Supplementary memorandum from HM Treasury
FURTHER MATERIAL
REQUESTED AT
THE EVIDENCE
SESSION ON
29 APRIL 2009
Do you have figures now on the amount of personal
debt that people have, separate from mortgage debt, personal credit
debt? (Q271)
The Bank of England publishes data on household
debt levels, split between mortgage debt and consumer credit.
In February 2009 the total stock of household debt was £1.46
trillion, of which £1.23 trillion was secured debt and £232
billion consumer credit. Within consumer credit, £53 billion
is credit card debt.
The annual growth in consumer credit has been
on a declining trend since the beginning of 2005, and in March
the stock of consumer credit was 3.2% higher than a year earlier,
the lowest growth rate since August 1993.
ANNUAL GROWTH IN LENDING TO HOUSEHOLDS (MONTH
ON SAME MONTH YEAR EARLIER, NOT SEASONALLY ADJUSTED)
| Total credit |
Secured credit | Consumer credit
|
| January 2005 | 12.8
| 12.4 | 14.5 |
| June 2005 | 11.1 | 10.8
| 12.8 |
| January 2006 | 10.4 | 10.5
| 9.7 |
| June 2006 | 10.3 | 11.0
| 7.4 |
| January 2007 | 10.5 | 11.5
| 6.0 |
| June 2007 | 10.3 | 11.2
| 5.7 |
| January 2008 | 9.2 |
9.8 | 6.2 |
| June 2008 | 7.4 | 7.4
| 7.0 |
| January 2009 | 3.1 |
2.9 | 4.6 |
| March 2009 | 2.1 | 1.9
| 3.2 |
What market-testing have you done and what consultations have
you carried out to ensure that, when some of these things come
forward with a guarantee, the investors will look to invest in
them because of course the trust and confidence in asset-backed
security was shot through from before? (Q345)
On 19 January 2009, the Government announced it would establish
a guarantee scheme for assets-backed securities, to be launched
by the Debt Management Office (DMO) in April.
In the 2009 Budget, the Government announced that the scheme
is available, at first until October 2009, for banks and building
societies to use alongside the existing Credit Guarantee Scheme,
to support their lending to the economy. The scheme extends the
funding options available under the existing Credit Guarantee
Scheme to residential mortgage backed securities (RMBS). The details
of the scheme are available on the Debt Management Office's website
at: http://www.dmo.gov.uk/index.aspx?page=CGS/ABS_about
Banks and building societies eligible to participate in the
existing Credit Guarantee Scheme are eligible to participate in
the ABS guarantee scheme.
Following discussions with the industry, the Government has
announced two types of guarantee: a credit guarantee and a liquidity
guarantee:
— credit guarantee: this is an unconditional
and irrevocable guarantee of the timely payment of all amounts
of contractually due from the issuer for the duration of the guarantee;
and
— liquidity guarantee: this is a guarantee
of the issuer's obligation to purchase eligible instruments at
a specified time, where the participating bank or building society
is required to undertake to put the issuer in funds to meet its
obligation.
The guarantees will have a maximum term of up to three years
(up to one third of the garantees may have a five year term).
The guarantees will attach only to instruments rated AAA
by at least two rating agencies (on the basis that they do not
carry a guarantee). The Government also has recourse back to the
participating bank or building society and the issuer of the securities,
thereby protecting the taxpayer. Both the bank or building society
and the issuer will be required to sign counter-indemnities obliging
them to reimburse the Government for all sums paid out under the
guarantee.
The DMO will require that data relating to the loans backing
the securities is provided on a regular basis.
The fees payable to the government will be based on a per
anum rate of 25 basis points plus 100% of the participating institution's
median five-year Credit Default Swap spreads from the period from
2 July 2007 to 1 July 2008.
The Government is setting high quality eligibility criteria,
and encouraging high quality reporting standards, in order to
lay the foundations for stronger markets in the future, building
on recently published new reporting standards for European RMBS
published by the European Securitisation Forum.
The scheme will run initally for a six month period subject
to any extension at the discretion of the Government.
When you look at issues about housing, because you can be cash-poor
and you can be asset-poor as well, you said just now that, when
people lose their jobs, after 13 weeks they will get SMI, but
that is only if they are on income-based Jobseekers' Allowance,
is it not? (Q358)
Everyone who claims a qualifying means-tested benefit, or
who is receiving a qualifying contributory benefit and can establish
their eligibility to an means-tested benefit, and has a relevant
outstanding mortgage liability, can receive Support for Mortgage
Interest (SMI) for eligible housing costs after claiming their
qualifying benefit for 13 weeks.
SMI helps pensioners and the out of work with their mortgage
interest. SMI is means tested as an integral part of the income-based
benefits system. The qualifying benefits for SMI are Employment
and Support Allowance (income-based and contribution based), Jobseeker's
Allowance (income-based and contribution based), Income Support
and Pension Credit. It is paid as part of Income Support (IS),
Employment and Support Allowance (income-based), Jobseekers' Allowance
(income-based) and Pension Credit.
Prior to 5 January 2009 those of working age had to serve
a 39 week waiting period before they could become eligible to
SMI. There was a shorter waiting period, of 26 weeks, for those
who had taken out their loan prior to 2 October 1995. Any period
that a working age claimant spent on IS, Employment and Support
Allowance (ESA) and Jobseeker's Allowance (JSA) counted towards
the waiting period. In the case of JSA and ESA, this was regardless
of whether the claimant was in receipt of the contribution-based
version or the means-tested version of the benefit. In other words,
time spent on contribution-based JSA or ESA counted towards the
26 or 39 week waiting period for SMI, but only those on the means-tested
version of the benefit at the end of the qualifying period would
become eligible at that point. The exception to this is that those
who remained in receipt of a contribution-based JSA or contribution-based
ESA, but could establish their eligibility to the income-based
version, would also become eligible at that point.
Contribution-based JSA can only be paid if a person has paid
enough National Insurance contributions in the past two tax years
before they claim. And it can only be paid for six months. After
six months, the claimant may be entitled to income based JSA provided
that they meet the qualifying criteria for that benefit. If they
do not meet the qualifying criteria (ie the "means test")
then they will remain entitled to claim "Credits Only"
Jobseeker's Allowance, which covers National Insurance contributions
but provides no financial support to the claimant.
Given the six month limit on contribution-based JSA, it would
not be possible for a contribution-based JSA claimant to still
remain on contribution-based JSA by the time they become potentially
eligible for SMI—ie. at the point at which they had completed
their 39 week waiting period. This means that there were no situations
in which someone could be both claiming contribution-based JSA,
and potentially eligible for SMI.
Since 5 January 2009, new SMI measures were introduced which,
among other changes, reduced the waiting period to 13 weeks. This
has changed the position and made it possible for some claimants
to both be in receipt of contribution based JSA and potentially
eligible for SMI, having completed the waiting period.
After the 13 week stage, if the contribution-based JSA claimant
meets the qualifying criteria for income-based JSA (and housing
costs will now be taken into account in the assessment), they
can be awarded SMI. If they are still entitled to contribution
based JSA they will continue to receive this, with income-based
JSA as a top up until their six month period is completed, at
which point they would be transferred to income-based JSA. Note
that income-based JSA, unlike its contributory variant, takes
into account both savings, and the financial circumstances of
any partner. A person on contribution based JSA with significant
savings, or a working partner, may therefore not be eligible for
income based JSA.
Does your revenue projections of what will be raised with the
50 pence tax, does that include any impact on the revenues from
indirect taxes and the high earners spending less? If you do not
have that answer right now, which I do not think you will have,
maybe your officials can convey it to us. (Q367)
Table A1 of the Budget document set out at Line 44 the estimated
yield from the Income Tax measure: increase the additional rate
to 50% from £150,000 and increase trust rate to 50% from
2010-11. As described in footnote 3 to the table, this yield is
in addition to the yield published at PBR 2008 for the 45% additional
rate commencing from 2011-12, with the total yield in 2012-13
from the 50% additional rate being £2.4 billion.
This costing includes direct behavioural effects, eg those
associated with labour supply decisions, including around migration,
and use of tax reliefs, including those on pension saving.
As described in paragraph A188 of the Budget, "The net
Exchequer effect of a Budget measure is generally calculated as
the difference between applying the pre-Budget and post-Budget
tax and benefit regimes to the levels of total income and spending
at factor cost after the Budget". This means that the costing
of the income tax measure in Table A1—as with all other
measures set out in that table—excludes indirect effects
that the measure may have on levels of income and spending. Instead,
such indirect effects are accounted for in the economic forecast,
which incorporates post-Budget levels of income and spending.
This approach to costing the income tax measure is consistent
with that used to cost other measures in the Budget and in previous
Budgets.
Your first question again in terms of the money for the banking
bail-out, the automatic stabilisers and the other discretionary
spending, I was not too sure with absolute clarity on that, so
could you provide us with some answers on that again? (Q368)
Fiscal support to the economy of around 4% of GDP over 2009-10
Fiscal policy will provide support to the economy of around
4% of GDP over the course of 2009-10. This support is made up
of:
— the automatic fiscal stabilisers, forecast to
amount to 2.6% of GDP in 2009-10. This is the difference between
the forecast for net borrowing (12.4% of GDP) and the forecast
for cyclically-adjusted net borrowing (9.8% of GDP).
— The fiscal stimulus announced in the PBR, worth
around 1% of GDP in 2009-10. This includes the temporary cut in
VAT from 17.5% to 15% and the bringing forward of £3 billion
of capital spending from 2010-11.
— Targeted fiscal measures announced in the Budget,
with a value of 0.4% of GDP in 2009-10, including: further support
for businesses facing cash flow problems and support for key growth
industries of the future; further support for households hit hardest
by the recession, including savers and pensioners and additional
measures to support employment; further investment in infrastructure
and the housing sector; and measures to support a move to a low
carbon economy.
Fiscal implications of measures to ensure financial stability
The Government provisionally estimates that losses may lie
within a potential range from £20 billion to £50 billion
(1.5 to 3.5% of GDP). As Box 2.3 of Budget 2009 sets out, this
provisional estimate is a cautious judgement, made for fiscal
policy purposes. It is not an estimate of scheme-by-scheme losses
over time, as it is impossible to set out accurate overall costs
with any degree of certainty at this point.
The estimate covers all interventions by UK authorities to
support financial stability. In reaching an estimate of the scale
of potential net losses, the Government's judgement has been informed
by:
— potential income from fees (for example on the
Special Liquidity Scheme and Credit Guarantee Scheme) and investments;
— data from stress-testing and due diligence exercises
undertaken by the Authorities in relation to various schemes;
and
— the Government's assessment of economic conditions.
Setting out estimates of losses on financial sector interventions
is inherently difficult in current market conditions. However,
in setting plans to meet the Government's fiscal objectives in
future it is prudent to make allowance for the potential for such
losses.
The estimate recognises the losses in the 2008-09 financial
year, in a manner similar to the principle of provisioning for
future costs in commercial accounting. This does not reflect cash
borrowing in 2008-09, but is instead a recognition that transactions
undertaken, and commitments entered into, in that year are expected
to have consequences of this magnitude in the future.
Impact of discretionary measures on public sector net borrowing
in 2013-14 over both the 2008 Pre-Budget Report and Budget 2009
Table 1.1 of the 2008 Pre-Budget Report gives the impact
of discretionary measures21 announced in the PBR on the forecast
of public sector net borrowing for 2013-14 at 1.6% of GDP, equivalent
to £29.5 billion.
Table 1.1 of Budget 2009 gives the impact of discretionary
measures22 announced in the Budget on public sector net borrowing
for 2013-14 at 1.5% of GDP, or £26.5 billion.
The combined effect on the forecast of public sector net
borrowing for 2013-14 of discretionary measures in both the 2008
Pre-Budget Report and Budget 2009 is set out in the table below.
| Impact on public sector net borrowing of discretionary measures
| £ billion |
| Projections |
| 2013-14 |
| 2008 Pre-Budget Report | 29.5
|
| Budget 2009 | 26.5 |
| Total PBR and Budget discretionary measures
| 56 |
1 May 2009
|
|
21, 22 Including changes to forecasting assumptions on spending
growth in 2011-12, 2012-13 and 2013-14.
| 
