was also a notable rise of 15% in Debt Relief Orders (DROs) in 2011 compared with 2010. There were 28,949 DROs - a relatively new style of insolvency for lower levels of debt.

However, Nick O'Reilly, an insolvency practitioner at chartered accountants HW Fisher, warned that these people could still face escalating problems.

"To qualify for a DRO, a person must have relatively small debts of less than £15,000. But there is every chance that those struggling with DROs now could slip into insolvency proper," he said.

Official figures from Scotland were released in January, which showed a 2% rise in personal insolvencies in the third quarter of the year compared with the same period a year earlier.

Continue reading the main story

We have known for a while that many businesses are surviving but not thriving, operating as 'zombies'”

End Quote Frances Coulson President of R3 Accountant in Bankruptcy (AiB) reported 4,664 personal insolvencies in the third quarter of 2011-12 in Scotland. This was 13% lower than the previous quarter.

Business worries

The number of businesses going bust in England and Wales fell slightly in 2010 as companies recovered from the recession, but crept up again in 2011.

There were 4,972 receiverships, administrations or company voluntary arrangements last year, up 1.3% on the previous year.

The number of firms that were liquidated - the end point of the insolvency process - was up 5.1% on 2010, to 16,871.

"The increase in corporate insolvencies is unsurprising given the challenging economic environment that businesses are operating in," said Frances Coulson, president of R3, the trade body for insolvency practitioners.

"We have known for a while that many businesses are surviving but not thriving, operating as 'zombies' and eventually some would have to fail.

"What is still clear however is that insolvency numbers are historically low compared to previous recessions and we have not seen volume of business failures that one would expect. This is certainly the calm before the storm and in fact if the economy is to recover, we must see some businesses fail, to allow viable ones to thrive."

Who is affected?

Some commentators have suggested that there has been a rise in the number of professionals facing insolvency.

Miquita Oliver is facing bankruptcy after failing to pay a tax bill

There were 28,973 personal insolvencies in England and Wales in the final three months of the year.

Those facing bankruptcy include television presenter Miquita Oliver. The 27-year-old from London rose to fame presenting Channel 4's Saturday morning music show, Popworld.

She failed to pay a tax bill of more than £170,000, according to accountants Baker Tilly.

There is a tendency for people to put off applying for help with debts until after Christmas and new year celebrations, so some debt experts predicted a rise in insolvencies in the first months of 2012.

"We have seen a noticeable increase in professionals filing for bankruptcy and we can see this trend continuing," said Louise Brittain, partner in Deloitte.

She predicted that the number of individuals entering insolvency in 2012 would rise above 120,000.

Credit reference agency Experian said a group including mostly married or middle aged people, bringing up children in family houses, had seen their share of insolvencies rise the most in 2011.

"Redundancy and relationship breakdown are typically the main reasons for why people experience serious financial difficulties," said Simon Waller, of Experian.

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