(12 years ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
21:59 - The House divided: - Ayes: 215 / Noes: 290 - Question accordingly negatived.
22:12 - The House divided: - Ayes: 216 / Noes: 290 - Question accordingly negatived.
22:25 - The House divided: - Ayes: 205 / Noes: 301 - Question accordingly negatived.
The Financial Secretary to the Treasury (Mr Mark Hoban)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to discuss the following:
New clause 5—Amendments to Tribunals, Courts and Enforcement Act 2007
‘(1) Section 124 of the Tribunals, Courts and Enforcement Act 2007 (charges by operator of approved scheme) is amended as follows.
(2) In subsection (1) for “costs’ substitute “charges”.
(3) In subsection (2)—
(a) for “costs”, in the first instance, substitute “charges”,
(b) after “scheme”, insert “along with any charges made by the operator”, and
(c) after “those costs” insert “and charges”.’.
New clause 9—Debt management plan regulation
‘The FCA shall bring forward recommendations within a year of the commencement of this Act to phase out the practice of directly charging consumers fees or charges for the provision of debt management plans.’.
New clause 10—Mortgage rate forewarning
‘The Treasury shall bring forward recommendations within six months of Royal Assent of this Act requiring mortgage lenders to forewarn existing customers about potential interest rate changes and their impact on the affordability of mortgage repayments.’.
New clause 12—Prepayment schemes
‘(1) The FPC must carry out and publish a review of the operation of consumer prepayment schemes to consider whether existing protection for consumers is sufficient.
(2) The FPC must make recommendations under subsection (1) within one year of this section coming into force;
(3) Any report produced by the FPC under subsection (1) shall include an analysis of whether consumers of prepayment schemes should be made preferential creditors for the purposes of the distribution of the realised assets of the company operating such schemes in the event of insolvency.’.
Government amendments 2 and 3.
Amendment 37, page 37, line 42, in clause 5, at end insert ‘and targeted, proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation.’.
Amendment 55, page 38, line 6, at end add—
‘(h) supporting the provision of legal advice on all areas of law related to personal debt, including but not limited to—
(i) issues covered under Schedule 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012,
(ii) remedies under the Insolvency Act 1986 and Tribunals, Courts and Enforcement Act 2007,
(iii) protections under the Consumer Credit Act 1974 and Consumer Credit Act 2006,
(iv) consumer redress schemes under the Financial Services and Markets Act 2000,
(v) debt limitation under the Limitation Act 1980, and
(vi) enforcement action for specified debts pursuant to a county court judgement, a High Court writ or warrant issued by a Magistrates’ Court.
(4A) For the purposes of subparagraphs (h)(i) to (vi) above the consumer financial education body may enter into arrangements with the Ministry of Justice to direct appropriate levels of funding for these purposes.’.
Government amendment 4.
Amendment 40, page 80, line 2, in clause 22, at end insert—
‘(2A) The FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.’.
Government amendments 11 and 18 to 21.
Mr Hoban
New clause 4, which is the most significant of the Government new clauses and amendments in the group, provides a framework for implementation of the Government’s proposal to retain the important rights and protections of the Consumer Credit Act 1974 to ensure that consumers do not lose out as a result of the transfer. For example, we are likely to retain section 75 of the Act, which provides for the joint liability of creditors for misrepresentation or breaches by suppliers.
The Government’s preferred approach to the implementation of the transfer of responsibility for consumer credit from the Office of Fair Trading to the Financial Conduct Authority is to ensure that the Consumer Credit Act protections are replicated in the FCA’s consumer credit rule book, and that the relevant sections of the Act are repealed. That approach is in line with the intention to move to a more responsive, rules-based regime than the current statutory framework.
However, there are limitations to the type of rules that the FCA can make, which means that it will not be able to replicate in its rules all the CCA protections that we want to retain, including protections that impose rights directly on consumers and those that affect unauthorised third parties. That means that some CCA protections will need to be kept in the CCA itself, and that certain provisions of the CCA will therefore need to remain in force following the transfer. As a result, a number of changes will need to be made to both the CCA and the FSMA as part of the transition, to reflect the fact that the FCA will be responsible for regulating consumer credit and to ensure that the FCA, as well as local trading standards, can effectively enforce the retained CCA provisions. For example, it will be necessary to replace references in the Consumer Credit Act to the Office of Fair Trading with references to the FCA. We will also need to apply certain features of the FSMA, such as references to the FCA’s objectives, statutory immunity and fee-raising powers, to the FCA’s new functions under the Consumer Credit Act, and enable the FCA to use FSMA supervision and enforcement powers that would normally be used in relation to breaches of FCA rules for breaches of CCA requirements. New clause 4 enables the Treasury to make those changes and other necessary amendments to the CCA and the FSMA by order.
I should also draw attention to the addendum to the delegated powers memorandum, which the Department has prepared and provided to the delegated powers Committee. The memorandum sets out in more detail how this power is intended to operate and why it is necessary. Copies are available in both the Printed Paper Office and the Vote Office. The order to be made under this provision will be subject to further consultation following Royal Assent to the Bill. Government amendment 11 provides that any order under new clause 4 will be subject to the affirmative procedure and so can be made only with prior approval of both this House and the other place.
Government amendment 2 supports effective collaboration between the FCA and local trading standards following the transfer, enabling the FCA to contract trading standards for the provision of services in the same way that the OFT does now—for example, to undertake local inspections and follow up on enforcement action, including by local illegal money-lending teams. Government amendment 21, and related amendments 18, 19 and 20, insert into the Bill provision for the transfer of the OFT property, rights and liabilities, including staff, to the FCA.
I hope Members will agree that the Government amendments in relation to consumer credit are sensible and practical provisions to support an effective transfer of regulation to the FCA. The new clause and related amendments sit within a process of regulatory reform that seeks to tackle some of the issues raised by Members on both sides of the House about the functioning of the credit market. We believe the FCA will have much stronger powers and greater resources than the OFT has had in order to tackle detrimental practices in the consumer credit market. Unlike the OFT, the FCA will be able to make binding rules on firms to ban specific products or product features that cause harm, to issue unlimited fines, and to require firms to pay redress when things go wrong. It will also be able to apply greater scrutiny to applications for credit licences and make it more difficult for rogue firms to enter the market.
As a consequence of the transfer we have introduced into the Bill, there will be a fundamental change in the regulation of firms such as payday lenders and debt management companies. I am pleased that the provisions enabling that transfer were welcomed in Committee.
There are a number of Opposition amendments relating to consumer credit and debt management plans, and I want to say a few words about them now. On new clauses 5 and 9, I made it clear in Committee that I sympathise with concerns about some of the practices in the fee-charging debt management sector. That is why clause 6 enables the regulation of debt management companies to be transferred to the FCA. That is also why we have chosen to leave on the statute book the enabling powers of the Tribunals, Courts and Enforcement Act 2007.
More immediately, we are working with the industry to develop a protocol of best practice for debt management plans, which should cover, among other things, the nature and timing of fees. Indeed, on 14 June the Minister with responsibility for consumer affairs, my hon. Friend the Member for North Norfolk (Norman Lamb), will chair the first industry-wide meeting to discuss and take forward the protocol. That will follow several months of meetings with a smaller, representative group of stakeholders, which has talked through processes, commercial terms and advice, to reach an agreed position.
I also wish to refer the House to new guidance for the debt management sector recently published by the Office of Fair Trading, which sets out in substantial detail the standards expected of firms. I believe that it is appropriate that we give time and focus to current efforts to improve standards in the debt management sector, and take account of the significant changes to the wider regulatory regime enabled by the Bill, before we start talking about changes to a potential statutory scheme under new clause 5.
As I said in Committee, I do not think that we should throw the baby out with the bath water and shut down the market for fee-charging debt management services, as proposed by new clause 9, before fully exploring better regulation. Where suppliers of credit are aware of people who are suffering financial distress in repaying their debt, I encourage them to signpost their customers to fee-free debt advice services so that they can get the best possible advice to meet their needs.
On amendment 40 and new clause 10, I wish to reassure hon. Members that the Bill already enables the FCA to make the kind of rules proposed in those two provisions. Indeed, in relation to new clause 10, the Financial Services Authority already places a number of requirements on firms to ensure that borrowers are informed if their mortgage repayments are subject to change. I know that some hon. Members may wish to challenge the approach, saying, “But if the FCA can already make the proposed rules, what is the harm in accepting these proposals?” The point is that there are significant risks to specifying in great detail in the Bill the precise type of rules that the FCA may make. First, in doing so, we risk distracting the regulator from using its expertise and judgment to identify and address the risks that it considers pose the greatest risks to its objectives. As parliamentarians, we should be creating a framework within which technical experts can exercise their discretion, in a suitably constrained way. We should leave them to get on with the job, not provide a long laundry list of everything that we want them to do.
By specifying in detail what rules should or should not cover, we also risk creating the opportunity for challenge to the regulator’s ability to make rules that are not specified in the Bill. The lack of specific provision in the Bill does not, in any way, reflect on how seriously the Government take these issues. For example, in relation to high-cost credit, a number of initiatives are under way to improve standards in the sector. Those include work to improve industry codes on payday lending; research commissioned by the Department for Business, Innovation and Skills into the impact of a cap on total cost of credit; and a review by the OFT of payday lenders’ compliance with its irresponsible lending guidance. As well as raising standards now, the findings of those pieces of work will feed into the FCA’s approach to regulating the sector following the transfer, including on the type of rules it may make regarding these charges.
Alun Cairns (Vale of Glamorgan) (Con)
I appreciate the comments that have been made about the Bill and, specifically, about amendment 40. Does my hon. Friend agree that there is a risk of amendment 40 moving into price regulation, which is very different from product intervention? Price regulation would be a very dangerous line to follow.
Mr Hoban
I ask the hon. Lady just to hold her horses for a moment. This is about the third time we have discussed this matter and she may want to engage in the debate later, but we need to understand the function of the market. The previous Government—[Interruption.] The hon. Member for Nottingham East (Chris Leslie) says that we are still making the wrong decisions, but our predecessors in government examined this issue of the cost of credit and concluded that price caps worked against the interests of consumers. This Government have, following the parliamentary debates on the matter, commissioned research to examine the impact of a cap on the total cost of credit. We should look at the research, understand what remedies are being proposed and follow that through. One of the advantages of moving the cost of the regulation of consumer credit away from the OFT to the FCA is that the FCA has a greater range of tools and can make a wider range of interventions than the more narrowly focused solutions of the OFT.
Nick de Bois (Enfield North) (Con)
Does the Minister understand that the sense of concern is heightened by the fact that although the research is welcome, as yet there is no sense of urgency or indication of when it might become available? I would be grateful if he could suggest when we might see the fruits of that research.
Mr Hoban
I do not have that information on me, but I will endeavour to have it by the time I wind up the debate. It is important that there is evidence, that we do not respond on a knee-jerk basis and that we ensure that we protect vulnerable consumers. That includes ensuring that the right protection is in place for those who wish to borrow money to meet their needs and we should also ensure that we do not push them into the arms of illegal money lenders. One change we are making in this group of amendments includes ensuring that the work of the illegal money lending teams out in the regions can continue when we shift the regulation of consumer credit to the FCA.
I am aware of these issues and it is important to the constituents of my hon. Friend the Member for Enfield North (Nick de Bois) and to mine that we get the right answer. A lot of work has gone on in the past to consider the cost of credit, and we need to proceed on the basis of evidence rather than closing our minds to what solutions there might be. Let us have some evidence to inform the debates so that we can give our constituents the right answer, rather than something that happens to be convenient to some political whim or desire. I believe that we should have evidence-based policy making and that that is the right approach. All the stakeholders would also agree that we need to support this work with some evidence, rather than proceeding without a firm evidential base.
New clause 12 concerns the important issue of how consumers who take part in prepayment schemes are protected and how they are treated if the provider of such a scheme becomes insolvent. I suspect that many members of the House will have dealt with this matter over recent years, given how many people were affected by the collapse of Farepak just before Christmas 2006. The Government have great sympathy for those who have lost money in such schemes and are aware of the frustration they feel. One problem with the Farepak insolvency has been the fact that it has taken so long for the customers to get their money back. Work with the liquidators is continuing.
The challenge is whether the Bill is the appropriate place for regulating such a function. Prepayment schemes are advance payments by a consumer for goods and services that are not supplied immediately; they are not financial services. It is not clear whether they are an issue for any of the bodies provided for in the Bill to consider and I do not think they will be a matter for the Financial Policy Committee, with its remit of considering threats to financial stability.
Since the collapse of Farepak, a considerable amount of work has been done to consider how best to protect consumers who enter into prepayment schemes and how best to deal with situations where companies collapse. Following the collapse of Farepak, the then Department of Trade and Industry worked with the remaining hamper companies to put in place effective protection for customers’ prepayments, including oversight by a new body, the Christmas Prepayment Association. The Government also supported the OFT to deliver a consumer awareness and education campaign to empower consumers to make decisions that are right for their circumstances. The Money Advice Service also provides advice on its website about what protection is offered for various ways of saving money, including prepayment schemes. I would encourage hon. Members who are aware of constituents who continue to engage with such schemes to point them in the direction of the Money Advice Service.
Katy Clark (North Ayrshire and Arran) (Lab)
If the Minister does not feel that this Bill is the appropriate vehicle for dealing with that matter through regulation, when he sums up could he outline where it should be dealt with? There is a strong view that the current legislative framework is not sufficient.
Mr Hoban
Part of the challenge is that such schemes are part of a subset of advance payment schemes that are not necessarily covered by the Bill. These issues are consumer issues and I shall certainly raise with my hon. Friend the Minister with responsibility for consumer affairs where he feels that the best opportunity might be to do that and whether there are some non-statutory alternatives to regulation that will help protect the customers of such schemes.
Before I speak to Government amendment 3, I can let my hon. Friend the Member for Enfield North know when the research will be published. The research project will conclude this summer, and given that the transfer of consumer credit to the FCA will not take place until 2014, that gives us time to act. That is not to say that nothing is happening in the meantime in the regulation of consumer credit: the OFT is doing a great deal of work in that area. I am as keen as he and others are to ensure that the matter is brought to a head as soon as possible, so that the right protections are put in place for our constituents.
Government amendment 3 aims to improve the drafting, following the close and valuable scrutiny in the Public Bill Committee. In Committee, questions were raised about the appropriateness of “supply”, and the amendment clarifies the Money Advice Service financial education function so that it should include the promotion of awareness of the financial advantages and disadvantages relating to issues that may arise over the lifetime of the product, not just to the initial purchase or supply of a particular good and service. The function might include, for example, promoting awareness of the financial advantages and disadvantages of a person exercising the right to receive part of their pension savings as a lump sum, or the financial advantages or disadvantages of the various options open to a person who is having difficulty paying their mortgage.
I am confident that the Bill as it stands already provides for such matters to be covered by the Money Advice Service financial education function, but the amendment helpfully clarifies the scope of the MAS’s specific duty to promote awareness of the advantages and disadvantages of particular goods and services. I am grateful to the Members who raised the matter in the Committee, and I hope that the amendment addresses their concerns.
Amendments 37 and 55 would affect the functions of the MAS. Amendment 55 would require the MAS to support the provision of legal advice in relation to personal debt, with funding received from the Ministry of Justice to support that work. The amendment would reinstate changes to legal aid in the Legal Aid, Sentencing and Punishment of Offenders Bill. For the reasons clearly set out by my right hon. and learned Friend the Justice Secretary, we cannot use the Financial Services Bill to compensate for reforms to legal aid in the other Bill as a roundabout way of maintaining funding for not-for-profit bodies; moreover, effectively reinstating those categories in the scope of legal aid means reinstating legal aid for all legal advice, not just for those in not-for-profit organisations.
Amendment 55 is not required because the Money Advice Service already has sufficient responsibility and funding to assist members of the public with debt management. The MAS and other organisations provide debt advice directly, including by advising people who are facing difficulties with debt on the options available to them and the possible legal ramifications. For example, they provide advice to people who are at risk of losing their home and advice on options to resolve their financial difficulties. Any debt adviser trained to intermediate level can give advice on such matters as a matter of course. In contentious areas of law, such as the impact of insolvency or immigration status, an adviser could seek external advice. Similarly, if a non-debt issue arose, or substantive legal advice was required, an adviser could refer the client to a specialist solicitor. I therefore do not think the amendment is necessary, as the MAS and other organisations, through their debt advice services, already advise people facing difficulties with debt on the impact of the law on their situation.
Amendment 37 would require the MAS to provide
“targeted, proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation.”
I am sympathetic to the intention behind the amendment: clearly, the service provided by the MAS should encompass such groups of people. However, as I said in Committee, one of the key features of the Money Advice Service is the breadth of consumers it is there to serve. Millions of people can be vulnerable to poor money management at any point in their lives, especially as they experience key life events. Similarly, many people, regardless of their financial circumstances, may not know where to turn for impartial financial advice, or may not know that they need information and advice in the first place. I therefore do not think it appropriate for the legislation to prescribe which groups are in most need of the service. By focusing the Money Advice Service on particular groups, we risk neglecting others who may be equally in need.
It is clear to me, from discussions I have had with the management of the Money Advice Service, that they recognise the need to provide support across a wide range of people. They also recognise the importance of face-to-face debt and money advice and the importance of ensuring the right channels of support are there to help those in need of financial advice—for example, those who need guidance on how to get out of debt or how to protect their families in the long term. I believe the MAS is acutely aware of its broader social obligation.
The group of amendments before us raises important issues that impact on many in our constituencies. The action that we have taken to tighten the consumer credit regime by moving consumer credit from the OFT to the FCA is the right way to proceed. This is a dynamic and changing market, and one of the great advantages that the FCA brings is the opportunity to keep issues such as the cost of credit under review and to make sure that it responds in a timely manner to help protect our constituents in these difficult areas.
Chris Leslie (Nottingham East) (Lab/Co-op)
I suppose the Minister is right in one respect. This long group of amendments under the catch-all heading “Consumer protection” raises many issues about which our constituents care deeply. It is just a shame that the Minister is resisting and rebutting almost all of them, except the Government amendments. But I do not want to sound too churlish. He has conceded—we have managed to extract—one minor concession from the Government in Government amendment 3. I therefore feel that all those hours and weeks in Committee were productively spent, and for that small measure I am grateful to the hon. Gentleman.
Time is short so I will comment on the series of amendments tabled by the Minister, and then on those in my name and that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson). Government new clause 4 sets out a series of order-making powers for the Treasury in respect of the transfer of regulation of consumer credit matters from the Office of Fair Trading to the Financial Conduct Authority. I am grateful for the clarification of the Government’s intentions. My comments on this and the consequential amendments in the group relate to the time scale for these arrangements. The new clause sets out the paving changes rather than the regulations, saying that the Treasury may well make these orders in due course. It gives a sense of the architecture of those and the fact that most of the powers available to the OFT under the Financial Services and Markets Act 2000 will be available to the FCA and so on, but we do not yet have the time scale for those orders to be made and to take effect.
Many loose ends remain, even after the amendments. How will the local weights and measures authorities dovetail with the new arrangements, the FCA and so forth? What is holding the Government up in making those changes, publishing the new arrangements and making it clear to those who may be slightly concerned that the transition period could create a sense of limbo in which a number of issues fall between the gaps? We do not want consumer credit arrangements to be put on the back burner during the transfer—quite the opposite. We need this time more than ever to help consumers who are under strain on various fronts, as is pointed out in the amendments tabled by my hon. Friend the Member for North Ayrshire and Arran (Katy Clark), the hon. Member for Eastbourne (Stephen Lloyd) and others.
New clause 9 in my name seeks, as the Minister mentioned, to require the Financial Conduct Authority to produce recommendations within a year of the commencement of the Act to phase out the practice of directly charging consumers fees or charges for the provision of debt management plans.
Lorely Burt (Solihull) (LD)
I have a huge amount of sympathy with the hon. Gentleman’s points about some companies that prey on some of the most vulnerable in our society who are in fear of the debt collector knocking on the door. However, would he tar every debt management company with the same brush? I have experience of companies that behave responsibly and extend a great deal of help to people to manage their financial affairs.
Chris Leslie
That is a fair intervention. No, I would not say that they are all the same. There are companies, even those that may for some reason be using this fee charging process, that want to do the right thing, but my point is that that business model has had its time and needs to go. There is a better way, whether it is a for-profit or a non-profit avenue, for debt management consolidation to take place, and that is to tell the creditor that this is a way for them to get some money back, albeit not necessarily the full amount, from those heavily indebted customers who may owe them something, and in exchange for getting something back they have a duty as a creditor to stump up some of the cost for the administration of that consolidation. It is time to end the business model that has a propensity to cause hardship, not in every single case, but in too many cases, and that is why the Opposition believe that this is a perfectly reasonable new clause to bring forward.
New clause 10 concerns mortgages. People may well ask where the problem is at the time being when mortgage rates are at a low level, partly because the Bank of England is printing so much money that we end up with a low base rate. But the Governor of the Bank of England has been warning in a number of reports that this is an unsustainable situation and that over the medium term he expects interest rates to normalise. From the Bank of England’s point of view, whether the normalised interest rate is 4% or 5% is moot, but it is certainly much higher than the current rate.
My anxiety is that many consumers up and down the country might be under the false impression that this is a normal period, but it is not. If the mark-ups that the retail banks charge on the wholesale cost of borrowing are maintained as base rates or LIBOR rise to a more normal level, the mortgage rates that our constituents pay could end up being significantly higher, at 6%, 7% or 8%. I suspect that the difference between the price the banks pay wholesale for their money and the amount they charge customers upfront has been growing and is too wide. As soon as LIBOR creeps up, if that mark-up is maintained, we could be in serious difficulties, which is why the new clause is essential at this time.
This is a stitch-in-time new clause. We have tabled the proposal because we believe that now is a good time to require all the banks to forewarn their customers about a number of possible scenarios so that home owners with mortgages have the information necessary to prepare for them. Often when those of us with mortgages get information from lenders it is a set of retrospective information, for example on how much we have paid to defray the cost of our mortgage. We believe that it is now essential to forewarn customers about what could come in future, because we have to find a way of ending shocks to consumers, especially when changes to standard variable rates can sometimes be made with as little as two weeks’ notice.
Alun Cairns
I am trying to follow the hon. Gentleman’s argument, but how on earth could any individual or organisation predict with certainty what will happen in future?
Chris Leslie
The hon. Gentleman is right that it is impossible to predict with certainty, but this is about scenario planning and preparedness. He will know that the Governor of the Bank of England has been saying what he regards normalised base rates to be, broadly speaking. Does the hon. Gentleman not think that our constituents, especially those on variable interest rates—this might not apply to all customers with mortgages, some of whom might have fixed rates—ought to be able to see when their rates fluctuate because of the fortunes of the base rate or, as is often the case, the standard variable rate determined by their bank, and does he not think that those banks ought to help their customers plan for the future? If we end up yet again with a cycle in which people find that they cannot make their payments and their homes are repossessed, we will all have those constituents in our surgeries.
Let me give the hon. Gentleman an example. A couple of weeks ago Halifax announced that it would increase its standard variable rate by 0.5% from 1 May. RBS NatWest has done similarly, as have Clydesdale bank, Yorkshire bank and Bank of Ireland. In my view, all those increases are the result not of base rate changes, but of the fact that those banks are looking to repair their balance sheets not by squeezing remuneration and bearing down on the senior executive management costs that we all know they have, but by trying gradually to take a little more money from consumers. That is why we need a warning for customers in these circumstances.
Alun Cairns
I fail to understand the logic of the hon. Gentleman’s argument. If someone’s financial position at the time they take out a mortgage is relatively precarious, they probably should not have the mortgage. Furthermore, to take the logic to the next step, surely a fixed rate product would be better for those people and they should not have been on the variable rate product in the first place, so why on earth are we asking banks through additional regulation to make such predictions when it is meaningless in the reality of life?
Chris Leslie
We are doing this because the hon. Gentleman and I are here to represent our constituents, some of whom will be on variable rate mortgages in these circumstances. All we are saying is that we want all the banks to warn of the potential impact of rate changes across a range of scenarios. It is about helping customers anticipate what might be around the corner. It is as simple as that. The banks will give all sorts of reasons for increasing their standard variable rates. For example, they claim that costs make it difficult and often cite the special liquidity scheme, which is now beginning to taper off so the taxpayer safety net is beginning to come away, but taking more and more from consumers is in many ways unfair. I think that Lloyds bank recently borrowed many billions from the European Central Bank as part of its long-term refinancing option, so there is cheap money available wholesale for the banks. We have to keep an eye out for the way they sometimes seek to make an excessive profit off the backs of ordinary mortgage customers.
David Rutley (Macclesfield) (Con)
I appreciate the rationale that the hon. Gentleman is putting forward and that he is trying to protect customers, but I have to agree with my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on the impracticality of the proposal. There now seems to be a tendency to make proposals on single products, but the Bill is about financial stability in the round, which we are trying to achieve, so is he seeking to introduce a similar forewarning system for savers on fixed incomes, who find interest rate changes equally worrying?
Chris Leslie
There might well be a case for that, but we are talking about people’s homes and the roofs over their heads. Repossessions can seriously hurt people, especially if they were unable to anticipate the situation because of a shock or unpredicted changes to their interest rates. As I have said, this point in the cycle is the right time to make this sort of change. It is about preparedness and information for home owners, and I feel strongly that we ought to have that in statute. If the Minister does not agree, this is certainly one of the issues on which we want to test the will of the House.
Chris Leslie
I will give way, but there are a number of other amendments I have to talk about.
Mark Garnier
I am incredibly grateful to the hon. Gentleman. He talks about an incredibly significant problem in this country: the £1.2 trillion-worth of mortgage debt for all the people of this land. What he is describing is a steepening in the yield curve, but that could also be the result of an increase in deposit rates, so what could be taken away with one hand could be a result of giving with the other hand. What I am really struggling with in the new clause is how he envisages mortgage lenders being able to deliver the warning, given the fact that he defines a shock in interest rates as something that cannot be predicted. Moreover, how does he envisage this working in practice?
Chris Leslie
The hon. Gentleman might know that in annual pension statements, for example, in the key facts documents a number of scenarios are put forward for what the pension might be worth under a range of growth options, such as annual growth of 3%, 5% or 9%. All I am seeking to do is ask the Financial Conduct Authority to consider a way of giving a range of scenarios and helping to provide information for customers, which would not be impossible. That is why I think that that is necessary for mortgages. I hope that hon. Members on both sides of the House will support what is a pretty modest change. It is something that I know we are all concerned about. The Government definitely need to go away and look at the issue again.
Amendment 37, which also stands in my name, relates to the Consumer Financial Education Body, which we now call the Money Advice Service. We are seeking to amend the Bill so that it specifically targets
“proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation.”
In our view, it is vital that the Money Advice Service focuses as much effort as possible on the vulnerable and those susceptible to problems, whether as a result of misinformation or choices made in financial investments. We know already, from examples in our surgeries, that those on the lowest incomes—the most vulnerable in society—need to be better protected in legislation, and that is why the new clause has been tabled.
Justin Tomlinson (North Swindon) (Con)
I shall speak briefly to a number of amendments that are inter-linked, because the protection of vulnerable consumers cannot be taken in isolation. A series of measures needs to be taken to protect those who need the most help.
Members on both sides of the House will support the principle of amendment 40, on the total cost of loans, but it is important that through the review we find a way of making it work. We do not want to push people into the hands of illegal loan sharks, and the review, which has been going on for 18 months now, needs to conclude so that we can start to make progress, but we need to look at all the variables, including the need to limit the amount of roll-overs.
The shadow Minister described how people might use such loans in exceptional circumstances, but there are two aspects to that. First, there are some people who, through consumer choice, might wish to take out such loans, so to my mind we should have compulsory credit checks. If people who can afford to service such debts make a consumer decision to be relatively inefficient with their money, that is up to them, as long as they can afford to do so, but if vulnerable consumers get trapped in a cycle of debt and need protection, a limit on the amount of roll-overs will be absolutely essential.
I talk to a number of high-street lenders—including The Money Shop—which look at people’s bank statements, but it is not unusual for people to have more than one bank account, and the reason I am so keen on credit checks is that although people often look after one bank account in an orderly manner, that is the one they present when applying for a loan, not the one that is in financial chaos.
Nick de Bois
My hon. Friend refers to the review, but alongside other points he has made, would it be worth considering lending techniques such as doorstep lending and similar?
Justin Tomlinson
My hon. Friend makes an important point. In previous debates, I focused my anger on the techniques of doorstep lenders, who build up a relationship with the consumer, pop by once a month and, over a cup of tea, suggest items for which they might want to borrow money, trapping them in a lifetime of expensive, high-cost debt. For example, they might pop round at Christmas to ask, “Have you organised your Christmas presents for your children?” The householder says, “No, I’m not sure I can afford it,” to which the lender replies, “No problem. We’re here. We can lend you that. It’s only £3 a week. I’m sure you’re going to be having relatives to visit, so why don’t you get your carpet sorted at the same time.” Those nudge-nudge techniques, which encourage people to take on high-cost debt, need to be looked at.
Amendments 37 and 55 seek to empower consumers, and there are important factors, such as the need to access impartial advice, that need to be looked at. I found through my work as chair of the all-party group on financial education that 91% of people who got into financial difficulty would have made a different decision had they known otherwise. Hindsight is a wonderful thing, but through our casework as MPs we see that some people make the wrong decisions and get themselves into difficulty. Of the three ways I would like to see that tackled, one is by the provision of easy access to advice through organisations such as the Consumer Credit Counselling Service, Citizens Advice and the Money Advice Service. To my mind, if a debt management service offers a high-cost loan, it should provide links to those organisations, just as when somebody buys a packet of cigarettes, there is a health warning on it. There is then no excuse. It relies on consumer choice, but if somebody chooses to, they can take up the advice.
It will also help if all consumers have financial education in the first place so that they understand the advice. In the case of the Money Advice Service, one needs to know something about the products in the first place. Obviously, face-to-face advice would be ideal. I would also like all loans to be displayed in pure and simple cash terms, so that every consumer can make an informed decision. I am sure that even Treasury Ministers would struggle to work out what is meant by an APR. I will not embarrass individual MPs by carrying out a test, as I have in previous debates.
Finally, I deal with clause 10. I was interested in the Minister’s comments about advice being given to consumers six months in advance. As we all recognise, that presents a challenge, because if somebody could predict what will happen in six months’ time, they would be very wealthy. The principle is right: we need to protect consumers from sudden changes. The evidence shows that the majority of people who fall into financial difficulties do so because of a change of circumstances such as the loss of a job, a family bereavement or a divorce. One could extend that to a sudden change in the cost of a loan because of the interest rates.
Although this is often derided, I think that we need to encourage a savings culture. If one has money in reserve, one is better equipped to deal with a sudden shock to one’s circumstances. I welcome the moves of the Nationwide building society for first-time buyers, because they are among those most at risk from a change in circumstances owing to a change in their job or in their interest rates, because they extend their borrowing to the absolute limit to get themselves on the housing ladder. Nationwide has introduced a linked savings account into which people have to put regular savings for the six months to a year that they are trying to get their first mortgage. It encourages them to carry on doing so, so that if interest rates and the cost of their loan go up suddenly, they have a financial buffer. More could be done to encourage the industry to promote such products.
Katy Clark
It is a pleasure to speak to new clause 12, which I tabled along with many other hon. Members. It would require the Financial Policy Committee to
“carry out and publish a review of the operation of consumer prepayment schemes to consider whether existing protection for consumers is sufficient.”
It would require the report to include
“an analysis of whether consumers of prepayment schemes should be made preferential creditors for the purposes of the distribution of the realised assets…in the event of insolvency.”
I come to this issue as a result of the experiences of my constituents when the Farepak Christmas savings club collapsed on 13 October 2006. Many hon. Members will be well aware of the background to the Farepak issue, which has been raised in this Chamber on a number of occasions. More than five years after the collapse of the company, almost none of the 120,000 people who lost out have received a penny of their money back. Those 120,000 savers lost about £38 million. Some money was distributed as a result of a response fund, which was set up in the lead-up to Christmas 2006, but the people who lost out have not received any money from those who are dealing with Farepak’s assets.
In my constituency, hundreds of families were affected. I pay tribute to my constituents Louise McDaid and Jean McLardy, who, along with many others, set up the Farepak victims committee, which continues to campaign for justice for those who lost out as a result of Farepak’s collapse.
Jessica Morden (Newport East) (Lab)
Will my hon. Friend add to that list my constituent Deborah Harvey, who was a Farepak agent and who has campaigned tirelessly with the Farepak victims committee? The committee recently contacted a raft of companies that run prepayment schemes to seek assurances about the future protection of people’s money, but it has not had a welcoming response. Does my hon. Friend agree that we owe it to Farepak’s victims to ensure that this sort of thing never happens again and that such people are protected in legislation?
Katy Clark
I congratulate my hon. Friend on her work on this issue. She led an Adjournment debate about it shortly before Christmas to commemorate the fifth anniversary of Farepak’s collapse.
I, too, pay tribute to Deborah Harvey, who is the current secretary of the Farepak victims committee and who has done a tremendous amount of work on this issue. The Farepak victims committee is unusual in that it has continued, in an organised way, to bring people together on this issue over a long period. One problem is that the type of people who tend to be affected when such things happen are not organised. The work done by Louise McDaid, Jean McLardy, Deborah Harvey and many others has helped to keep the issue in the spotlight. It is important to look at the situation again today, because it is a disgrace that, five years on, it has not been brought to a conclusion and people still do not know for sure how much money they will get back.
One reason for the huge problems was that the Farepak victims were unsecured creditors. That meant that when the company went bust, the money that they had paid in was not protected, as it is secured creditors who get preference. We need to look at the model whereby people pay money in and effectively save up for goods that they have not received.
Mr Robert Buckland (South Swindon) (Con)
The hon. Lady is outlining the gap between the perceptions of those who were saving with Farepak, which was based in my constituency, and the reality of the regulatory framework. The gap was between people’s belief that they were saving into a pot that they would be able to reclaim from and the reality, which was that they were unsecured creditors. That must never be allowed to happen again. This is a chance for change so that we do not again see the abuse that we saw with Farepak .
Katy Clark
I am grateful to the hon. Gentleman for his intervention. He has shown that he has a full grasp of the issues. Many of those who saved through Farepak for Christmas 2006 believed that there was some form of protection for the money that they put in. They were of the opinion that they were being responsible by saving in that way. My view is that they were being responsible. We have a duty, as legislators, to put protections in statute to enable people to continue to save using such models. I think that those people had a reasonable expectation that there was regulation in place to protect the money that they put in. Many of them presumed that there was such regulation.
Five years ago, a voluntary body called the Christmas Prepayment Association was set up. However, many prepayment companies are not members of that organisation and there is no requirement for them to belong to it. Some of the biggest players in the market, such as Tesco and Asda, are not members. The association covers only Christmas schemes and not the wider prepayment sector.
I believe that the prepayment sector has not been regulated because, over time, different forms of prepayment have developed. Mechanisms have been put in place to provide protection for the earliest types of prepayment, such as those used in the travel industry. The Farepak case highlights important failings in the regulation of the prepayment industry. It has become clear that that lack of regulation extends not just to the Christmas hamper sector, but to a wide range of prepayment situations in which consumers pay in advance of receiving goods. I have already mentioned the holiday sector, in which the Association of British Travel Agents operates, and there are many other situations in which a customer pays for something by way of instalments.
That practice is usually undertaken by those of limited means, who are at risk of losing both their money and the product if the fund goes bust before they take delivery. Such a form of payment is used by such large organisations as Tesco and Asda, but also by small organisations in all our communities. Some people pay over a period for goods for a celebration, for example, perhaps paying a butcher instalments of £10 a week. We should provide a statutory framework so that such people get some type of preference if the organisation in question no longer exists.
One reason why it is important to have regulation is that it tends to be people from poorer communities who pay in advance by instalment. They are exactly the people who can least afford to lose out, and I do not believe that they should carry the risk when they choose that model of payment for goods. Many of them honestly assume that their money will be ring-fenced in some way.
We need to move to a model whereby moneys that are prepaid are effectively held in trust, and any organisation that can no longer deliver the goods because of a collapse gives those moneys priority. I therefore believe that it is appropriate that an organisation such as the Financial Policy Committee examines the issue. Prepayment exists in a wide range of scenarios, with people paying over a period in advance of receiving the goods. I therefore ask the Government to look sympathetically on new clause 12 and consider pursuing the course of action that it suggests.
Lorely Burt
I begin by warmly welcoming the Government amendments that provide further clarity on the intention to transfer the regulation of all consumer credit businesses currently regulated by the Office of Fair Trading to the Financial Conduct Authority, while retaining all the protections that consumers currently enjoy under the Consumer Credit Act 1974.
New clause 9 would commit the Government to phasing out charges for debt management plans. Whatever the hon. Member for Nottingham East (Chris Leslie) thinks, businesses providing those plans are in the main legitimate. He talked about the scandalous behaviour in which certain debt management companies have indulged, but a number of companies look after their customers effectively and caringly.
Katy Clark
Does the hon. Lady agree that one cause for concern must be the fact that organisations profit from debt management? The charging of fees by profit-making organisations seems inappropriate. Does she agree that we should encourage voluntary and non-profit making organisations in the sector?
Lorely Burt
Of course I would encourage such organisations, and as my hon. Friend the Member for North Swindon (Justin Tomlinson) said, we need to give people financial education. There is an image of companies profiting from others’ misery, but there are companies that act responsibly and ethically, so I do not support new clause 9. It is a shame that all companies have to be tarred with the same brush, and the new clause would remove an element of choice from the consumer. Of course, many consumers would not choose a debt management company over a free service given the choice.
Yvonne Fovargue (Makerfield) (Lab)
Does the hon. Lady agree that one problem is that consumers making a distress purchase do not know which companies are reputable? Unfortunately, the ones at the top of the Google list tend to be the least reputable.
Lorely Burt
I agree that the companies that spend money on unsolicited calls to people who may have a financial problem are the ones that need to make the most profit, to cover the cost of doing so. However, responsibility for debt management is moving to the new FCA, and new guidelines are being issued. As long as those guidelines are strong and properly enforced, part of the market may still be able to benefit from providing debt management advice.
Sheila Gilmore (Edinburgh East) (Lab)
Will the hon. Lady consider the fact that it is not necessarily about whether there are charges so much as it is about who pays them? The intention behind the new clause is to protect consumers from being the ones who pay. Is it not possible that debt management companies can find another way of funding their work rather than having consumers pay the price?
Lorely Burt
That should ideally be the situation, and when the new regulations are produced there should be a careful consideration of whether any up-front fees should be paid to debt management companies.
New clause 10 would require mortgage lenders to inform existing customers about potential interest rate changes. I have to declare an interest: I was a mortgage adviser in one of my past lives, so I know a little bit about the matter, and I suggest that any reputable mortgage company should do that anyway. It is not in their interests to encourage people to take on mortgages that they will not be able to repay should financial circumstances worsen. The new clause may therefore be superfluous. I completely understand and appreciate the sentiment behind it, but the matter will probably fall within the FCA rules and within the ethical behaviour that one should expect from any mortgage lender.
Chris Leslie
I appreciate the hon. Lady’s comments, but if she cannot support the new clause, will she at least join me in encouraging the regulator to ensure that all banks think about informing customers of potential interest rate changes as a matter of course? One bank doing it would not be enough; we need them all to engage in that forward planning.
Lorely Burt
I agree entirely, and we already have a provision to enable that to happen.
My hon. Friend said that one building society requires customers to save with it before getting a mortgage there. When I had my first mortgage, more years ago than I care to admit to, that was the norm. People were expected to be a customer of a building society before getting a mortgage from it, which encouraged a way of saving that we seem to have lost in many areas of our society. I support the sentiment behind the new clause, but I do not believe we need it.
New clause 12 calls for a review of prepayment schemes, including an analysis of whether customers should be preferential creditors in the event of insolvency. The Farepak issue, and the tragedy of its customers, is emblazoned on our minds. Victims of other financial schemes such as Equitable Life still write to me virtually every week, but the new clause relates particularly to prepayment. Many structural issues contributed to Farepak’s demise and they need to be addressed. Many unsecured creditors suffer when such a company collapses. I am attracted to the idea of giving prepayment scheme customers a form of secured creditor status, as the hon. Member for North Ayrshire and Arran (Katy Clark) suggests. The Minister has advised that such a measure is not appropriate within the remit of the Bill, because a prepayment company is not a financial services company, but perhaps he could advise us on an appropriate route for looking at the proposal in a little more depth.
Stella Creasy
Borrowing has always been a part of the British way of life and part of our debates in the House as long as I have been an MP, but as we argue how best to tackle the nation’s debt, we forget at our peril the need to help our constituents to manage their debts. As the Minister pointed out, amendment 40 is our third attempt to help our constituents to manage their debts and to give them the kind of protections from such toxic credit that others around the world take for granted.
I hope I can convince the Minister that this is not a political whim, but a matter of deep importance to many who are struggling with such companies, not just in my constituency, but in constituencies across the country. If he is not convinced, I urge him to come to one of my surgeries, or to come with me down my high street, which now has 16 such companies, to see the problem and understand the urgency of action. I am sure the hon. Members for Enfield North (Nick de Bois), for North Swindon (Justin Tomlinson) and for South Swindon (Mr Buckland) have the same problems in their constituencies. The amendment is about urgent action. Too many in our communities cannot afford to wait for the outcome of research in the summer, let alone for future legislation at some unknown point.
Let me start by finding common ground. I welcome the development of the Financial Conduct Authority and its role in managing consumer credit, and the statement that it will be more willing to intervene to address problems with financial products. The question we must address today—it is what the amendment speaks to—is whether the new authority will have the teeth to deal with the problems our constituents face and act in their interests. The amendment is designed to end any uncertainty on that by giving explicit authority to the FCA to act on one aspect of our consumer market that many hon. Members are concerned about. I want to put on record my thanks to those on both sides of the House who have co-signed the amendment. That speaks to the disquiet that many have that no alternatives have been put forward.
We know why there are problems, but it is worth repeating the reasons. As the costs of food, energy and transport soar and as unemployment continues to bite family households, and as wages freeze, British families are struggling and borrowing to manage their daily needs. Aviva’s work shows that UK families owe on average £10,500, which represents nearly half the average annual household income of £23,000. That level of debt will only increase, because there is no end in sight to the financial pressures people face. One in six of our nation is now a “zombie debtor”, which means a person who is able only to service the interest on their debt and not reduce it, and a third of us have no savings at all.
Since the start of the recession, mainstream lenders such as high street banks have been much less willing to lend money, but the truth is that for many, banks are making things worse, not better. Average overdraft fees in this country have simply been reduced from £25 to £12 a day, which is still a huge sum for people who have no money. Credit card rates have soared by 2% recently, taking the average interest rate to its highest level in 13 years, despite the Bank of England base rate remaining at 0.5% for 25 months. It is little wonder that many people are turning to the high-cost credit market to make ends meet.
Last year, the payday loan sector in this country was worth £1.7 billion, a fivefold increase in a year. Research by R3 tells us that nearly 4 million people will take out a payday loan in the coming months alone. The annual percentage rate—it is a misleading term, but it is still worth looking at—can begin at 444% and escalate to 16,500% or more. Home credit lenders, about which the hon. Member for North Swindon has warned us, can charge £82 in interest and collection charges for every £100 loaned.
It is little wonder that Payplan, a debt charity, is seeing a deluge of people in financial difficulty as a result of the payday loan market. It says that nearly half its clients had six or more payday loans in the last year alone. More than half owe more than £500 to those companies and, crucially, 61% had more than one loan at a time. Eighty-six per cent. of Payplan’s clients used their loans for basics such as food, transport and the everyday costs of living, not luxuries.
Such lenders are exploding across our towns and cities. Dollar Financial underpins Money Shop. Money Shop had just one store in 1992; it now has 450 shops across the UK. There are two in my high street in Walthamstow. Meanwhile, our friends at Wonga have secured £73 million from the Wellcome Trust to expand their operations; the Provident Financial share price has risen by 16% since the comprehensive spending review; and BrightHouse, which provides hire purchase agreements at hugely extortionate rates, has announced plans to nearly treble the number of stores it operates in our country.
The FCA has many toxic practices in the market to address. As the high-cost credit industry admits, a quarter of home credit users and a quarter of payday users have no other form of credit. As consumers, therefore, they do not have the power to shop around for more affordable forms of credit. That many of those firms do not do credit checks means that customers who borrow regularly from them cannot build up a track record to show to other lenders to prove that they are credit worthy so that they can borrow at more acceptable prices.
High-cost credit companies have high fixed costs, so they make their money by repeat lending, meaning that their entire business strategy is geared towards repeat borrowing and the “rolling over” of loans, about which many hon. Members are concerned. Thirty-two per cent. of payday loans are refinanced—the average is twice—and 15% of doorstep loans are refinanced before the end of their term. All hon. Members know what “rolling over” means: it means that interest can be charged on interest accrued as well as the initial amount loaned.
Such companies also engage in aggressive marketing campaigns to encourage that repeat borrowing, persistently offering customers the opportunity to extend their loans and take out new ones. There is strong anecdotal evidence that many of those companies lend consumers more money than they can afford to pay back in a month to ensure that they have to roll over their loan.
Above all, the rates charged by high-cost credit companies often do not reflect any economic rate, meaning one that reflects competition in the market or the cost of lending. That is why rates vary so substantially, from 4,500% with Wonga to a mere 2,500% with Uncle Buck, 1,700% with Kwik Cash or 1,200% with PaydayUK. There is simply a lack of competition in the market to drive the price down in the way Ministers expect.
Justin Tomlinson
There is a lot of competition, but because people cannot understand APRs, it is irrelevant. If repayments were displayed in cash terms, competition would kick in and help consumers.
Stella Creasy
The hon. Gentleman slightly pre-empts me. I was about to say that the doorstep market, 67% of which is owned by Provident Financial, is not competitive. Nevertheless, his point about APRs being difficult to understand is well understood.
The amendment is not a panacea. We need total cost caps on credit charges so that consumers have an explicit amount beyond which the cost of any loan will never go—interest rates, administration charges and late repayment fees included. I also agree strongly with the hon. Member for North Swindon about financial education and investment in debt advocacy services to give consumers help to negotiate with creditors and the support needed to make good decisions.
We also need an expansion in alternative sources of affordable credit through credit unions and social finance. The idea that the market will somehow reduce prices where there is disparity between the consumer and supplier belongs in the textbooks, not real life. We also need a proactive regulator to ensure effective competition and protection against consumer detriments. The amendment would address those problems and provide the opportunity, presented by the FCA, to take action as quickly as possible and to prevent the problems in our communities created by these loans from becoming worse.
I agree with the Chair of the Treasury Committee, who said about replacing the FSA:
“The creation of the FCA is an opportunity to create something much better. If we are not careful, the FCA will become the poor relation among the new institutions. But it is the one that will matter most to millions of consumers.”
However, for the FCA to be that better institution, its power to act on toxic financial products needs to be made clear. The financial services practitioner panel stated:
“We acknowledge that it will be useful for the FCA to have tighter powers to control any product that can and does do harm.”
The amendment is in that spirit. It would give explicit powers to the FCA to cap, where it sees appropriate, the charges firms can apply.
I understand that the Government have been briefing people that those powers are not needed because the FCA already has product intervention powers. The Minister seems to think that that could happen, but he must address two questions: first, can it intervene; and, secondly, are its powers of deterrence or sanction appropriate to the toxicity we all want to prevent? Clearly, there are good grounds to fear that the first is not the case. In his speech today and in the document setting out the FCA’s powers, there are somersaults and loops worthy of the Olympics gymnastics team. The document states:
“The government has said that the FCA will not be an economic regulator in the sense of prescribing returns for financial products or services. The FCA will, however, be interested in prices because prices and margins can be key indicators of whether a market is competitive. Where its powers allow, the FCA will take into consideration more positively the cost of products or services in making judgements about whether consumers are being fairly treated. Where competition is impaired, price intervention by the FCA may be one of a number of tools necessary to protect consumers.”
I am sorry to disappoint the hon. Member for Vale of Glamorgan (Alun Cairns), who is not in his place, but that is part of the Government’s thinking.
The problem, however, is that the Government’s thinking is fuzzy. Lawyers in this area have highlighted the lack of clarity about whether the FCA is intended to be a price regulator and about whether the legislation proposes such a thing. John Odgers, the lawyer for Which?, highlighted that point in his written evidence to the Treasury Committee:
“It seems to me to be desirable that a power of price intervention should be spelled out, if it is intended. Financial services regulators have not in this jurisdiction previously exercised that type of power, and might in future be loth to do so without a specific statutory authority, as the use of such a power would be particularly likely to attract a challenge.”
The Minister should talk to the OFT. It is particularly well placed to tell the FCA about the problems that the fear of legal scrutiny places on consumer credit regulation. As it admitted, that fear has defined its work in this field and its lack of action against these firms. It has feared the cost to the public purse of unsuccessful legal actions. In his evidence to the Public Accounts Committee on 5 September last year, the chair of the OFT stated that
“there are companies now pursuing particular practices that 10 or 15 years ago perhaps would not have employed the most expensive lawyers and taken every point under the sun. Now, however, that is happening with an increasing number of cases where you might have otherwise expected the party to throw in the towel after the first round. They do not do that, and therefore we have to take very careful assessments. We have a particular case at the moment that I have in mind where, much to my surprise, the parties have involved the most expensive City lawyers, and we know perfectly well that we are at substantial risks on costs if we lose.”
It is little wonder that Google has a stronger track record on taking action against such adverts and firms than the OFT, which, in the past eight years, has managed to take action against one brokerage firm only.
Susan Elan Jones (Clwyd South) (Lab)
Are the Government extremely weak on this issue compared with other Governments around the world?
Stella Creasy
We should listen to the companies themselves. They state explicitly that they are coming to the UK and expanding their operations here at an alarming rate precisely because of the lack of regulation of our payday industry in comparison with other countries. They are clear that, because we do not have that regulation, we are fertile territory for their practices.
Yvonne Fovargue
I rise to support several of the amendments. I will speak first to new clause 9 on the phasing out of debt management companies. I accept that some of them might act ethically, but a great number do not, and the voluntary code of practice has simply not worked. We are talking about a distress purchase. People who buy a debt management plan will often have been worrying about it for months and months. They are looking on the internet at 3 o’clock in the morning and going to the first name they see. They do not know whether it is a member of a reputable trade body. They simply see, with relief, that someone can help them with their debts. It is no wonder that the number of complaints to the Financial Ombudsman Service about these companies’ practices has rocketed in recent years. The cost of policing and dealing with these organisations is disproportionate. It would be much easier to phase them out and put that money into the free sector so that it can ensure that creditors, via the fair share scheme or the financial inclusion fund, pay for such advice.
I would also like to speak to new clause 12 and the prepayment issue, which was so eloquently outlined by my hon. Friend the Member for Walthamstow (Stella Creasy). The people who invested in Farepak honestly thought that it was a savings scheme, which should be regulated. My experience of working for a citizens advice bureau is that one of the most difficult things to explain to people is the difference between a deposit and a prepayment. People do not understand the difference; they believe that they are equally protected whether a payment to a scheme is classed as a deposit or a prepayment. Indeed, I have seen people in my constituency surgery who have had problems with funeral prepayment schemes, most of which are covered, but some of which are not. I have had grieving relatives come to me and even people who have paid for their funeral, thinking that their family were covered and would not have to worry anymore, who have lost their money.
The voluntary Christmas prepayment scheme is simply not sufficient. As my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) said, the big supermarkets are not taking part. I wrote to every supermarket, and they said, “There’s no need for us to take part.” However, if they will not take a lead, how can we expect the smaller companies to follow? The scheme needs to be expanded. We need to ensure that people do not fall through the gaps, such as when the Government say, “It’s not this regulation; it’s that regulation,” or, “It’s not in this area; it’s a consumer matter.” The people who suffered because of Farepak do not care where it is regulated; what they need is some regulation.
Amendment 55, which deals with the money for specialist debt advice, is extremely important. We have heard on a number of occasions that the Money Advice Service does not provide debt advice, and nor should it. It should not be providing people with advice on debt, but putting the matter to the agencies that specialise in it. It is quite understandable, with face-to-face money advice and the financial inclusion fund, that the Money Advice Service should want more cases dealt with. However, there is a perverse incentive, because in being able to deal with one-off cases, the agencies are seeing more people, but giving less advice. The intractable cases, where people really need advice—those involving people who cannot deal with their debts, but need to keep coming back because their creditors keep asking them to—are not being seen. One-off advice is fine for those who can help themselves; indeed, there are a number of people who can be directed to the internet or telephone. My concern is that the removal of legal aid for debt and the Money Advice Service’s inclusion of one-off cases in the financial inclusion fund mean that the people who need ongoing support for long, complex cases are not being seen by the agencies. If amendment 55 is not accepted, therefore, I would urge that those people be considered when debt advice is reviewed.
Let me turn to amendment 40, which was so eloquently spoken to by my hon. Friend the Member for Walthamstow. I agree that capping the total cost of credit is simply one measure. However, we face an urgent situation. There are many other measures to consider, and I agree with the hon. Member for North Swindon (Justin Tomlinson): roll-overs indeed cause detriment. I have one constituent who has taken out 17 payday loans in one day alone—that is the highest so far; I am still waiting for an improvement on that. As companies have no way of checking in real time whether somebody has taken out any more payday loans, we need a database, run by the regulator so whether somebody has taken out any further loans can be checked, and a limit, whether monetary or numerical. We need to consider that, so I welcome the fact that the Office of Fair Trading is conducting a review. I hope that it will widen that review to include doorstep lenders, such as Provident, which have for so long caused detriment to consumers.
I would like to mention a case that would be solved by capping the total cost of credit. I had a constituent come to me because she had borrowed £300 from Toothfairy. She was a hairdresser. Unfortunately her washer had broken down and she had borrowed that £300 so as not to have to go to BrightHouse and pay its extortionate costs. Unfortunately, however, the hairdressers closed before her next payday—no notice; she lost her job. Over 12 months she had offered instalments to Toothfairy, but the company would not listen to her or accept any instalments. Twelve months on, she went to the citizens advice bureau. She owed £2,570 at that stage, from a debt of £300. She had also received threats from the debt collection agency, which purported to be a bailiff. The company refused to negotiate with the citizens advice bureau, and although the OFT is investigating, there is no action yet. The OFT does not have the power to suspend the company. It is investigating the case, but if it finds that there was consumer detriment, it cannot suspend the company’s licence, and it knows very well that the company will appeal. I cannot believe that there is no consumer detriment in that case, or in the number of similar cases. The OFT or the new regulator must look at the power to suspend. However, capping the total cost of credit would also be a way of doing something urgently to prevent people such as my constituent from getting into such situations.
Lorely Burt
The hon. Lady talks about the OFT not having the power to suspend, but does she agree that the new powers, which the FCA will have, will make it possible to address that?
Yvonne Fovargue
I do not believe that it has yet been confirmed that they will include the power to suspend a company. I would like the Minister to address that. If the FCA has that power and has the resources to act, that would help in cases where the company is breaking all the voluntary codes—it has been proved again that a voluntary code is not working. Again, however, consumers do not look to see whether such companies are regulated; they just need the money. They simply go to the nearest company—possibly the one at the top of the internet or possibly the person or company that sends them an unsolicited text. Consumers do not shop around for such loans.
Consumers need a robust regulator, and although I welcome the move from the OFT to the FCA in new clause 4, the Government need to clarify what that means for consumer protection. There needs to be a robust deterrent for firms entering the market. The bar needs to be set much higher. There also needs to be a real deterrent. I was therefore pleased to hear the Minister say that the £50,000 limit did not apply and that there could be an unlimited fine, because I believe that £50,000 will quite often be written into the business plan as a write-off. There needs to be the power and, as importantly, the resources to supervise and to stop bad practice at an early stage. Two years down the line is too late for the innocent people who have walked into the trap. We need a real consumer champion. As Which? has often said, what we want is a watchdog, not a lapdog.
Neil Parish (Tiverton and Honiton) (Con)
I apologise to the House for not being here at the start of the debate.
I congratulate the hon. Member for Walthamstow (Stella Creasy) on her amendment 40, because payday loans and doorstep lending are a huge problem. There are many loan sharks out there and they need to be put back in their boxes. We need serious financial health warnings about their conduct, so that our constituents have some idea of how much they are borrowing and how much they will have to repay. For instance, anyone borrowing £100 at 2000% will have to pay back up to £2,000. That needs to be clearly laid out when people are taking out such loans. As has been pointed out, APRs—annual percentage rates—are not always understood by our constituents. Therefore, if they could see exactly what they had to repay, they would be much less likely to take out such loans.
Lorely Burt
The point of payday lending is that it should be for a very short period. Such issues arise when there are innumerable roll-overs, as outlined by the hon. Member for Walthamstow (Stella Creasy). What we hope the industry will do and the review will achieve is either to confine roll-overs to a small number or to abolish them altogether, which would address the problem of the £2,000, which no one in this Chamber wants to see.
Neil Parish
The hon. Lady is absolutely right. It needs to be clearly set out when people take out a loan that such sums could be the result if they are unable to repay it. Let us consider the analogy of tobacco. We no longer allow tobacco advertising, and shops cannot even display packets of cigarettes any more, yet people can ring up Wonga on their mobile phone and take out a loan for which they will be charged 4,214% interest.
Stella Creasy
Does the hon. Gentleman agree that, although limiting the number of roll-overs is certainly a step in the right direction, there is a risk that it could result in what has happened in America, where such a limit has led to firms paying off someone’s loan and starting a new one in order to circumvent the regulation? We need a regulation with clear, explicit powers to act in relation to these companies in a way that they cannot shrink away from.
Neil Parish
That is absolutely right. Many of the people taking out these loans earn less than £15,500 a year and therefore cannot afford the loan in the first place. I have sympathy for their position, but are we really helping them by allowing them to get into the hands of loan sharks, which results in their having to pay back huge amounts of money that they simply do not have?
I have made the point before that if financial companies and loan sharks are arguing that they need to charge huge amounts of interest because people are such a high security risk, they should not be lending them the money in the first place. Let us remember the old adage about finance: these companies will lend us an umbrella when the sun is shining, but they will take it away again as soon as it starts to rain. In the circumstances that we are describing, they should never have made the loans in the first place. Citizens Advice and financial advisers often tell us about people who have got themselves into huge amounts of debt, perhaps through no fault of their own.
It needs to be made absolutely clear to people what to expect. I am not a great believer in huge amounts of regulation, but I do believe that the consumer should be able to see exactly what they are signing up to at the outset, and be made fully aware of the consequences of their actions. They often do not understand the terms if they are hidden in the small print or expressed as complicated percentages, but if they were told, “You can borrow £100, but if you don’t pay it back on time, you could end up paying £2,000 back”, it might make them sit up and think about exactly what they were borrowing. They might then choose not to do it, or to go to someone who could lend them the money at a better rate.
The Government are doing a great deal to increase the use of credit unions, and we need to do much more work on that. Perhaps we should look into ways of financing them. I have a very successful one in my constituency, and we need to build on that. Only a small percentage of people here borrow money from credit unions, unlike in Ireland, where almost 50% of people have access to such loans.
David Mowat (Warrington South) (Con)
My hon. Friend mentioned Wonga, and he was right to suggest that 4,000% is an absurd rate of interest. Does he have a view on the rate at which interest should be capped for a fortnight’s payday loan?
Neil Parish
Yes, I do. Many people in the banking sector would probably disagree, but I believe that anything over 50% is far too high. It is obscene and immoral to allow companies to go on charging vast amounts of interest—I do not care who they are—and that is why we have to take action. I am looking to the Government to do so, not only through legislation but through stating that such companies should clearly set out their rates of interest and the consequences of non-repayment, so that our constituents can take advantage of credit that is competitive and that will not ruin them.
Sheila Gilmore
In speaking to the new clauses and amendments in this group, the Minister appeared to say that many of them were unnecessary because the issues would be dealt with through the setting up of the Financial Conduct Authority. However, it is our role as parliamentarians to take up these issues, to state explicitly that we need to give political guidance on the matters that our constituents find important, and to discuss the work that needs to be done by the FCA. There is no reason why these measures should not be incorporated into the Bill. That is surely better than waiting for four or five years, only to discover that the problems have not been addressed because the means of doing so had not been set out as clearly as they might have been. I hope that the Government will therefore reconsider their position on this.
I am surprised at the way in which the Minister dealt with amendment 55. His objection to its proposals on legal aid and legal advice seemed to be that they would undermine the provisions of the Legal Aid, Sentencing and Punishment of Offenders Bill. Perhaps I have got this wrong, but I had understood that the justification for restricting legal aid was a financial one. We have been given the usual argument that the country is in a financial mess, we have a deficit and we have to save money on the legal aid bill, among many other things. It is therefore disappointing, when someone comes up with another way of financing legal advice for complicated cases, that that is not acceptable either. The Government therefore seem to be suggesting that granting legal aid in such cases is, in itself, a bad thing.
After all, we are not stopping litigation, and we are not preventing people with plenty of money from litigating on any issues. The ending of legal aid will simply result in considerable detriment for people who do not have the money to pay for their legal advice. It is regrettable to say that the proposals would somehow undermine the Government’s intentions. When we were debating the Legal Aid, Sentencing and Punishment of Offenders Bill, various speakers on the Government Benches said, “We would like to do these things, if we had a way of funding them.” They were not saying, “We really do not want to do these things at all.” They seemed to be saying that the measures were being brought in with some sadness, so when someone comes up with a partial solution, it is a shame that we cannot investigate it further.
Amendment 37 seeks to make it explicit that the work of the Money Advice Service should be to help those with the greatest problems who are suffering particular difficulties as a result of financial exclusion. The previous Government tried to address those problems through various formats. The present Government are suggesting that this will be done anyway, and that the service will be the same for everybody. However, that assumes that everyone is starting off on the same footing, which is not the case. Many people have limited choices and are therefore more likely to get into financial difficulties. The Money Advice Service should be giving those people a specific amount of its attention, and to spell that out in the Bill would not be unreasonable.
I listened to what the hon. Member for Solihull (Lorely Burt) said about the phasing out of debt management companies. We are not saying that such companies that operate on a commercial basis should disappear. The amendment suggests that it should not be the individual consumer who pays the up-front price for those services. There are alternatives, and some commercial companies could continue to operate if the financial organisations were to foot the bill. We shall be seeking to achieve that.
Finally, I want to say how important it has been that people have campaigned on these issues; for example, my hon. Friend the Member for Makerfield (Yvonne Fovargue) has campaigned hard on debt management companies, while my hon. Friend the Member for Walthamstow (Stella Creasy) has campaigned on high-cost credit. We are now some considerable time on from when we had a big debate in this place, with many Members attending and speaking on these issues, yet we are so little further forward.
If we look at the wording of amendment 40, it makes no specific pitch for a particular cap or how exactly to achieve the aim; it simply asks the FCA to make the rule. Further discussion and consultation will be necessary about what those rules should be, but the amendment asks the FCA to make this an important and early part of the work it does. I do not view that as at all unreasonable.
The alternatives proposed are not good enough. Financial education is fine, but when facing a difficult situation, no amount of financial education is good enough when there is so little choice. Sometimes regulation and financial education are proposed as alternatives, but I do not think they are. It would be great if people were better financially educated, but in a tight spot, that is not enough.
Steve Rotheram (Liverpool, Walton) (Lab)
One of my constituents wrote to me to say that he thought he had had a particularly good deal because the APR was at 5,200%. He thought that that was better than what the banks were offering, which was obviously just a two-digit figure. Does that not show that financial education is something that this Government need to take on board, because it shows how people get into debt when they do not understand the ramifications of those high interest rates?
Sheila Gilmore
I think financial education is extremely important, but on its own, it will not necessarily equip people to avoid the enticements of the lenders.
Justin Tomlinson
I cannot resist intervening on this specific point. With financial education, consumers can make informed decisions. If people are financially savvy and well financially educated, they can carry out the actions that they would otherwise have to pay a debt management company to do.
Sheila Gilmore
That is indeed the case. I am not suggesting that we should not have financial education. What I am suggesting is that we also need regulation. My hon. Friend the Member for Walthamstow eloquently outlined the various forms that high-cost credit takes, so control over it is also important.
Stella Creasy
I thank my hon. Friend for giving way. Much as I support a good deal of what the hon. Member for North Swindon (Justin Tomlinson) said, I think he misunderstands the situation. Many of my constituents have tried to negotiate, but these companies will not respond to constituents individually as they do not recognise individuals in the negotiation of credit plans, so it is often organisations that have a status—a citizens advice bureau or Christians Against Poverty, for example—who are able to make the breakthrough. That is why these debt management companies are so invidious. They claim the same status as Christians Against Poverty and the citizens advice bureaux, so it is not just a case of being financially savvy; it is also about the having the muscle of a respected organisation behind people. That can cause some of the problems.
Sheila Gilmore
I thank my hon. Friend for that important point of view.
If we do not take steps to deal with high-cost credit, we will do many people a disservice. I urge the Minister, even at this stage, to support amendment 40. It does not lay down a set of rules, but merely asks the FCA to make the rules an important priority. In order to protect people who will often feel that they have little choice but to use this sort of lending, we need to have controls in place.
Alun Cairns
I am grateful for the opportunity to contribute to the debate and to speak to the amendments. I welcome the Financial Secretary’s opening statement on the establishment of the Financial Conduct Authority, and the development away from the Financial Services Authority and the tick-box approach it adopted under the structure set up by the former Administration, which contributed to failures and had a harmful impact on many families and individuals. That is relevant to the responsibilities that the FCA will inherit. We shall now be able to secure an appropriate degree of protection; to promote choice and competition, which are regulatory concerns within the industry; and to protect and enhance the integrity of the UK financial system.
David Rutley
My hon. Friend is making a characteristically powerful speech about his concerns about various products and what the FCA should do to move things forward. I am concerned about some of the speeches and interventions from the Opposition, who are trying to be too prescriptive about what the FCA should do with particular products. Clearly, there is a range of issues and concerns, but ultimately we should surely allow the new chief executive of the FCA to take the decision based on what he or she feels should be the priority. Does my hon. Friend agree that we should not be too prescriptive?
Alun Cairns
I entirely agree. That is one of my reasons for opposing amendment 40. In my view, it will not achieve what it sets out to achieve, but will have far-reaching consequences for not only the FCA but consumers and providers.
Alun Cairns
I will give way to the hon. Lady, and I trust that I shall then have a chance to respond to her question.
Stella Creasy
Will the hon. Gentleman enlighten the House on his concern about the expertise of the FCA and its ability to exercise the powers granted by the amendment? The amendment simply gives the FCA those powers; it does not direct it to use them automatically. I should also like to know why he was concerned by what the Minister said earlier about his support for the use of price regulation.
Alun Cairns
There are clauses that allow for product intervention and refer to terms and conditions, but that only underlines the fact that amendment 40 is not necessary. I do not understand the inconsistency. I am also worried about the reference to maximum pricing in the amendment. If it were passed, price regulation would be introduced to the financial services sector for the first time, because banking services are currently based on variable cost. Many products are intended to remove the risk from the consumer, and the risk is priced accordingly. Price controls could not accommodate changes and fluctuations in the marketplace. The amendment poses a major threat to the supply of valuable products to many consumers, to the free market, and to competition principles.
Direct pricing also poses the threat of practical consequences. How would the FCA determine the price of a product? One of my hon. Friends said that he considered 50% to be appropriate, but some Members are now shaking their heads, suggesting that that might be too high. How would the FCA decide whether the basis of pricing should be fixed or variable? What about the cross-subsidies that are arranged within financial institutions with the aim of securing the financial certainty that many consumers demand? What about the long-run incremental costs? It would be impossible to price products accordingly; but even if that were a solution, it would require a large-scale, sophisticated infrastructure body to provide continual oversight of the hundreds of products provided by hundreds of organisations.
For those reasons, I oppose amendment 40. In the same breath, however, I pay tribute to the campaigning that has highlighted the scandal of payday loans, and to the Treasury, which has responded accordingly. We have already heard that there will be a report by the end of the summer, and that it will be acted on. I hope that those who share the concern expressed by the hon. Member for Walthamstow about payday loans will be reassured by what has been said not only by Ministers but by Back Benchers, who will maintain the pressure for action.
Mr Hoban
This has been a thoughtful and helpful debate, which has raised a number of issues.
The hon. Member for Nottingham East (Chris Leslie), who is not in the Chamber now, asked what would happen next. The powers to transfer consumer credit regulation can be used only when the Bill has received Royal Assent and the new regulator is up and running. A good deal of work is being done. We are examining the perimeter and nature of regulation, and are working closely with the industry and consumer stakeholders who are advising us. We expect to consult formally on the secondary legislation effecting the transfer, and on an impact assessment of our proposals, early in 2013. The transfer will then be subject to the affirmative procedure and the approval of both Houses of Parliament. That does not, of course, mean that the OFT is now a lame duck regulator. It is looking hard at various aspects of various aspects of detriment to consumer credit, and is trying to do the best possible job to protect the interests of consumers.
The hon. Gentleman—who has now returned to the Chamber—asked what role would be played by trading standards authorities. One of the Government amendments deals with that. Trading standards authorities, known more colloquially as weights and measures bodies, play a role in the enforcement of the current consumer credit regime, and I expect that to continue. The precise nature of their role will be governed by the consultation to which I referred earlier.
A number of Members asked what the OFT was doing now to regulate the high-cost credit sector. I was asked about affordability checks, about rolling over, and about unfair treatment of borrowers who find themselves in financial difficulty. The OFT is focusing on all those issues. It intends to engage in on-site inspections of about 60 major payday lenders, and in compliance work alongside trade associations and others. It is also paying close attention to the advertising of high-cost credit, and is examining a number of the websites operated by providers. It has highlighted a number of areas in which advertising practices need to be improved, and its final report will be published later this year.
Members have bandied around a figure of 18 months in connection with the research that is taking place. In fact it was commissioned last July, and the process has yet to reach its first anniversary. Members may be confusing that research with the broader review following consultation on consumer credit, or with the personal insolvency review that we launched in October 2010. Voluntary action is already being taken to tackle some of the incentives offered by the store card sector. I think that we should await the publication of the report.
As the Bill will give the FCA powers to intervene in relation to interest rates, I think that the aim of amendment 40 has already been achieved. The FCA’s new product intervention power will enable it to act more quickly and decisively when it considers that a product, or product feature, has the potential to cause significant detriment. It is a broad power, which I think is helpful. As has been established, a range of interventions can be made. The FCA can impose requirements on products as well as banning them outright, and can make rules on charges and on specific product features, including the duration of a contract.
Stella Creasy
There is genuine concern about the view of lawyers that unless the power is explicit, it will be open to challenge. Will the Minister publish the legal advice that he has had to the contrary, supporting his assessment that the power in amendment 40 could enable prices to be capped as part of action on consumer detriment?
Mr Hoban
I am certain that the FCA’s broad range of powers will enable it to do that. It can use its powers in pursuit of its consumer protection objectives. However, those are not the only powers that are available.
The hon. Member for Makerfield (Yvonne Fovargue) asked whether the FCA would be able to suspend permission with immediate effect. Under new section 55Y, it will be able to vary the permission of a firm, or to impose a requirement on a firm with immediate effect if it considers that to be necessary. We will consider whether the OFT should be given the same powers in the interim.
A helpful question was asked about the asymmetry between the information given to lenders and that given to borrowers, and about whether a cash illustration could be provided alongside information about the annual percentage rate. The consumer credit directive requires the costs of credit to be specified in terms of the APR. The Commission will review the directive in 2013. We have ensured that there is a new “with regard to” provision for the FCA—something else that it must consider when it seeks to secure an appropriate degree of protection for consumers. Consumers must have timely provision of information, and that advice must be accurate and be fit for purpose in the eyes of the consumer, not those of the provider of the service. We will consider whether a provider of consumer credit should quote an indicative cash cost alongside the APR.
Chris Leslie
I welcome the Minister’s comments. Setting aside whether he thinks the new clause should be added to the Bill, he seems to be saying that he agrees it would be a good idea in principle to encourage all banks and other lenders to engage in some sort of forewarning of customers. Does he agree that if he says that is a good idea and the Opposition think it is a good idea, that sends a signal to the new regulator to make that a priority?
Mr Hoban
I do not think this needs regulatory action. I think it is in the interests of lenders to provide the right information to their borrowers to enable them to plan ahead, however, because it is not in the interests of lenders for borrowers to fall into arrears as a consequence of increases in interest rates. That is why it is important that potential changes in interest rates are considered in lending decisions and that information is available to help borrowers to think about the impact on their circumstances of changes in interest rates. I do not believe that is necessarily a regulatory matter; rather, I think it is in the interests of firms and their borrowers that such information be available.
On the issue of consumer credit, I do not think amendment 40 is necessary. The Treasury is confident that a range of powers is in place to help people in respect of payday lenders and high-cost lenders. I do not believe new clause 10 is necessary either, but I think it is in the interests of lenders to ensure that the information in question is available.
On new clause 12, the hon. Member for North Ayrshire and Arran (Katy Clark) spoke very powerfully about the Farepak issue and how to protect such consumers in future. We must recognise, however, that there is a cost attached to any additional protections for consumers, and that it will, to some degree at least, be borne by consumers.
The question of the regulation of prepayments is complex, as was evident from the work done by the previous Government after the publication of the “Pay now, pay later” report by Consumer Focus. There are no simple solutions, particularly when we want to ensure that vulnerable consumers or those on low incomes can still access the goods and services they want. Introducing some form of set-aside or ring-fencing of funds or some form of insurance in order to be able to compensate consumers in the event of an insolvency can impose significant additional costs on businesses and therefore potentially on consumers. Several industry sectors have concluded that the gains from increased consumer confidence outweigh the costs, however, and have gone ahead with sector schemes. We will continue to monitor this topic. My hon. Friend the Member for Solihull (Lorely Burt) asked who was the right Minister to pursue in this regard: I suggest it is the Minister responsible for consumer affairs, the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for North Norfolk (Norman Lamb).
The hon. Member for North Ayrshire and Arran also asked about credit hierarchy. That is an important subject, and I am very conscious of delays in making payments to the Farepak creditors. We must, however, bear in mind the fact that one of the aims of insolvency law is, as far as possible, to achieve an equitable distribution among the unsecured creditors. Those unsecured creditors could, of course, include small suppliers for whom the debt from a prepayment scheme could result in the failure of their business. There is therefore a difficult balance to strike.
Katy Clark
What is different about this situation, however, is that often the reason for prepayment is that the person buying the product wants to purchase in that way because of their financial situation, and the person selling the product gets the financial advantage of holding that money for a period of time. I therefore cannot understand the Minister’s point, in that at present the advantage is with the organisation selling the product. Does the Minister agree that we should be considering how to move towards a situation in which the consumer is able to pay in this way and get protection for the funds they have paid out?
Mr Hoban
The hon. Lady makes an important point. It is my understanding that some of these prepayment schemes get their income from being able to negotiate a discount with the supplier of the goods, as well as, perhaps, from the interest they earn on the prepayments. The question then arises whether the revenue the prepayment scheme gets is sufficient to outweigh the cost of enhancing customer protection. Some of these schemes are administratively expensive, and the cost of protection may exceed the income generated, which would lead to that service being withdrawn from the consumer.
As this exchange demonstrates, some complex issues are involved. The hon. Lady is right to raise them, and it is right that the Government should continue to address them. Many people rely on these schemes and it is important that they are well protected. We should make sure that there are alternative sources of information for them, in order to enable them to judge where they might get best protection and, perhaps, earn some interest themselves on the prepayment they are making, rather than the supplier making that money.
John McDonnell (Hayes and Harlington) (Lab)
Both of the issues under discussion have cross-party support. There is a consumer affairs element in them, and this kind of legislation comes around very rarely. Indeed, I doubt whether we will see such an all-encompassing Bill for another decade. There does not appear to be any consumer legislation in the planned Queen’s Speech, other than the proposed groceries adjudicator Bill. Will the Minister therefore reconsider these two matters, and meet the relevant Members to see whether there is any way they could be better addressed in this Bill before it goes to the other place or before the final vote on it?
Mr Hoban
I think that there is adequate provision in the Bill on consumer credit; the FCA has the powers to tackle that issue and I am confident that it will be able to make appropriate use of the remedies available to it. A different issue about pre-payment schemes has been raised, but that does not fall within the scope of the Bill. Of course there is a mechanism in the Bill to move the regulatory perimeter if appropriate, but I think that it is the Minister with responsibility for consumer affairs who needs to respond on that point.
I know that we want to move on to deal with the next group of amendments, but before concluding I just wish to say that there is support across the House for new clause 4, which enables us to complete the transfer of regulation from the OFT to the FCA. That does yield important benefits for our constituents. We need to get that regime right if we are to ensure that there is a reasonable supply of affordable credit to our constituents and that they are well protected—that is the goal we are all aiming at. The Bill contains the powers to do that, and I commend new clause 4 to the House.
Question put and agreed to.
New clause 4 accordingly read a Second time, and added to the Bill.
New Clause 1
Retrospective reviews of Bank performance by court of directors and publication of court minutes
‘(1) Section 2 of the Bank of England Act 1998 (Functions of court of directors) is amended as follows.
(2) After subsection (5) add—
“(6) The court shall conduct retrospective reviews of the performance of the Bank with respect to its functions and objectives.
(7) The court shall determine the particular matters to be reviewed under subsection (6).
(8) The court must publish a report on each review carried out under subsections (6) and (7) unless the court decides that all or part of such a report should not be published for reasons of confidentiality or because it would endanger financial stability.
(9) When all or part of a report of a review is not published under the provisions of subsection (8), the court must—
(a) publish as much as possible of the report,
(b) send a copy of the full report to the Chairman of the Treasury Committee of the House of Commons or, in exceptional circumstances, inform the Chairman of the Treasury Committee of the reasons for not sending it, and
(c) publish the report or part of the report as soon as possible after the court decides that the considerations in subsection (8) no longer apply.
(10) After each meeting of the court, the Bank shall publish minutes of the meeting before the end of the period of two weeks beginning with the day of the meeting.
(11) Subsection (10) shall not apply to minutes of any proceedings where the court has decided that publication should be delayed for reasons of confidentiality or because publication would endanger financial stability.
(12) Where any part of the court’s minutes is not published under the provisions of subsection (11), the Chairman of the court shall inform the Chairman of the Treasury Committee of the House of Commons of the reasons.
(13) Any part of the minutes of a meeting of the court must be published as soon as the court has decided that the considerations in subsection (11) no longer apply.”.’.—(Mr Tyrie.)
Brought up, and read the First time.
Mr Andrew Tyrie (Chichester) (Con)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Mr Nigel Evans)
With this it will be convenient to discuss the following:
New clause 2—Reports by skilled persons—
‘The Financial Services and Markets Act 2000 is amended as follows—
“(1) In section 166, subsection (1), leave out “require him” and insert “inform that person that it has appointed a person”.
(2) In section 166, subsection (1), at end insert “The Authority may require the person to whom subsection (2) applies to pay for the costs of the report in the event that it has resulted in enforcement action being taking against that person.”.
(3) In section 228, subsection (5), at end insert “except that this is without prejudice to the right of the complainant to sue for any amounts in excess of the maximum award limit in the event that the Ombudsman has made a recommendation pursuant to section 229(5) of this Act. The Complainant’s acceptance is also not binding on the Authority which remains entitled to take such action as it would have been had the award limit not existed.”.’.
New clause 3—Enforcement of money awards—
‘Schedule 17 of the Financial Services and Markets Act 2000 is amended as follows—
“(1) In paragraph 16, leave out “which has been registered in accordance with scheme rules”.’.
New clause 13—Meaning of qualifying parent undertaking: assessment and review—
‘(1) The Treasury shall within twelve months of Royal Assent to this Act consult the FCA and the PRA on the possible need to exercise the powers provided for by section 192B(6)(a) of the Financial Services and Markets Act 2000 and shall lay before the House of Commons a report containing an assessment of the need to exercise these powers.
(2) In subsequent years, the FCA and the PRA shall provide an annual assessment of the possible need to exercise the powers provided for by subsection (6)(a), to be reviewed by the Treasury. Any such review must be laid before the House of Commons.’.
Amendment 46, in clause 1, page 1, line 12, at end add—
“(2A) The appointment of the Governor and Deputy Governors shall be made only after the Treasury Committee of the House of Commons has been consulted and has reported on the suitability of the candidates nominated by the Chancellor of the Exchequer for the posts.’.
Amendment 47, page 1, line 12, at end add—
“(2A) Any member appointed under subsection (2) shall be appointed with the consent of the Treasury Committee of the House of Commons.’.
Amendment 29, in clause 2, page 2, line 11, after ‘Authority)’, insert
‘and shall have regard to minimising, as far as possible, the use of public funds to support or rescue parts of the UK financial services industry.’.
Amendment 22, in clause 3, page 3, line 37, after ‘functions’, insert
‘having regard to the economic policy of Her Majesty’s Government, including its objectives for growth and employment’.
Amendment 23, page 8, line 32, at end insert—
(a) If the Treasury considers it appropriate to proceed with the making of an order under section 9K, the Treasury may lay before Parliament—
(i) a draft order, and
(ii) an explanatory document.
(b) The explanatory document must—
(i) introduce and give reasons for the order,
(ii) explain why the Treasury considers that the order serves the purpose in section 9K, and
(iii) be accompanied by a copy of any representations received from the FPC or the Governor.
(c) The Treasury may not act under paragraph (a) before the end of the period of 12 weeks beginning with the day on which the consultation began, unless the order is made in accordance with paragraph (b).
(d) Subject as follows, if after the expiry of the 40-day period the draft order laid under paragraph (a) is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order.
(e) The procedure in paragraphs (f) to (i) shall apply to the draft order instead of the procedure in paragraph (d) if—
(i) either House of Parliament so resolves within the 30-day period, or
(ii) a committee of either House charged with reporting on the draft order so recommends within the 30-day period and the House to which the recommendation is made does not by resolution reject the recommendation within that period.
(f) The Minister must have regard to—
(i) any representations,
(ii) any resolution of either House of Parliament, and
(iii) any recommendations of a committee of either House of Parliament charged with reporting on the draft order, made during the 60-day period with regard to the draft order.
(g) If after the expiry of the 60-day period the draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order.
(h) If after the expiry of the 60-day period the Minister wishes to proceed with the draft order but with the material changes, the Minister may lay before Parliament—
(i) a revised draft order, and
(ii) a statement giving a summary of the changes proposed.
(i) If the revised draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the revised draft order.
(j) For the purposes of this section an order is made in the terms of a draft order or revised draft order if it contains no material changes to its provisions.
(k) In this section, references to the “30-day”, “40-day” and “60-day” periods in relation to any draft order are to the periods of 30, 40 and 60 days beginning with the day on which the draft order was laid before Parliament.
(l) For the purposes of paragraph (k) no account is to be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than four days.’.
Amendment 24, page 12, line 2, at end insert—
‘(f) an assessment of the impact of each macro prudential measure on employment and economic growth.’.
Government amendment 12.
Amendment 39, in clause 4, page 14, line 36, at end add—
‘Within a year of commencement of this Act the Bank of England shall publish a review of the effectiveness of co-ordination by the regulators of the exercise of their functions relating to membership of, and their relations with, the European Supervisory Authorities (namely, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority), and their relations with other regulatory bodies outside the United Kingdom.’.
Amendment 28, page 15, line 4, leave out clause 5.
Amendment 35, in clause 5, page 16, line 15, at end insert—
‘(c) the ease with which consumers, particularly those on lower incomes, can have access to financial services and products which are affordable and appropriate to their needs.’.
Amendment 67, page 16, line 41, after ‘is’, insert
‘intelligible to them, appropriately presented’.
Amendment 41, page 17, line 1, after ‘transaction’, insert
‘, any common law fiduciary duties owed by the provider in question’.
Amendment 68, page 17, line 35, at end insert—
‘(e) the ease with which consumers throughout the UK can identify and obtain services which are appropriate to their needs and represent good value for money.’.
Amendment 69, page 27, line 19, at end insert ‘and by the Consumer Panel’.
Amendment 70, page 27, line 19, at end insert—
‘(1A) Unless the PRA has established a panel as provided for in section 2K(2) to reflect consumer interests, it must consider representations from the Consumer Panel established under section 1Q where such representations relate to the PRA’s general policies and practices, the co-ordination of the exercise of PRA and FCA functions as provided for in section 3D(1), or the exercise of the PRA power in section 3I.’.
Amendment 34, page 28, line 38, at end insert
‘to minimise unnecessary additional expenses that might be incurred by virtue of the separate administration of the FCA and the PRA, and to maximise any common administrative savings achievable through close co-ordination.’.
Amendment 36, page 29, line 15, at end insert—
‘(g) the principle that, where appropriate, authorised persons should have a fiduciary duty towards the consumers who are their clients.’.
Amendment 71, page 29, line 42, at end insert—
‘(d) that each regulator engages with the other where they identify any gaps in or between their regulatory remits, or the exercise of these, that may become apparent in relation to any product, provider, institution, market practice, responsible shareholder interest or consumer concern;
(e) that as appropriate both regulators can identify areas where they can share services and information, acting to minimise burdens on firms supervised by both regulators and/or to maximise the understanding of consumers and facilitate the exercise of their responsible interests.’.
Amendment 33, page 31, line 24, at end insert—
‘(8A) The memorandum shall contain an estimate of the additional annual costs involved in the administration of the FCA and PRA when compared with the estimated costs of the administration of the Financial Services Authority.’.
Government amendment 1.
Amendment 42, in clause 25, page 108, leave out lines 29 and 30.
Amendment 43, page 108, leave out lines 34 to 39.
Amendment 49, in schedule 3, page 174, line 1, at end insert
‘with the consent of the Treasury Committee of the House of Commons.’.
Amendment 50, page 174, line 2, at end insert
‘with the consent of the Treasury Committee of the House of Commons.’.
Amendment 27, page 176, line 9, at end insert—
‘Publication of minutes and agendas
10 The FCA shall make arrangements to publish the agendas and minutes of its meetings, unless publication would be inappropriate.’.
Mr Tyrie
As a number of colleagues across the House will have noticed, the Treasury Committee took the highly unusual step of tabling a new clause, which is signed by all but one member of that Committee. As hon. Members will be aware, the Committee feels strongly that this Bill is defective in a number of respects, and needs a good deal of attention and improvement. That is because the Bill will hand the Governor of the Bank of England
“unprecedented new powers to shape the British economy. While continuing to set interest rates, the Bank will take over the supervision of commercial banks and insurers, be responsible for…tackling threats to financial stability…and have the power to restrict lending on mortgages, or order banks to increase their capital…one…man or woman will wield all these powers. This individual will arguably be as powerful as the chancellor”.
As drafted, the Bill seems to fly
“in the face of all ideas of modern governance, let alone parliamentary accountability.”
Those are not just my personal views; they summarise reasonably well the views of the whole Treasury Committee. As it happens, I have not said anything off my own bat yet; everything that I have said so far is a verbatim quotation from an article by the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling).
Mark Field (Cities of London and Westminster) (Con)
I entirely endorse what my hon. Friend has said. May I also say, in my role as the Member for the City of London, that although I am not suggesting for one minute that the views he has just espoused are universally held within the square mile, many practitioners have deep concerns about elements of the Bill, particularly the aspects to which he has referred?
Mr Tyrie
I have heard a good number of those concerns from the practitioners to whom my hon. Friend refers. What they say, what he has just said and the fact that I was quoting a former Chancellor all illustrate an important point: new clause 1 is not just supported by the Treasury Committee and by many independent experts who have taken a look at it. My impression, which has been gained from talking to fellow MPs and many others, is that the purpose behind the new clause is supported right across the House of Commons.
New clause 1 would bolster parliamentary accountability in two ways. First, it would place a duty on the court of directors to conduct retrospective reviews of the Bank’s performance and publish the results for Parliament to examine. Secondly, it would require the court to publish its full minutes. Those two suggestions sound, to me at least, pretty reasonable, but they encountered a wave of objections from the Bank. The Bank’s frequent refrain to us has been that the current accountability arrangements are pretty much okay just as they are. We need to be clear that the current arrangements for the court simply will not do. The board of the Bank—the court—is currently prohibited from examining the Bank’s performance and it cannot make recommendations about what it may discover if it does ask any questions. The court’s role is strictly confined to process—mainly to auditing the budget. Any well-governed institution must have a board capable of examining its performance and permitted to comment on how to learn lessons from mistakes or from successes. That is why we propose that the court be required to conduct and publish reviews of the Bank’s policy. Of course that would also give Parliament an opportunity to make recommendations on what it should look at.
Mark Field
Given that, as my hon. Friend puts it, we are dealing with an unprecedentedly powerful institution, would he care to speculate as to why there has been this reluctance, in the face of repeated requests from the Treasury Committee, on the part of the Bank of England to do as he has asked?
Mr Tyrie
My hon. Friend tempts me towards a place I would very much enjoy going, but—in the interests of I cannot think what; let me suggest brevity, or something like that—I will not go there.
There has also been a concession on the minutes, but it goes somewhat short of what is appropriate. The concession is that a record of court meetings will be published—I am citing the phraseology used—but it seems to me that that will not do either. The court should publish full minutes, not doctored minutes. I do not want to sound too pejorative, but the minutes should not be written especially for the purposes of a certain type of scrutiny by Parliament. The full minutes should be published, as is the case with the Monetary Policy Committee, subject to the confidentiality provisions to which I alluded earlier.
New clause 1 addresses only a small part of what is needed to knock this Bill into shape. Much more time should have been devoted to it. The need for all this to be on the statute book by the end of this year is yet to be explained to us. It would be far better to let the timetable slip for a few months and to get the Bill right. The crisis has afforded us a once-in-a-generation opportunity to overhaul the legislation and the Bank and it seems to me that we are not fully taking it up.
It is also regrettable that all this work is being done in the form of amendments to the Financial Services and Markets Act 2000, which is itself an immensely complex piece of legislation. As the Governor of the Bank argued before the Committee and elsewhere, we would have done better to write a new Bill from scratch, but we were told that that would take too long. Again, there is a rather curious interaction between trying to get something right and the arbitrary timetable that is imposed.
I very much hope that the other place will get to grips with some of the other shortcomings of the legislation, many of which are relevant to amendments in this group. Let me list a few. The first is the effect on the accountability and governance of the complex web of interacting committees that are in place or being created—the FPC, the MPC, the Prudential Regulation Authority, and the sub-committee, NedCo, in particular. The second is the need for stronger accountability to Parliament as regards macro-prudential tools, and I note that amendment 23, tabled by the hon. Member for Nottingham East (Chris Leslie), addresses that issue—intelligently, if I may say so. The third is the heavy circumscription of the powers of the Chancellor to intervene in a crisis, which will, I understand, be addressed on day two on Report. More work is certainly needed to get this legislation right. The fourth is the need for Parliament and the Treasury Committee to engage in the process of the appointment of a new Governor, which has been in the papers over the past few days and is dealt with by amendments 46 and 47, tabled by the hon. Member for Hayes and Harlington (John McDonnell). The fifth concerns the FCA, which seems to be the poor relation in all this legislation, and a similar duty to publish minutes and conduct reviews of its work. That is touched on in amendment 27, tabled again by the hon. Member for Nottingham East.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that it is also regrettable that the FCA, despite another request from the Treasury Committee, does not have a statutory primary objective to promote competition in the banking sector? The Committee has been calling for that ever since this inquiry started.
Mr Tyrie
I am grateful for that support from my Committee colleague. Competition is now one of the operational objectives, but the punch of the FCA’s three operational objectives has been diluted by the fact that an overarching strategic objective has been placed above them, and it could be used to trump the operational objectives and enable the FCA to avoid a primary duty to take account of competition. I completely agree with my hon. Friend.
The PRA veto on the FCA’s work as a whole is another issue that the Committee has raised from time to time, but I must admit that it is not covered by this group of amendments. I shall therefore move on swiftly before I am ruled out of order.
It is now common ground that the proposed governance and accountability of the Bank and the FCA are defective and need to be strengthened. The Committee is determined that they should be strengthened. We regret that they are not already in much better shape, and there is a great deal of work for the other place to do to the legislation. As a Committee, however, we showed by our decision on the need to obtain a full explanation for RBS’s failure that we would not hesitate to take new steps in order to get information that we think should be in the public domain. We took the unprecedented step in that case of sending specialist advisers into the FSA to conduct a full investigation. It should be made clear now that we will not hesitate to do the same with respect to the Bank of England if this legislation remains defective. Sending in specialist advisers was a somewhat cumbersome route to getting to the facts of the RBS issue, and it would be far preferable to improve the Bill so that such action by the Committee would no longer be necessary.
The bottom line for improving Bank accountability, to its own board and to Parliament, should be judged by two criteria. First, does the proposal hold out the prospect of improving the performance of the institution—that is, the quality of public policy? Secondly, does it help secure public consent for the decisions that that body takes? The latter is particularly important for an institution as powerful and as remote, in many respects, as the Bank of England. The Committee believes that new clause 1 would meet both those criteria and I commend it to the House.
Chris Leslie
I thank the hon. Member for Chichester (Mr Tyrie)—or is he right honourable? If he is not, he should be. I thank him for his eloquent and powerful advocacy of new clause 1. The Treasury Committee has done sterling work in trying to cajole and persuade the very reluctant Bank of England to move from the 18th century to the 19th century. If we could speed things up a little through his new clause, that would certainly be welcome. The hon. Gentleman is not exactly asking for the moon on a stick; he is simply asking for the publication to a reasonable degree of the minutes of the court of the Bank of England—shock, horror—and for proper internal scrutiny in the Bank and a review of how it has performed. The hon. Gentleman is entirely correct that it is appalling that the Bank of England has never conducted a review of its role in the 2008-09 crisis. Every other branch of government, including the FSA, has done similarly and I would have thought that such a review would be a pretty basic prerequisite for moving on, especially if we are moving to a new era when the Bank of England will be incredibly powerful thanks to the great news powers that the Government wish to bestow on it.
The Bank of England is an old institution. It started life in 1694 with just 17 clerks and a couple of gatekeepers, and it has subsequently been modernised by a number of Acts of Parliament. It is time, however, for it to become less of an honorific institution. The court should be made up of individuals who really take seriously the responsibility to scrutinise the performance of the executive of the bank, and the hon. Member for Chichester made his points perfectly well. As he says, it is like getting blood out of a stone. Some sort of oversight committee might, as the Minister said in Committee, be able to conduct retrospective reviews. The hon. Member for Chichester is entirely correct that it is ridiculous for only a record of the minutes to be published.
I will support the hon. Gentleman’s new clause, if it comes to it, but I suppose we should wait to hear what the Minister has to say. I shall not dwell on the new clause, though, as the group includes many other amendments which address a range of issues on the governance of the Bank of England and the new regulatory structures, and we have a very short space of time in which to debate it. I have, I think, 11 amendments in the group. I will not dwell on them all; I will focus on the key ones.
David Rutley
There is a sense of déjà vu, as the Bill Committee spent a lot of time debating this measure. The hon. Gentleman talks about what he perceives is the present Government’s blind spot, but the previous Government’s was clearly a regulatory system that was woefully inadequate to cope with the challenges that came its way and was found wanting. What the Bill aims to address is financial stability and to make it a core focus. Why does he want to diffuse the focus at a time when the key element we have to tackle is financial stability? Government policy more generally tackles what he wants.
Chris Leslie
This goes back to the odd statement from the Minister in Committee, when he said it would be wrong for the Bank of England and the FPC to be asked to have regard to the impact of its decision on economic growth and employment. I ask the hon. Gentleman to pause and reflect on what he is saying, which is that it is not the Bank’s and the FPC’s job to think about jobs and growth. If he goes to his electorate and says that that is what he is legislating for, I doubt he will get much of a response, but it is important. The FPC will be a vital player in our economy. The Monetary Policy Committee has this objective in its remit; it seems only reasonable to have it mirrored in the Financial Policy Committee’s remit.
This attitude, which we called the Fareham doctrine of compartmentalism, that it is for the Treasury alone to think about jobs and growth—that it would be wrong and somehow dangerous for the Bank of England to think about such issues too—is an extremely dangerous way to think about this vital and extremely powerful institution. The Chair of the Treasury Committee said that, in certain ways, the Governor of the Bank of England could become even more powerful than the Chancellor of the Exchequer. I want all the players in our economy to be thinking about the impact of their decisions on our constituents, their employment prospects, their business prospects and the prospects of growth.
I think the amendment should be made. It is exceptionally important, and I feel strongly that we should press the matter. In a sense, it is similar to amendment 24. In the Bill, we enter new verbal territory with descriptions of how policy will be made. I know that many Members are intimately familiar with macro-prudential regulation, but essentially, it is that suite of rules and powers that the Bank of England and the FPC will be able to use to intervene in their systemic oversight of the economy as a whole. We suggest simply that every time the Bank of England produces a financial stability report it should give an assessment of the impact that each of the new macro-prudential measures will have on employment and growth—a simple assessment of their impact on the real economy. As the Bill stands, there is no requirement on the Bank of England, when exercising those massive powers, to provide that assessment. As the House knows, in many policy areas, we require frequent regulatory impact assessments to be made; this is a parallel requirement. We want the Bank of England properly to analyse the impact of the measures.
Let me give hon. Members some examples, so that they understand what macro-prudential regulation is. It is about setting maximum leverage ratios; sectoral capital requirements; rules on the terms of or the conditions on a loan, either to businesses or to consumers; loan-to-value ratios and loan-to-income ratios in mortgages; haircuts on secured finances or derivative transactions; disclosure requirements; and minimum credit card repayment levels. All those things are of real and great concern to our constituents. If the FPC and the Bank are able to assess the impact of their policies on credit availability, they should also be able to assess and analyse their impact on jobs and growth. Amendment 24 would achieve that.
David Mowat
I thank the shadow Minister for his lecture on macro-prudential tools. I was on the Joint Committee and I certainly did not recommend the inclusion of a growth objective, because I believe that stability and growth are potentially competing objectives. We are passing the Bill because of what happened in October 2008. I was concerned that anything that diluted the absolute requirement for stability might give an excuse for failure, which I did not want to arise.
Chris Leslie
It was the Chancellor of the Exchequer himself who warned against the stability of the graveyard. We have to have joined-up Government and co-ordinated economic policy—I hope hon. Members accept at least that much. It should not be impossible to ask the Bank of England simply to have regard to Her Majesty’s Government’s strategy—not the Opposition’s; obviously, ours would be different—and objectives on growth and jobs. That is all we are saying. We are not saying that that should overrule the broader stability objective of the FPC. It is a simple bit of wiring to make sure that we have joined-up Government and that all the branches of Government talk to one another.
Stewart Hosie (Dundee East) (SNP)
I support the amendment in principle, but surely it should have referred to a range of impacts, in the sense of a fan chart? It is not just macro-prudential tools, of course, but the impact of those with monetary policy, which may change —it may tighten or loosen—and fiscal policy, which may also have the impact of tightening or loosening monetary policy.
Chris Leslie
I accept that. It gets to the nub of the issue. There is no single variable that has an impact like pulling a lever and an economic outcome comes along down the track. A number of factors combine to create an economic outcome. That is why people say it is sometimes more of an art than a science, but in so far as there is an ability to make projections or to measure, that assessment is needed. I hope it could be as sophisticated an assessment as the hon. Gentleman suggests.
Guy Opperman (Hexham) (Con)
I endorse the points made by the Chair of the Treasury Committee. Is it the accepted view on the shadow Front Bench that the promotion of competition is the key objective?
Chris Leslie
We want to see more competition in the financial services sector. That is an important aspect of improving choice and reducing costs for consumers, but essentially the amendments that I have been discussing relate to prudential regulation. I do not think the competition argument necessarily supersedes that.
I agree, and there is cross-party support for this, that we need to improve prudential regulation within our financial regulatory system. There is a degree of consensus in that area, which is why we did not vote against the Bill on Second Reading, for example. The question is how that pans out. The Chair of the Select Committee began his comments by saying that the Bill is defective in a number of regards and needs significant improvement. Amen to that. I agree. That is the problem and that is why I have so many concerns about aspects of the Bill, particularly in clause 5, in respect of the way the Government are choosing to divide up the regulators.
I must move on. Another area about which I have concerns is the Government’s refusal to accept that the Bank of England should be under a duty to minimise the use of public funds—to minimise the recourse to taxpayers’ money—in order to support or rescue parts of the UK financial industry. If we were all to go back to our constituencies and explain what we were doing on Monday, we would say that we had been talking about the Financial Services Bill. Most of our constituents would say, “Good. Does that mean that the taxpayer is not going to be on the line to bail out all those banks again in the future?” and of course we would all want to say yes. That is the whole purpose of what we are supposed to be doing here.
One of the most important things we need in the Bill is a provision to ensure that the system is designed such that any changes or rescue arrangements will not burden the taxpayer in the future. It is important to specify that the Bank of England should take responsibility for minimising that likelihood. It is a pretty straightforward amendment. These should not be partisan issues. That aim should be at the heart of the Bank’s financial stability objective. We know about the costs of bailing out the banks and how those have hit public finances.
Having heard the Minister’s entreaties in Committee, the hon. Members for Wyre Forest (Mark Garnier) and for West Suffolk (Matthew Hancock) and others said that the our earlier amendment was deficient because it would have placed a duty on the Bank of England to minimise the use of public funds. I have thought about that carefully and come back with an amendment that simply requires the Bank to have regard to the need to minimise that. I hope that removes any worry about justiciability, which was one of the arguments upon which the Minister relied to rebut the suggestion in Committee. I do not think it is reasonable to say that it will blur or confuse the issue if we ask the Bank of England to keep in its mind’s eye the impact that any of its decisions will have on public funds. Ultimately, most of our constituents would expect us to legislate today to minimise the recourse to public funds. I hope the Minister will accept the amendment. If not, the other place will return to the issue.
The hon. Member for Chichester pointed to amendment 53 in my name and that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) about parliamentary scrutiny. For this House, it is an incredibly important issue and I know that Members on the Government Benches feel strongly about it too. We are giving the Bank of England extensive new powers that will affect businesses, consumers and our constituents. We still do not know what these macro-prudential tools will be. We had a report from the Bank of England last December intimating that they may touch on certain aspects of loan-to-value ratios, although Paul Tucker, the deputy governor at the Bank of England, said the other day, “This looks like hot stuff. Maybe it’s too hot for us to handle at the Bank of England.” Maybe that is for the Treasury to decide. I think the Bank of England recognises that there is an accountability deficiency. That golden threat of accountability does not lead back to Parliament, as it should.
Mr Hoban
We have spent a lot of time discussing the issue. Does the hon. Gentleman not remember that the power to grant macro-prudential tools is subject to the affirmative procedure? There is a role for Parliament to play. My right hon. Friend the Chancellor said on Second Reading that he hoped that that debate would take place on the Floor of the House.
Chris Leslie
That was a minor concession but, as we can see, we have possibly an hour and a half to debate a major macro-prudential tool—and only the Treasury’s order to enact the power in principle for the Bank, not the actual use of that power by the Bank. That would be delegated to the Bank.
Chris Leslie
I will give way to the hon. Lady as I know she has thought about the matter in great depth.
It is important that we look at the work of the European Scrutiny Committee, for example. As hon. Members know, there is a steady stream of regulations coming from Brussels. Members of the Committee try their best to grapple with those, pick the most important ones and have a debate, albeit upstairs in Committee. When there are important issues, the measure is brought back to the Floor of the House for a vote. Ideally, I would like the Treasury Committee to deal in the same way with the sets of regulations that come on the conveyor belt from the Bank of England, but it has enough on its plate as it is. Perhaps we need a sub-committee of the Select Committee. Some sort of financial services scrutiny committee is required, with the time and space to go through the ramifications properly and thoroughly. Yes, then let the measure come back down under the affirmative procedure, but it is super-affirmative procedure that is necessary. That is essentially what we are doing.
We cannot amend the Bill to affect the Standing Orders of the House. That must be decided as a separate arrangement. What I am doing in amendment 23 is suggesting that there should be a longer period of time to allow the House to conduct its own inquiries into these issues. Essentially, I have cut and pasted the procedure under the Public Bodies Act which was recently passed by the Government, whereby if they wanted to abolish any quangos, the relevant Select Committee should have time and space to conduct its inquiries. That is, I hope, an appropriate way of allowing space for better parliamentary scrutiny.
I apologise to the hon. Lady; I know she wanted to come in.
Andrea Leadsom
I am grateful to the hon. Gentleman. He has probably given me the reassurance that I was seeking. It is not that we do not want the Bank of England to have those powers. In the past a lack of accountability and of central management has led to some of the problems that we saw during the financial crisis. It is not a question of focusing the authority and the powers within the Bank. It is a question of the accountability of the Bank in implementing those powers. Does he agree?
Chris Leslie
Absolutely. That is right. We are not saying that these powers might not be necessary. However, let us say, for example, the Government and the Bank consider it necessary to lean against a consumer credit bubble. They want to change the minimum repayments that our constituents make on their credit cards from 2% a month to 5% or 10%. That will have a big effect on our constituents. Imagine us going back to those constituents when they complain to their Member of Parliament, as they undoubtedly would, and ask, “Whose decision was that?” We would say, “It was the Bank of England’s decision. We voted on this in theory a couple of years ago, but now the Bank has pulled the lever and pressed the button, and this has happened.” There would be great anger. The public would expect us, at the very least, to have had the opportunity to debate and discuss that in more thorough and substantive detail, albeit in a Committee. That is all we are suggesting in the amendment.
Stewart Hosie
The hon. Gentleman is absolutely right that there would be anger, but there would also be economic consequences. If one of the macro-prudential tools invoked was a change in sectoral capital ratios, which impacted to ration mortgages, and there was a 60-day consultation period, the impact in the market, either with deals being rushed through or deals being abandoned, might be as bad. Has he considered the downside of putting such information into the public domain for such a prolonged period?
Chris Leslie
I did indeed consider the downside of having parliamentary scrutiny that might in some way impact adversely in an emergency scenario. We have not sought to amend the provision that would allow the Treasury to bring forward those orders in an emergency situation. It could do that. We could have retrospective scrutiny of that order once it had come into place. These are for ordinary, normal times scenarios. The amendment may be imperfect. I would have liked a proper way to deal with the issues, but there has been significant resistance along the way for such measures.
Chris Leslie
I totally agree with the hon. Gentleman. That is the very least that we should have. I simply counsel the House that many hon. Members are already under significant pressure because of the European rules and regulations that seem to come from an unaccountable place. It is not entirely unaccountable, but it can sometimes feel that way to our constituents. If we end up with a situation where we do not put in place at this stage the right parliamentary scrutiny arrangements, we are potentially opening up another front where a powerful institution, unelected and seemingly very distant from our constituents concerns, could have a major impact on their day to day lives, and we would be sitting here twiddling our thumbs unable to do anything about it, never mind even to debate it. We have had debates in the past on the retail distribution review and other examples where there has been massive frustration in the House about the lack of an accountability thread between parliamentarians and regulators. That would be magnified many times over if we did not put in place the right arrangements.
Chris Leslie
In certain circumstances, Parliament should be sovereign. That is an important principle in our constitution. I do not think that regulators should be able to override Parliament, if that is the Minister’s suggestion. I am pretty sure it is not. Ultimately, in certain circumstances, Parliament should be able to make the final decision. That is an important cornerstone of our constitution.
Alun Cairns
It would helpful if the hon. Gentleman could outline some of the circumstances in which Parliament should overrule the regulators.
Chris Leslie
It is entirely hypothetical. Of course we cannot do that at this stage, but there might be circumstances. I will remember the hon. Gentleman’s intervention for the many years that he will be in Parliament for when the time comes, if it comes, that he disagrees with a particular outcome of a regulation as it affects his constituents.
Amendment 35 talks about the impact of many of the changes within the regulatory system on consumers, particularly those on lower incomes. We believe that the FCA should have enshrined in its objectives a commitment to consider how easily consumers are able to find products that are appropriate to their income, and more broadly, products that provide value for money. In difficult times as incomes are squeezed it is right that consumers feel that they have a regulator that is on their side. If we are creating a genuine consumer champion in the FCA, it is important that it has a set of objectives and values that reflect that, particularly for those on the lowest income. It is a similar argument to that made in the previous group of amendments in respect of the Money Advice Service. We have seen excessive overdraft charges, high interest rates, and charges for hidden services. Those require a genuine consumer champion and this amendment would help to create that.
Amendment 36 would also shift the balance in favour of the consumer. It would introduce what is known as a fiduciary duty of care by authorised persons, by financial services providers, towards the consumers who are their clients. “Fiduciary” means holding in trust, holding in good faith, a concept that would help to rebuild confidence among the public in financial services. There is a serious lack of trust at present that is bad for consumers, providers and society at large. The Bill contains no explicit obligation on firms to avoid conflicts of interest, nor to profit at consumers’ expense without their knowledge and consent, nor to have undivided loyalties and duties of confidentiality to the customer. The pre-legislative scrutiny Committee commented on many of these aspects and recommended that some action be taken. Although the FSA has recently had its treating customers fairly initiative, we do not think that that is enough. We believe that a fiduciary duty of care is necessary, especially in the light of some of the major concerns of mis-selling scandals and the need to learn lessons from those.
Amendments 33 and 34 relate to the costs and expense of establishing the FCA and PRA, splitting the FSA into those component parts. I apologise for rattling through these. We have to minimise unnecessary additional expenses incurred, because ultimately the consumers will pay. The FSA’s budget for 2013-14 has gone up by 15.6%. I accept that the new regulatory system will have some costs involved in that, but the majority of those costs are operational and not necessarily related to the principles of regulation involved. It was a bit of a joke to see in the White Paper the Government say that the running costs under the new arrangements should not be “materially different” in real terms and aggregate from the current FSA. That will not happen. We are talking about extremely significant extra costs.
We suggest that the memorandum between these organisations should contain an estimate of the annual costs involved in administering the FCA and PRA, and compare those to the estimated costs of the administration of the FSA. That is a bit of a crude way of getting a cost comparator, but I would be interested in seeing it. Similarly, amendment 34 talks about minimising the
“unnecessary additional expenses that might be incurred by virtue of the separate administration of the FCA and the PRA, and to maximise any common administrative savings achievable through close co-ordination.”
The PRA is moving to plush offices in Moorgate, leaving vacant space at Canary Wharf, a lease that expires way down the line in 2018. There is a sense in which there is a bit of empire building going on at the Bank of England, which will be responsible for the PRA. The Threadneedle street empire is growing strongly.
Sheila Gilmore
Will my hon. Friend also give some thought to those organisations that will be dual regulated and the additional costs that might be incurred?
Chris Leslie
That is why it is important that at the very least they have information, and some level of accountability, about the likely costs of this tangle of regulatory structures for them. The Association of British Insurers has voiced its concerns about the costs of the new regulatory system and it is important that we at least know from the Minister exactly what those costs will be. He skirted around the issue in Committee. Even when I asked the cost of the new building for the PRA next to Threadneedle street he said that that might be commercial in confidence. If he can help us with that I will be grateful.
The hon. Member for Chichester also spoke about publication of the minutes of the Bank of England’s court of directors. Amendment 27 seeks to introduce exactly the same for the FCA. If the FCA is to be a consumer champion, at the very least consumers should be able to see what is being discussed, who—potentially—is discussing it and, most importantly, what the nature is of the dialectic and discussions going on in its board. The Financial Secretary said in Committee that that will be a matter for the FCA, even though he could not really argue against the transparency principle, but he did promise that he would think about it. I saw a chink of light at the time and thought that publication of the FCA’s minutes was a simple concession that we might get in the Bill. I hope that he has had a chance to reflect on that.
Amendment 39 relates to the relationship between the new regulators and the European supervisory arrangements. We might think that all these decisions on regulating credit, businesses and financial services are for us to take domestically in the UK, but I am afraid that 80% of the regulatory decisions are in fact taken in Brussels by the European Commission. Commissioner Barnier has his pipeline of proposals, which is very much the driving force behind the regulatory arrangements. Some of those are good changes, but nevertheless many people feel that the UK’s domestic regulators are there merely to transpose what is decided further up the chain, and that is of concern. Therefore, we want the regulators to be fit for purpose and able properly to influence and steer some of the policy decisions that are taken in Brussels.
Chris Leslie
I was just coming to my conclusion and am conscious that other Members wish to speak, so I will not give way. I simply urge the House to vote for the amendment in the hope that the House of Lords will improve clause 5.
Mr David Ruffley (Bury St Edmunds) (Con)
I rise to support new clause 1 briefly. I had the privilege of sitting on the Joint Committee on the draft Bill and of being a member of the Treasury Committee, which is chaired by my hon. Friend the Member for Chichester (Mr Tyrie)—colleagues have noted that he is not a Privy Counsellor, but as far as many of us are concerned he is right honourable in spirit.
The main purport of new clause 1 is to establish a duty on the court of directors to conduct retrospective reviews of the Bank’s performance. The Governor of the Bank of England, in giving evidence to the Joint Committee and the Treasury Committee, has argued that it would be a bad idea to have a review into anything other than the processes by which certain policy decisions are reached. In other words, he does not want there to be a duty on the Bank to scrutinise retrospectively how good its decisions—meaning the decisions of the Financial Policy Committee or the Monetary Policy Committee—turned out to be. One of the reasons he gave was that there are lots of external commentators, such as outside economists in the City and the commentariat in the fourth estate, but it is fairly obvious that those entities are under no statutory duty to crawl through every decision of the FPC or the MPC and decide with hindsight whether they were good or bad.
The second reason the Governor gave is that the Treasury Committee holds the Bank to account, a point alluded to by the hon. Member for Nottingham East (Chris Leslie). The Treasury Committee, packed with talent though it is on a yearly basis, still has a huge amount of work to do and, not for the want of trying, does not have the amount of technical expertise or the number of macro- and micro-economists needed to conduct work month after month, tracking back and looking at how good or bad the judgment calls of the FPC, as constituted by the Bill, and the extant MPC turned out to be. My word, don’t we need such backward-looking analysis? If it had been present in 2007 and 2008, we might have avoided the difficulties of which we are all too well aware.
The Bill gives the Bank of England unprecedented powers. As a result of it, we will have a Governor of the Bank of England, whomever he or she is in the future, who will be chair of the Monetary Policy Committee, have a place on the court of directors of the Bank of England, chair the Financial Policy Committee and chair the Prudential Regulation Authority. With the creation of the FPC, alongside all the work that the Bank does on monetary policy, a lot of decisions are going to be made.
Not since the creation of the Bank of England in the late 17th century has its senior management and Governor had so much power, and, from even a cursory glance, the Joint Committee’s evidence and the evidence taken by the Treasury Committee in recent months all leads to one thing: one cannot have enough scrutiny of this big beast that the Bank will become as a result of the Bill coming into force.
The Treasury Committee argued forcefully for a severe new set of accountability and scrutiny powers. We advocated the creation of a new supervisory body inside the Bank of England in order to replace the court of directors, because the court, as everybody knows, is packed full of amateurs—well-meaning amateurs, but people who simply are not, by any stretch of the imagination, able to hold the Bank of England’s senior executive members, who are on the MPC and will soon be on the FPC, to account.
The court includes has-beens in the City, or “never-was’s”, and people with indifferent reputations in the trade union movement, in manufacturing and in all aspects of public policy. But the evidence shows that remarkably few of them have any expertise in central banking matters, in fiscal policy, in macro-prudential policy or in monetary policy. The court is desperately under-geared, and its intellectual horsepower is not what it should be.
A supervisory body, with a majority of external members, overseeing the FPC’s and MPC’s judgments and undertaking retrospective reviews is the best-case scenario; it is what the Treasury Committee thought would be the best solution for scrutinising this very powerful—all-powerful, I might add—Bank.
I understand why Ministers have concluded that they do not want to go into battle with the Governor and the senior executives about a supervisory body, because it is way too radical, but it is absolutely incumbent on this House to look at the purport of new clause 1 to see that it actually imposes more scrutiny than the Bill currently provides on the policy decisions of not just the MPC, but the FPC. Let us not forget that the MPC has recently acquired, or arrogated to itself, certain very significant discretionary powers over monetary policy—not in setting the bank rate, but in quantitative easing.
How many debates have we had in this Chamber about QE and its merits or relative de-merits? The answer is relatively few. The Monetary Policy Committee is held to account only by the Treasury Committee. It is my suggestion that the Treasury Committee, marvellous and wonderful though it is—I am a member of it, so I would say that—will need the assistance of ex-post reviews to look retrospectively at the quality of the decisions that the Bank, with its new powers, makes. I therefore urge colleagues to support new clause 1.
Mr George Mudie (Leeds East) (Lab)
I congratulate the Chairman of the Treasury Committee on new clause 1. I disagree with what was said about him becoming a right hon. Member. In my experience of this place, somebody as independent and straightforward has little chance of becoming right honourable.
On a more serious note, I follow my colleague on the Treasury Committee, the hon. Member for Bury St Edmunds (Mr Ruffley), in saying that the Minister would be well advised to accept the amendment or to indicate that further thought will be given to it. I agree with my colleague that the amendment could and should have been much harder. The problem is with the behaviour of the court of the Bank of England. It is not that it has not been given power; it is that it has accepted the boundaries and the servile role imposed on it by the Governor and the executives of the Bank of England. As I have said in this Chamber and as has been said to the Treasury Committee in all but terms, the court is allowed to count the paperclips, but that is about it. Anything serious or to do with policy is nothing to do with it. If its members had any dignity or self-regard, they would not be part of it, because apart from receiving a nice little stipend for going, one wonders what on earth they do.
The discussion in the Treasury Committee, and even in the Joint Committee on the draft Financial Services Bill, has been about bringing the corporate governance of the Bank of England into the 21st century with a proper board, and about stopping it being the fiefdom of one person. If I were the Minister, I would accept the new clause in spirit and say that I would speak quietly to people about it to strengthen the proposals and move on. He could well find himself having a much stronger position forced upon him, which would be good for the Bank of England in the long run.
I congratulate my hon. Friend the Member for Nottingham East (Chris Leslie) on amendments 22 and 23. I will deal with them briefly because many Members want to speak. This is not a political point, but the response to those amendments from Government Members is interesting, because my hon. Friend has raised a matter that deserves discussion and thought. The powers being given to the Financial Policy Committee will affect people, industries and firms, and there must be accountability. The problem arises from the fact that there is no consensus on the definition of financial stability, but the House is setting up a Financial Policy Committee, the objective of which is financial stability. The Chancellor of the Exchequer raised the most pertinent point before the Joint Committee, which was that although we do not want it to, the FPC could define financial stability as the “stability of the graveyard” and reach it. My hon. Friend the Member for Nottingham East raised that point today.
If the FPC had the responsibility for making the definition and wanted to do it without much fuss, it could set the required level of economic activity so that it neither pressed the ceiling nor went through the floor, but would that give us the growth and employment that the Government might want? Should not the FPC be asked to work towards the Government’s policy, whichever party is in government?
David Rutley
I know that the hon. Gentleman is very knowledgeable about these matters and was on the pre-legislative scrutiny Committee, but has he not seen that proposed new section 9C(4) in clause 3 contains some clear wording about what the FPC should do? It states that subsections (1) and (2) of that proposed section do not
“authorise the Committee to exercise its functions in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy”.
The matter is addressed, so what does he want in addition to that, and why does he feel the need for more?
Mr Mudie
I accept that point, which has been made clear all the way through, but that is negative language rather than positive. Instead of telling the FPC, “In carrying out your duties, you mustn’t adversely affect growth”, I would rather put it to work with the MPC on ensuring that we have a buoyant economy with steady, acceptable growth and employment levels. At the moment, apart from the negative words that the hon. Gentleman quotes, all we have is the requirement of financial stability.
The hon. Gentleman was with a number of colleagues here on the Treasury Committee. We go through accountability with the MPC. It is bad enough trying to get the Governor of the Bank of England to be accountable even when he has a named target; what would he be like, or what would a future Governor be like, when he came before the Committee to which he was accountable and only had to defend his actions on the grounds of financial stability, which cannot be defined? It is a case of the emperor’s new clothes. There really should be a joint mandate, with a definition of financial stability and an acceptance of the Government’s picture of growth and employment.
Kelvin Hopkins (Luton North) (Lab)
I agree with very much of what my hon. Friend says. When the Bank of England was given its independence—so-called—I thought that if it started to fly in the face of what was obviously sensible for the economy, a Government might choose to take that independence back to the Treasury and into the hands of the Chancellor. If the Bank is not sensible in respect of managing the economy as a whole, is it not possible that a Government might choose to take back that independence and operate policy from the Treasury?
Mr Mudie
One can see many scenarios. I have seen many political philanthropists since I have been a Member of Parliament. I worry because they come to the House as politicians, but seem not to want to do anything or take any responsibility. They have offloaded power to quangos and agencies, and gave independence to the Bank. The real question is why are the Chancellor and the Treasury sitting back and watching their ground—sensitive economic ground—being given away to a quango, an unelected bunch of people? Under the Bill, those people can take the remit and the guidance on it, which the Treasury sets, and say to the Treasury, “We don’t agree with you,” and that is that. That is the situation we are reaching on accountability and responsibility despite the worry about giving away powers.
On amendment 23, some hon. Members were hard on my hon. Friend the Member for Nottingham East, although it is not as if he cannot defend himself. The Government’s original proposition, which was put out for consultation, included macro-prudential tools, which, as hon. Members have said, are highly sensitive and powerful. One aspect of the proposal they have given up because of its sensitivity—I am going by what has been in the papers in the past few days—is the ability to interfere in the mortgage market on loan-to-value and similar matters. What happens if the unelected Financial Policy Committee starts leaning against the wind in a way that affects large numbers of people, and there is no way of talking to it or affecting its position?
The Government’s original proposal was that decisions on macro-prudential tools would go upstairs to the Committee Corridor as statutory instruments—secondary legislation—for a 90-minute debate on a measure that would not be amendable. All hon. Members know what happens upstairs. The Minister talks for an hour, the shadow Minister talks for 25 minutes and we all go home, with the measure voted through by the Government majority. That happens with Governments of all parties. The way secondary legislation is dealt with in Parliament is an absolute disgrace. We can excuse a lot of it, but matters as important as the ones we are discussing, it is scandalous.
To be fair to the Chancellor, I raised the proposal with him when he first introduced it and asked him to look at it again because of its undemocratic nature. I am pleased that the line has softened, but there is more talking and work to be done. If hon. Members are asked to give away powers that affect our constituents so directly, it is important for us to be absolutely sure that we have had the opportunity to at least have our say in the strongest possible terms and ones that might allow the regulator to think about what has been said, although it is not for us to take its take its job.
A Government Member attacked my hon. Friend the Member for Nottingham East and asked him whether he would interfere with a regulator. We had that situation when the Treasury Committee discussed the retail distribution review with the chief executive of the FSA. We said to him, “This Committee feels strongly about this matter. We’ve had a lot of press about it and a lot of pressure, and we’d like you to think again.” He replied, “No, we won’t think again, unless you give me evidence.” The Treasury Select Committee giving evidence to the chief executive of the FSA—what arrogance! My hon. Friend the Member for Nottingham East is doing the Government a favour. They might not agree with the detail of the amendment, but the spirit is that we give the House every opportunity to comment on, think about and be aware of the powers we give to individuals that might affect our constituents.
Mark Garnier
It is a great pleasure to follow the hon. Member for Leeds East (Mr Mudie), with whom I serve on the Treasury Committee. It is interesting that I am the fourth consecutive Committee member to speak.
The House will not be surprised to hear that I rise to speak to new clause 1, tabled in the name of my hon. Friend the Committee Chairman, under whom it has been a great pleasure to serve. He is a very forensic Chairman of a Committee doing some extraordinarily good work at a time when it could not be more important—when we are facing some of the most fundamental problems in the economic world and when it is incredibly important that we do something significant about financial regulation. There is no doubt that something needs to be done. We have had a problem with a system of financial regulation that failed to address the problems with the banks, and the Bill travels a huge distance in trying to resolve those problems and come up with a robust new regulatory framework.
Having been a compliance officer under not one but three regulatory regimes—the Securities and Futures Authority, the Financial Services Authority and the Securities and Investment Board—and, prior to that, a regulated dealer on the floor of the stock exchange under the old stock exchange rules, I have had a fair degree of practical experience of financial regulation. Furthermore, in the past 18 months or so, I have, with the rest of the Committee, spent a huge amount of time scrutinising and studying the draft recommendations for the Bill. I also spent some 50 hours, in the Bill Committee, with the hon. Member for Nottingham East (Chris Leslie), who waxed lyrical and at great length—and with great intelligence, I might add; and here we are on the Floor of the House talking about the matter yet again.
A number of things in the Bill are not ideal, but the one surgical cut that would have the most effect would be new clause 1. The Bill contains perhaps the single most fundamental change that we will see in financial regulation—the creation of the Financial Policy Committee. We have heard a lot about the FPC. One of the criticisms is that it could make profound changes to our financial system in trying to deal with financial instabilities, with bubbles that seem to be growing and all the rest of it. We can speculate ad nauseam about the type of interventions that could be made, but the one that people talk about a great deal is where the FPC may, with one of its tools of direction or recommendation, direct banks to change the loan-to-value ratios on mortgages. That could have far-reaching effects for our constituents.
Mark Garnier
I am grateful to my hon. Friend for that clarification. Interestingly enough, though, it is perhaps one of the powers that the FPC should have kept. Although it could have profound effects for people moving and so on, it is incredibly important not to lose sight of what others issues the FPC is there to address. In the past, as bubbles have grown, Members have sometimes been reluctant to take away the punch bowl before the party is over. Sometimes, when we allow bubbles to get bigger than they should be, the result is a financial crisis of the kind that we have seen. There are many things, on an analysis of the financial crisis, that could have happened, but one of them was allowing a colossal asset bubble to grow against uncontrolled lending. If a Member of Parliament or the Chancellor of the Exchequer had turned around in 2007 and said, “We’re going to stop that,” there would have been an absolute outcry. However, if the FPC had done that, it would have been acting without the worry about what would happen at the next general election, and perhaps we would have avoided the problem. It is for that sort of intervention that the FPC is being created.
Bob Stewart (Beckenham) (Con)
What happens when the FPC gets things wrong? How will it be held responsible for the decisions it makes?
Mark Garnier
I am grateful for my hon. Friend’s intervention, because that is exactly the point I am coming to. What is the accountability of the FPC? Ultimately, it has to come down, in some way, to the court of the Bank of England making an intervention to assess what is going on.
As we have discussed, the FPC will have far-reaching powers to intervene, some of which we may never know about. Some might be restricted to a 30-year rule, so we might hear about them in the future, although an awful lot may well be published. However, it is incredibly important that we look at what the Bank of England does to supervise. Currently, the court of the Bank of England is responsible for administrative matters, as we have heard—it is responsible for pay and rations. What we on the Treasury Committee want is the Bank to have a proper board—probably with a new name that reflects its updated role, although I do not think that will happen. We recommended that it should have a majority of external members who must have the relevant skills and experience, and the Treasury Committee wants the court of the Bank to be able to conduct—this is an important point—retrospective internal reviews of policy decisions of the Bank. The Bank’s response envisages limiting that to commissioning external reviews or conducting internal reviews only of the decision-making process of the Bank.
The creation of the FPC—on which my hon. Friend the Member for Beckenham (Bob Stewart) intervened on me—makes this governance issue incredibly important. As we have heard, the Monetary Policy Committee has just two tools: quantitative easing and interest rates, which it uses openly and publicly. We see detailed minutes of the meetings, followed up by evidence sessions by the Treasury Committee, which is also part of an incredibly important scrutiny process, which is fully transparent and very simple. However, as we have heard, the FPC has a large range of tools at its disposal, which means that it might not be able to give a full and open account to the Treasury Committee or publish entirely transparent minutes. Moreover, as I have said, it might be years before we know what intervention has been made. That is why we need an organisation that can intervene to look at what the FPC is doing and take on a strong governance responsibility.
That is why the court of the Bank of England needs to be able to look at the merits of the FPC’s policies and not just the method. The Bank’s board must not be restricted to finding out whether the wrong decisions were made but in the right way. That is why I would be incredibly grateful if the Minister gave serious consideration to new clause 1.
John McDonnell
I am not part of the charmed circle of the Treasury Committee, but I wish to add my congratulations to the hon. Member for Chichester (Mr Tyrie) and the members of the Committee on the work they have undertaken in examining the Bill as it has gone through the House.
I have tabled amendments 46, 47, 49 and 50, which seek to enhance the Treasury Committee’s role in the appointments of the Governor and deputy Governors of the Bank of England, and the chair and chief executive of the Financial Conduct Authority. I have done so because the background to this legislation is perhaps the most catastrophic failure of the Bank of England and the financial regulatory authorities that we have seen in 70 years. Their failure to predict or intervene effectively to ensure that the financial crisis was averted or dealt with adequately, speedily and effectively is there for all to behold. It has brought this country to its financial knees and into a recession that is turning into a depression, which is something we have not seen since the 1930s. The reasons for that have been evidenced today. New clause 1 would address part of the issue—namely, the lack of transparency of the old regime—but another element was the lack of accountability.
This legislation will create, in the Governor of the Bank of England, one of the most important roles in the country. The Financial Times editorial of Thursday 19 April stated:
“The central bank governor is not just some technocrat, but the most powerful unelected official in the country. His role has become more political since the crisis, not less, and will be even more sensitive when the BoE acquires new powers to avert financial crises. The next governor must win public acceptance and possess sharply honed political antennas. This might be harder for a foreigner.”
That last comment refers to the speculation about some of the candidates that the Government are considering.
In today’s Financial Times, the shadow Chancellor sets out his concerns about the range of powers and responsibilities that the new Governor will have, stating that only a superman or superwoman need apply, because the job will be so influential and will have such a wide range of roles and responsibilities. The Treasury Committee appreciated that fact very early on in the game, in its consideration of the new legislation. That is why, way back in November, it recommended that it should have a role in the appointment of this significant post. The Chancellor of the Exchequer argued against that proposition. I find it extraordinary that the Treasury Committee won the right to have a veto over the appointment of the chair of the Office for Budget Responsibility, yet failed to win a role in the appointment of the much more significant post of the Governor of the Bank of England. Indeed, it has no role in the appointment of the deputy governors, and no effective role in the appointment of the Financial Conduct Authority proposed in the Bill.
I genuinely thought that the Government were about to shift their stance on this matter, because, back in November 2011, the Treasury Committee stated strongly that it was not persuaded by the Chancellor’s refusal to grant it a role in the appointment. It went on:
“The power of veto with respect to the OBR was given to ensure the independence and accountability of that body. The Governor of the Bank’s independence from Government is crucial for his or her credibility. Given the vast responsibilities of the Governor, the case for this Committee to have a power of veto over the appointment or dismissal of the Governor is even stronger than it is with respect to the OBR. We therefore recommend that, in order to safeguard his or her independence, the Treasury Committee is given a statutory power of veto over the appointment and dismissal of the Governor of the Bank of England.”
I wholeheartedly supported that view. The Chancellor’s argument was that the Treasury Committee could not have such a role because the Governor was exercising an Executive function and should therefore be a Government appointee. That is an absolutely specious argument.
The legislation to give independence to the Bank of England went through the House, although I never supported it. That means that the Governor has more than an Executive function. The Bank is not an Executive arm of the Government. The Chancellor of the Exchequer and the Government cannot have it both ways. If they support the independence of the Bank of England from the Government, they must establish some other form of accountability to Parliament. If they do not believe that it is independent, and that it is simply an Executive arm of the Government, the Governor will be appointed directly by the Chancellor of the Exchequer. Even if that is the Government’s argument, the Chancellor of the Exchequer is still accountable to the House, so there must be some role that the House can play in advising him on the appointment of this important post.
My amendments would simply reassert the role of the Treasury Committee and thus Parliament itself in this vital range of decisions about appointments to key elements of the new structure proposed by the Government. Let me be frank. I agree with everything said about the role of the Treasury Committee Chairman and I agree that he needs to be called “right honourable” and the all the rest of it, but sometimes people are born great and sometimes people avoid greatness being thrust upon them. I do not know what negotiations went on, and it might well be that the negotiations were along the lines of, “We will not push for a veto on appointment as long as we can get some transparency and thus at least some element of accountability for that post to the Committee itself.” If that was the tenor of the negotiations with the Government—I happily allow the Treasury Committee Chairman to intervene to clarify it—I am afraid that the deal is not good enough.
What needs to be said very clearly by this House is that these are such significant appointments—particularly the Governor of the Bank of England but also the head of the Financial Services Authority in view of its key role in seeking to avoid further crises and in regulating this country’s financial services—that this House must have at least some say over the calibre of these persons.
Mr Tyrie
I can reassure the hon. Gentleman that the report does not reflect any back-room deals, but I would like to ask him a question. I am strongly sympathetic to the approach set out in his amendments. He needs to know that the Treasury Committee intends to hold pre-appointment hearings for these jobs in any case, including for the very senior jobs like that of the Governor, when he is identified. In the unlikely event that a nomination were challenged by the Committee, many would argue that the position of the person, even at nomination stage before he or she took up the appointment, would be untenable. In that case, does the hon. Gentleman not agree that the sensible thing for the Government to do is to engage with Parliament and with the Treasury Committee a little earlier in the appointments process?
John McDonnell
I wholeheartedly agree, but sometimes in relationships with the Government a line is drawn in the sand, which makes the right of veto sometimes crucial, particularly if there is a bloody-mindedness in the direction of policy making by the Chancellor when it comes to appointments to key posts. Although I take the gist of the hon. Gentleman’s argument and can see how the Treasury Committee could create a climate of opinion or produce a report that influences the appointment in a way that makes it impossible for a person to take it up because of the lack of credibility, I think there needs to be an even stronger role for the Treasury Committee and therefore Parliament in all these matters.
This is a crucial opportunity missed in respect of the Treasury Committee’s ability to influence the Government; in respect of the Government’s ability to demonstrate to this House a greater openness when it comes to the transparency of the operation of the Bank of England and of the new regulatory authorities; and in respect of the Government themselves in how they make appointments to these crucial positions.
Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)
Does my hon. Friend agree that this is not just a matter of the relationship between the Government and this House, as it also relates to the relationship between the Government and the public? As we move into a period of austerity, if there is not sufficient accountability for the sorts of measures the Government view as necessary, it creates political instability. People do not see where the accountability lies for some of the austerity measures that are coming—not just in this country, but across Europe.
John McDonnell
That is exactly the point I am seeking to make. This post will have wide responsibilities and the decisions taken will have immense ramifications for the country as a whole and for all our constituents. Because of the unique role of the Governor of the Bank of England, the individual will be subject to public scrutiny in a way that a Bank of England Governor has never been under scrutiny before. I think he will become an individual in whom people must have confidence. I have to say that I have some anxieties about some of the names being bandied about at the moment, such as the appointment of a former member of Goldman Sachs, a company that does not have a particularly distinguished record in relation to the operation of economies throughout the world before and after the financial crisis.
Mark Field
It is a pleasure to be part and parcel of such an interesting debate. I especially commend the speech of my hon. Friend the Member for Chichester (Mr Tyrie). The hon. Member for Nottingham East (Chris Leslie) also made a thoughtful contribution, which covered a range of issues. As he said, it is regrettable that much of the real scrutiny of the Bill will be carried out in the other place, partly because of the guillotine but also because of the way in which votes on amendments are driven through here. I do not think that that reflects at all well on the House of Commons, which should be a place for genuine scrutiny rather than one that railroads Bills through their stages.
I do not go quite as far as the hon. Member for Nottingham East does in amendment 28. I do not think that we should get rid of clause 5 altogether. However, there is little doubt that the regulatory changes proposed in the clause, and the creation of the new supervisory architecture, will do little to address some of the significant risks that currently exist in the market. I say that as someone who speaks to practitioners every day in my role as Member of Parliament for the City of London.
A central issue is the ability of the FCA to carry out prudential regulation of firms that have sizeable assets and, often, complex structures. The recent failure of firms such as MF Global, Arch Cru and Keydata—all of which would have been prudentially regulated by the FCA—demonstrates the need for firms that have sizeable assets and are engaged in complex activities to be properly managed. One outcome of the failure of those firms has been that the liabilities of other UK businesses to the financial services compensation scheme are increasing in line with larger payouts to UK consumers. A wider effect has been that smaller and more innovative companies which, by their very nature, have less capital available to pay compensation on behalf of other firms face increased risk and rising costs. That will ultimately erode the attractiveness of London and, indeed, the UK as a venue for financial services businesses.
The FCA will not be a specialist prudential regulator. The experts will be located in the Prudential Regulation Authority, and it will be important for the FCA to work closely with the PRA to ensure that complex firms within its scope receive an adequate quality of prudential regulation. It is therefore crucial for the Bill to contain adequate safeguards and assurances that robust information-sharing agreements will exist between the two regulators. That important detail is lacking in both the Bill and the draft memorandum of understanding.
The Government should provide greater protections in clause 5, specifically in regard to the relationship between the FCA and the PRA. That would enable the two regulators to share information on systematically important companies to ensure that the PRA could make a judgment on whether they needed macro-prudential regulation. A key question is whether the FSA has learned from the problems of Lehman Brothers and the events of the past three and a half years or so. Despite the financial crisis, the FSA has failed to adjust the manner in which it supervises firms. The Turner review, published in 2009, provides a detailed analysis of the causes of the economic crisis and the areas of the financial and economic system in which the FSA and other, global regulators failed to identify growing problems.
The review promised a new philosophy of regulation that it describes as “intensive supervision”. That amounts to a huge number of new initiatives and commitments: a significant increase in the resources to be devoted to the supervision of high-impact firms; an increase in the resources devoted to sectoral and firm comparator analysis; investments in specialist skills, with supervisory teams able to draw on enhanced central expert resources; a much more intensive analysis of information relating to key risks; and an investment in specialist prudential skills.
Three years on from the publication of the Turner review, the FSA has increased the number of conduct interventions, a proportion of which have not involved consumer detriment—for example, in client asset and financial crime cases—but it has not been able to prevent the failure of a number of non-systemic companies.
The most worrying feature of what is going on at present, with the collapse of MF Global, Arch Cru and Keydata, is that under the new regulatory system they will all be prudentially managed by the FCA. It is set to be a competent financial conduct regulator, but it is no secret that it is not an expert prudential regulator. The prudential experts will all be located in the PRA. That is fine when the firms that are prudentially regulated by the FCA are small and relatively straightforward with few systemic risks, but none of the three firms to which I have referred can be regarded as small or straightforward businesses.
We are going to hear a lot more about MF Global in this House in months and years to come. It was involved in complex transactions as an intermediary on a range of financial products. The estimated gap owed by MF Global to futures customers is as large as $1.6 billion following bankruptcy. The total cost for MF Global UK has been estimated in the region of £600 million, and about $1 billion of client money remains locked in other financial institutions according to its administrators, KPMG. The total liability to consumers when Arch Cru collapsed was some £100 million, and a £54 million financial redress scheme was agreed between the FSA and the other professional organisations, Capita, HSBC and BNY Mellon.
David Mowat
I completely agree with my hon. Friend’s comments about MF Global and the fact that we did not learn quickly enough the lessons of that or of Lehman. Is there not one major aspect, however, that the Bill does not address particularly well, perhaps because it cannot: the fact that the regulation of such firms must mirror their organisational structure, which is international? Neither the FCA nor the PRA, nor any other regulatory body, can do that without much more effort being made.
Mark Field
I do not disagree with what my hon. Friend says. However, the special administration in respect of MF Global—which, as I have said, will be high profile in years to come—seems to be considerably better organised in every other jurisdiction than it is in the UK. That is doing great damage to the reputation of the UK as a destination for financial services.
Following the failure of the firms to which I have referred, the Financial Services Compensation Scheme has announced it will need to raise an additional £60 million in the investment intermediation sub-class, resulting in rising costs for firms in that category, and in the coming year both MF Global and Arch Cru will, I fear, generate further liabilities of some £600 million or more.
Alun Cairns
My hon. Friend is making very forceful points, especially on the FSCS. As that is currently funded by the industry itself, and given that the FCA cannot have detailed knowledge of the workings of every product, does my hon. Friend agree that in order to ensure that there is adequate protection, the FCA must work with the industry and accept the intelligence that comes from it?
Mark Field
My hon. Friend is absolutely right about that.
I want to touch on the impacts, however. Smaller firms dominate the advisory and investment sector, and they clearly do not have the capital available to make the sizeable pay-outs that are an integral part of the scheme on behalf of other companies. The larger banks are present in most major financial centres, but it is the success of innovative smaller companies that marks out Britain’s financial services industry, or at least has done hitherto.
I am aware, as I have spoken to this company in recent days, of a FTSE 250 firm whose costs have risen by 270% under the compensation scheme, year on year, from 2009 to 2010. That includes some £4.7 million of interim levy costs for Keydata, a current cost of £470,000 for MF Global—again, I fear that that is an interim cost—and some £700,000 for Arch Cru. The company had predicted that its total cost for MF Global could end up being as high as £9.5 million.
This situation is an enormous concern. Firms are facing increased liabilities through the compensation scheme and the future structure of the supervisory regime does not suggest that prudential regulation of these firms is likely to be improved. This matter should be addressed in this Bill, as the FCA will not be a specialist prudential regulator. As I say, the experts are located elsewhere, so it is crucial that the Bill contains adequate safeguards and assurances that robust information-sharing schemes are to be put in place between the two regulators.
I briefly wish to discuss my new clauses 2 and 3, which seek to amend section 166 of the Financial Services and Markets Act 2000. Section 166 sets out arrangements for a report by a skilled person, and the whole section urgently requires changing. The FSA has the power to insist on an investigation without determining who does it and without paying for it. The result has been that too many recent section 166 reports have cost the players in the financial services market huge sums, without producing anything of great value. Under the current regime, firms are guilty until proven innocent, and they have to pay for their own prosecution, regardless of whether guilt is proved or not.
The number of section 166 reports has, perhaps understandably, risen dramatically since the 2008 financial crisis. Nevertheless, such reports are increasingly used as a standard regulatory method, rather than being reserved, as they should be, for the most serious cases. They are becoming a phenomenally big burden on hard-pressed small firms. The costs can run into hundreds of thousands of pounds in each and every case, and companies often cannot recoup the costs, even if there is no evidence of wrongdoing.
I know that others wish to speak, but I just wish to put on the record the breakdown of the cost of section 166 reports. As I say, this is now an issue of major concern. In 2006-07, there were just 18 such cases, at a cost of £3.8 million. That number increased to 29, 56, 88 and 95 cases respectively for each of the four succeeding years, with the costs increasing from £3.8 million to £32.2 million for the year 2010-11. It is essential now that the FSA, which has not previously selected skilled persons to have a direct line of accountability, changes its whole approach on this matter. There is much more that I would like to say and I am sorry that time is so limited this evening. I hope that this matter will come back for further scrutiny, although I am afraid that that will be in another place.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Quite a few more hon. Members wish to speak and the Minister wants to come in at 9.40 pm, so if we could help each other, I would be grateful.
Mark Durkan (Foyle) (SDLP)
I wish to join others in acknowledging the strong case that members of the Treasury Committee have made on the issues addressed in new clause 1. Like others, I do not think that new clause 1, in itself, goes far enough in resolving some of the Bill’s deficiencies, but it is a commendable effort.
As we are dealing with a number of proposals that appear on the amendment paper under the heading “Governance of the Bank of England and the new regulatory structure”, there is a danger that we might make the mistake of thinking that all the provisions are about issues inside the beltway; we may think that they are all about parliamentary influence, scrutiny and the relationships between the Financial Policy Committee, the Bank of England and the Treasury and so on. Of course, as we heard in the remarks made by the hon. Member for Nottingham East (Chris Leslie), many of these provisions touch directly on issues that we thought we were discussing in the previous grouping in relation to consumer protection and the consumer interest.
I wish to discuss a number of the amendments in this group that I have tabled, particularly new clause 13. It is aimed at dealing with what seems to be a fairly gaping loophole in the Bill and relates to provisions in clause 25, on page 108, and the regime for consolidated supervision of the parent undertakings of financial institutions. The provisions in the Bill as they stand would mean that the only parent undertakings that will be regulated under consolidated supervision are those that were deemed to be financial institutions, whereas those that were not deemed to be financial institutions would be immune.
Guy Opperman
It is a pleasure to speak in this debate, albeit briefly. Like Mark Antony in “Julius Caesar”, I come to praise the Bill, not to criticise it. I accept that the Government are all honourable men and women, but so, it might be reasoned, are the members of the Treasury Committee, who are also honourable men and women, advancing a slightly contrary view.
I support the fundamental ethos of clause 1 and welcome the review of the performance of the Bank of England. I certainly do not support Opposition amendment 28, which would remove clause 5; that would be entirely wrong in the present circumstances. I speak as a critical friend of the present system and as the secretary of the all-party group on the Arch Cru Investment Scheme, which is seeking to recover compensation for the thousands of men and women in this country who have lost their lifetime savings. What happened to them is manifestly wrong, and anything that this House can do to strengthen the regulatory system to prevent such disasters, I welcome wholeheartedly.
I speak also as an MP who, almost every week, has a constituent come to me saying that they are unable to obtain bank lending and finance. That is because of the lack of competition in the present banking structure—an issue that is raised regularly. I urge the House to embrace greater competition and to open up the market to competitors to the existing large banks, which will be in a position to provide the bank finance sought by businesses up and down the country.
The other end of the telescope must also be addressed. At present, we have the large banks, but there are no small banks. Germany and America have local banking structures that work tremendously positively: individuals can set up local banks, which provide for a community purpose above all else, which is manifestly a good thing. That is why I support wholeheartedly the competition objectives set out in new section 1E of the Financial Services and Markets Act 2000, inserted by clause 5, which states that there should be an emphasis on
“the ease with which new entrants can enter the market, and…how far competition is encouraging innovation.”
I have met the chairman of Metro bank, which is that remarkable thing: a bank set up to exist at the weekend. It opens on weekends and at 8 o’clock in the morning. Imagine what could be done if we had that at the local level.
I am grateful for what Hector Sants, the present chief executive of the FSA, told me in a letter dated 12 March:
“We are conscious of the balance to be struck between ensuring high standards at the gateway, and the importance of allowing innovation and appropriate levels of access for new firms.”
The letter continues:
“there has been public debate about the potential advantages of new entrants in the area of small, regional banks focused on servicing the SME sector. In such cases we will be proportionate in our approach and would invite all firms with a viable business model and appropriate levels of resources to a pre-application meeting to help guide them through the application process”.
The Bill will, I suggest and sincerely hope, make it easer to establish local banks, which can only be a good thing.
Kelvin Hopkins
I rise to express my strong support for the amendments in the name of my hon. Friend the Member for Hayes and Harlington (John McDonnell).
There are two components of the argument: the first is the relationship between the Governor of the Bank of England and the Government, but the second is the relationship between this House of Parliament and the Government. On both, I strongly believe my hon. Friend has a point. Like him, I was unhappy about the decision to hand power over monetary policy to the Bank of England and give it independence. All aspects of macro-economic management ought to be matters for Ministers accountable to Parliament. I maintain that view and, in a sense, recent events have proved that my hon. Friend and I were right. I thought at the time that if the Governor of the Bank of England or the Monetary Policy Committee chose to be hawkish on interest rates when we had a recession on our hands, there could be a serious conflict between the Bank and Government. Fortunately, the Bank has been sensible in managing monetary policy and that clash did not occur, but it could have happened in 2008. Had the Bank been governed by a hawkish Governor, we could have seen a serious clash and those powers no doubt taken away. I was comforted by the thought that if the Bank of England got out of control, we could easily take back powers. It is not the same with the European Central Bank, where powers have been given away and cannot be taken back.
In relations between Parliament and Government, pre-appointment hearings have been shown to be a success. I have been involved in not just the two most recent pre-appointment hearings, but in developing the arguments in favour of pre-appointment hearings as a member of the Public Administration Committee for the past 10 years. Brilliant work was done by Tony Wright, who made a real impact on our constitution. Pre-appointment hearings are first class. They are not just an experiment; they are here to stay. I would like the Governor of the Bank of England to be subject to a rigorous pre-appointment hearing so that we know that they will serve the economy and relate to the House, and not just be a law unto themselves. I have probably run out of time. I know the Minister needs to speak, but I have made my point.
Mr Hoban
This has been a thoughtful and constructive debate covering the wide range of issues in this group of amendments. I shall organise my remarks in two parts. I shall deal first with issues relating to the Bank of England and the Financial Policy Committee, and secondly with the Prudential Regulation Authority and the Financial Conduct Authority.
I begin by speaking to Government amendment 12. This change was prompted by an amendment proposed in Committee by the hon. Member for Nottingham East (Chris Leslie), on the wording used to ensure that the view of the Treasury member of the FPC cannot be taken into account in determining whether the FPC has reached a decision by consensus. Although the substance of the provision, which is consistent with the general principle that the Treasury member of the FPC should not have a vote, was endorsed by the Committee, some members of the Committee thought that the wording was ambiguous. Some, including the hon. Member for Foyle (Mark Durkan), felt that the current wording could imply that the Treasury is not even allowed to exercise influence through debate or discussion.
I therefore committed to look again at the wording to see whether it could be made clearer. Amendment 12 amends the provision to make it clear that in determining whether the FPC has reached consensus, the chair should disregard “any view expressed” by the Treasury member. This does not mean that the Treasury member cannot influence the discussion and debate, but in determining consensus, that voice should not be taken into account.
The main focus of the debate has been accountability and transparency. That is absolutely right. Hon. Members are right to highlight the fact that as a consequence of the Bill, the Bank of England takes on more power and responsibility, partly because the PRA becomes part of the Bank family, and through the creation of the FPC. It is right that we strengthen the transparency and accountability of the Bank as a consequence of the reforms before us. The debate about macro-prudential tools was a helpful way of characterising that debate and talking about some of the proposals that we have made. We are committed to ensuring the ex ante approval of those macro-prudential tools by this place and the other place. Hon. Members are right to call for a review of the use of those tools and a retrospective review of the Bank’s performance. That is important too.
Let me deal first with the ex ante side of the equation. Amendment 22 talks about economic growth being part of the FPC’s objective. The Government are clear that the FPC’s principal aim should be to make the financial system safer and more stable. We do not seek the stability of the graveyard. The FPC should not be able to pursue stability to the point where the financial sector can no longer support the real economy. This means that the FPC should not be able to take action that would seriously damage the ability of the financial sector to contribute to growth in the medium to long term and the FPC should consider whether the costs of the action that it proposes would be disproportionate to its benefits. The Bill as drafted already ensures this.
Mr Tyrie
I realise that the Minister will not want to commit himself to change anything now, but would he be prepared to say now that he would consider looking at the possibility of going a little step further than the affirmative procedure in some measure towards something that we would recognise as a super-affirmative procedure for these measures?
Mr Hoban
My hon. Friend makes an important point. We need to ensure that the right scrutiny arrangements are in place, but we also need to recognise that the super-affirmative procedure can create delays, because there are times when if the House is in recess the clock stops, so there is a challenge there. In addition, a blanket adoption of a super-affirmative procedure may mean that even minor technical changes are subject to quite a lengthy process. The point that I would take from this debate is that we need to ensure that proper parliamentary scrutiny of these measures is in place, and that there is proper consultation with the public and a proper assessment of the economic impact of these macro-prudential tools on the wider economy. I hope that the Government’s position is clear. I am not ruling out the proposal. There are some issues with it, but we are committed to ensuring that the right procedures are in place to ensure proper parliamentary scrutiny.
I come now to the matters at the heart of new clause 1 tabled by my hon. Friend the Member for Chichester (Mr Tyrie) and his colleagues from the Treasury Committee. I agree entirely that the robustness of the Bank of England’s governance arrangements is vital. Hon. Members on both sides of the House have been absolutely right to point out that it is even more important given the expanded responsibilities provided to the Bank of England under the legislation. There is a consensus that the governance of the Bank needs to be strengthened in order better to equip it for these new roles. The court will need to adapt and evolve in order to operate as an effective governing body, able to oversee the Bank in transition and in steady state, ensuring that the Bank is adequately resourced to meet its new responsibilities, offering challenge to the Bank’s executive and supporting accountability to Parliament. With that in mind, a set of proposals has already been put forward by the Bank of England to help address these concerns.
Last year the Treasury Committee published an in-depth and thoughtful report into the accountability of the Bank. In response to that, the court of the Bank of England set out some positive and constructive proposals to strengthen its oversight of the Bank’s financial stability activities and to enhance accountability. Central to the court’s proposals is the creation of a new oversight committee for financial stability, a sub-committee of the court that will be responsible for overseeing the entirety of the Bank’s financial stability activities. This wholly non-executive committee will have access to the meetings and papers of the Bank’s policy-making committees, including the FPC, and will be able both to review the internal decision-making processes leading to policy outcomes and to commission periodic reviews of policy-making performance from expert external authorities. These reports will be published, unless publication would be contrary to the public interest. We welcome the court’s proposals.
My hon. Friend the Member for Chichester, in his remarks welcoming the court’s response to the Treasury Committee’s recommendations, recognised that there has been change, but he also outlined a number of areas in a report published on 23 January and argued that the court’s proposals did not go far enough, particularly with regard to the policy reviews. Recognising this, the Chancellor agreed with the Governor and the chair of the court that the new oversight body will be expected to commission retrospective internal reviews from the Bank’s policy makers of their own policy making and implementation performance. I think that the Bank has made some progress, but my hon. Friend raised the important question of whether the oversight arrangements should be set out in primary legislation in the Bill.
My hon. Friend the Member for Chichester also mentioned publication of the court’s minutes. The Bank has committed to publishing what it terms a record of future court meetings. It is worth pointing out that the FPC also produces what it calls a record of its meetings, which is a very full account of the debates that go on in the FPC, and we will expect a similar process to be undertaken for the court’s meetings. Let me be clear: I believe that there is a clear need for the Bank’s accountability arrangements to be strengthened through the publication of the court’s minutes and the enhanced scrutiny of the court’s work, although I believe that the changes announced by the Bank help address the concerns raised by my hon. Friend and the Treasury Committee. He made some powerful arguments that have been echoed by other members of the Committee, and we will consider further whether these arrangements should be put in the Bill. We will reflect on these matters and reconsider them when the Bill goes to the other place. I hope that that helps to reassure the House on how seriously we take these matters and our willingness to listen and respond to the concerns raised by Members during the debate, particularly the contributions made by my hon. Friend and others.
Chris Leslie
I just want to be clear about what the Minister is saying. Is he saying that when the Bill comes before the other place for consideration he will accept retrospective reviews and publication of minutes or that he will simply consider it?
Mr Hoban
We are clear that we want to see the court’s minutes published, which I think is absolutely vital, and that we want to see those retrospective reviews in place. The questions my hon. Friend the Member for Chichester has asked are whether we have gone far enough, whether the proposals should be in the Bill or whether we should just accept the proposal put forward by the court. Tonight I have committed to listening to those arguments—he made a powerful speech—and returning to the issue when the Bill goes to the other place.
Mr Tyrie
Will the Minister clarify a couple more points? First, when he says that he is committed to the publication of the court’s minutes, does he mean the publication of the full minutes or only a summary record of them, which it appears is what was proposed before. Secondly, he thoughtfully suggested that the non-executives of the Bank should commission internal reviews. Will they also be permitted to look at, assess and comment on the merits of the material they receive?
Mr Hoban
I think that it is important that the court’s non-executives perform a full role in scrutinising the Bank’s activities. They need to be able to look at the output of those reviews, consider them and express their views on them. On the issue of minutes, I will not say that we are getting into a semantic debate, because that would be unfair. What we want to do is ensure that a proper record of the court’s meetings is published.
I am not sure that the minutes should necessarily be verbatim, reporting every word that everyone has said, but they should certainly be a very good summary, catching the thought processes that took place in the court and the issues that were debated and discussed, so that Parliament and stakeholders can hold the Bank to account for the way in which it has used its powers not just when it comes to the Financial Policy Committee, but in other areas. I hope that that gives my hon. Friend the reassurance he looks for on our commitment to transparency and on ensuring that we do all we can to strengthen the transparency arrangements of the Bank of England.
I am very conscious that a number of other points were made, and I want to discuss them. The hon. Member for Hayes and Harlington (John McDonnell) tabled two amendments on the appointment of the Governor of the Bank of England and Parliament’s role in it. We do not have time tonight to go into the detail of that procedure, but the Chancellor has said that there will be an open process, and having heard the debate in the House he will reflect on it when thinking about how the process should develop.
I turn to Government amendment 1. In Committee, the hon. Member for Nottingham East argued for a check on the PRA’s ability to decide not to disclose the use of its veto over the FCA. The Government accept that the PRA will always be the best placed organisation to determine whether or when to disclose the use of its veto, but there is room for an element of independent consideration when it decides against such disclosure. The Government have therefore decided to place a duty on the PRA, through amendment 1, to consult the Treasury on a decision not to disclose, and this will ensure that proper disclosures do take place.
I will respond in writing to the remarks that my hon. Friend the Member for Cities of London and Westminster (Mark Field) made on the use of skilled persons. He raised some important issues.
Alun Cairns
Does my hon. Friend recognise the strength of a practitioners panel in relation to the PRA, given that he has already accepted the merits of a practitioner panel in relation to the FCA?
Mr Hoban
What is important is that the PRA establishes its process for consultation with regulated firms. It is required to set out in its annual report its process of consultation.
In conclusion, this is an important part of the legislation, and I am very disappointed that the hon. Member for Nottingham East has tabled a wrecking amendment that would take the guts out of the Bill. I thought that the Opposition supported the reform of financial regulation, but they clearly do not, so I hope that if the hon. Gentleman puts his wrecking amendment to the vote the House will oppose it.
Mr Tyrie
I am grateful to the Minister for what I have heard this evening. He has shown enough flexibility for me to feel able to withdraw new clause 1, but before I do so it is just worth my spelling out what I think I have heard.
I think I have heard that we are going to have the publication of the full minutes of the court of directors, and that we are going to permit and, indeed, encourage the court—the non-executives of the Bank of England—to commission internal reviews, to assess them and to give us their assessments, made available to Parliament.
I heard also about some flexibility on whether we will go beyond the affirmative procedure when looking at macro-prudential tools. Their proper scrutiny is extremely important for millions of people in this country. Whether we will go as far as a super-affirmative procedure I do not know, but an element of flexibility has also been provided for there.
With that in mind, my intention is not to push new clause 1 to a vote. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 10
Mortgage rate forewarning
‘The Treasury shall bring forward recommendations within six months of Royal Assent of this Act requiring mortgage lenders to forewarn existing customers about potential interest rate changes and their impact on the affordability of mortgage repayments.’.—(Chris Leslie.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
John McDonnell
On a point of order, Mr Speaker. The main purpose of the Financial Services Bill—
Mr Speaker
Order. May I appeal to Members who are planning to leave the Chamber to do so quickly and quietly, so that the House can do the hon. Member for Hayes and Harlington (John McDonnell) the courtesy of listening to his point of order?
John McDonnell
Thank you, Mr Speaker.
The main purpose of the Financial Services Bill was to secure corporate responsibility in the financial sector, and the batch of amendments that were not reached dealt specifically with corporate responsibility. May I, through you, Mr Speaker, convey a message to the Leader of the House, who is present? There will be a second day of debate on the Bill, and he may well wish to look at the programme motion again to establish whether we can debate the important elements of those amendments on that second day.
Mr Speaker
I am grateful to the hon. Gentleman for his point of order. Let me say two things to him in response to it. First, as he can see with his own eyes, the Leader of the House is present, and will have heard what he has said. Secondly, business questions on Thursday will provide a good opportunity for him to pursue the matter further—and, knowing his indefatigability, I expect to see him in his place on that occasion.