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Dame Tessa Jowell (Dulwich and West Norwood) (Lab)
It is a great pleasure to serve under your chairmanship, Ms Dorries.
This Christmas, millions of people will work extra hours in difficult and low-paid jobs so that they can send money to their relatives living abroad. Their remittances, particularly to sub-Saharan Africa but to many other parts of the world as well, now account for more money than donor aid. However, their money transfers will be hit by fees and charges that can be as high as 15%, and in some cases even higher. Five years ago, the G8 committed to reducing this “transfer tax” to 5%, but the deadline for international action has now passed and the target has not been achieved. People who seek to send relatively small amounts are being hit disproportionately by high fees; I am calling for concerted action to change that.
Take, for example, Dorothy Mukasa, who arrived in the UK from Uganda 34 years ago and, like so many thousands of migrants, works for the NHS. Over the years, her family in Uganda have needed her help. For example, she has sent money home to pay the school fees for her orphaned niece, and she currently pays for a nurse to attend to her elderly parents twice a week. Dorothy explained her anger at the extortionate charges that she has to pay, because sending relatively small amounts can incur higher charges. Her case was recently highlighted by The Observer newspaper.
I applied for this debate because of the circumstances of people like Dorothy who are being hit by the double effect of poor foreign currency exchange rates and high fees, of which a key driver in certain parts of the world is the lack of competition in the market. When chairing the Africa Progress panel earlier this year, Kofi Annan highlighted the control that money transfer companies have over the market. He said that the two largest such companies, Western Union and MoneyGram, both
“operate exclusivity agreements with their agents and commercial banks, which raises the cost of market entry.”
He went on to say that money transfer operators
“account for US$900 million taken from African migrants and their families through excessive charging.”
The situation was also illustrated in this year’s groundbreaking report from the Overseas Development Institute. The fees being charged are disproportionately high and far above the 5% level set by the G8 and the G20. The ODI showed that when the fee and, critically, the foreign currency exchange rate were combined the margin levied by MoneyGram would see someone sending £120 to Malawi incurring a 22.4% cost. Sending the same amount to Senegal and Ghana would have costs of 19.9% and 11.4% respectively. It is important to say, however, that MoneyGram disputes those figures.
In the case of Western Union, the other big money transfer company, the ODI’s research shows similarly high charges. The cost of sending £120 to Gambia was 14.2%, and to send the same amount to Uganda incurred charges of 13.4%. The ODI’s research showed that between them Western Union and MoneyGram control two thirds of the remittances market in sub-Saharan Africa. The problem affects not only those sending money to Africa, but large parts of Asia and Latin America as well.
A further challenge is the severe lack of transparency about the components of charges. For example, figures taken from MoneyGram on Saturday show that sending card-to-cash transfers of £100 to six countries in different parts of sub-Saharan Africa incurred a uniform fee of 12%, plus further currency exchange charges. The four countries have different market conditions and underlying factors, yet the basic fee of 12%—more than double the G8 standard of 5%—is the same for each of them. People do not understand why. Along with financial regulators, the UK Government should require companies to be more transparent about such charges, in the interest of consumers. I would like to commend TransferWise for its campaign, which I support, calling on the UK Government to put a stop to hidden fees and to stop banks and brokers overcharging consumers in foreign currency exchange.
The G20’s conclusions show that Governments are aware of the scale of the problem. At the G8 L’Aquila summit in 2009, world leaders agreed to bring the cost of remittances down to 5% within five years. The G20 formally adopted that objective in 2011, but the deadline was missed two weeks ago. At last month’s G20 summit in Brisbane, which was attended by the Prime Minister, world leaders reaffirmed the 5% commitment, but they appeared to weaken their ambition by failing to agree a deadline by which they would act. Perhaps the Minister can assure us that that is not the case for the UK Government. I am very concerned by that omission and I would like reassurance from the Minister on the Government’s determination to tackle the problem.
There are many issues surrounding remittances, and I fully accept their complexity. One such issue is the availability of accounts for money transfer companies. Earlier this year, owing to concern over lack of control of funds, Barclays announced that it would be closing 250 UK accounts held by money transfer companies that deliver remittances to families in developing countries. This year, my hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) led the successful “Save Remittance Giving” campaign, which called on Barclays to reverse its decision and on the Government to throw a lifeline to families in developing countries—particularly Somalia, which faces significant challenges in this respect—by co-ordinating action between the Government and financial regulators in order to secure a long-term solution. Like other Members, I am sure, I want to put on the record my thanks to my hon. Friend for her continuing work on this issue.
A key issue that I have already mentioned is the lack of effective competition, which works against consumers. Between them, Western Union and MoneyGram control two thirds of the remittance market in sub-Saharan Africa. That market must be made more open to a wider ranger of companies, including smaller, secure companies, to ensure that there is a competitive market. The issue has been highlighted by the Association of UK Payment Institutions and its executive chairman, Dominic Thorncroft. The AUKPI represents 120 payment institutions in the UK, and it notes that, since the collective decision of the UK banks in 2013 to stop trading with money remittance firms, more than 150 Financial Conduct Authority-regulated UK money remittance firms have lost their bank accounts and since then struggled to be able to offer money remittance services to their customers.
Some firms are taking action to try to offer alternatives in the market. An example is Xendpay.com, which is a service set up by social entrepreneur Rajesh Agrawal in response to the high charges levied by the big and dominant money transfer companies. However, right now consumers have less choice, and overall fees and charges have inevitably increased. Policy makers, including the UK Government, are just not doing enough to encourage greater competition, which would begin to tackle very high charges. By analogy, we would not tolerate a situation in which two companies controlled two thirds of our energy or banking markets, and we must not tolerate that in the international remittance market either.
Remittances are big business, and the lack of transparency, effective regulation and competition means that very substantial profits can be made by just a few big players. In 2013, Western Union handled £52 billion of transfers between customers. It returned over £420 million to shareholders through dividends and share repurchases. I believe there needs to be a balance between the commercial interests and success of these important companies and the decency of the business, taking into account the population of consumers on whom they rely. That is why I have called on MoneyGram and Western Union particularly to halve their fees in the run-up to Christmas—a time of giving—as a gesture of good will, and as a small stepping stone towards a more permanent solution.
I hope that the Minister will be able to give a commitment that her Government, should the opportunity arise, will act between now and the general election to reaffirm the commitment of the G20 last month and begin to set out specific proposals on how the UK Government might offer leadership in this area to bring down transfer charges. I also hope that her Government, until the election, will agree to speed up the necessary action to force money transfer companies, banks and brokers to be more transparent in their charges and, in particular, their foreign currency conversion rates. Hundreds of thousands of very hard-working people, doing some of the toughest jobs in our country, just want to support their relatives in some of the poorest countries in the world, and I hope very much today that the House will show its support for them too.
The Economic Secretary to the Treasury (Andrea Leadsom)
It is a pleasure to serve under your chairmanship today, Ms Dorries. I thank the right hon. Member for Dulwich and West Norwood (Dame Tessa Jowell) for raising such an important topic. I say to her, first, that it has taken up a lot of my time since I have been in this role. It is a very complicated issue and it is very important to me that we get it right.
I also congratulate the right hon. Lady on raising the issue with the Prime Minister at Prime Minister’s questions earlier today. As he set out, the Government are acutely aware of the importance of remittances from UK residents that are sent to their family and friends in developing countries. Annual remittances from the UK amount to more than £15 billion. In the specific case of Somalia, remittances support nearly 3.5 million people and account for approximately half of Somalia’s gross national income. Since I came to this job earlier in the year, I have therefore personally been making sure that the Government are doing everything we can to ensure that remittances continue to flow through accessible and secure channels from the UK to all regions of the world.
The House will be aware that transparency of fees and charges for financial services products and competition between providers are key priorities for the Government. Increased transparency promotes greater competition, it provides better outcomes for customers, and it helps strengthen people’s trust in financial institutions—it is fair to say that that has been somewhat shaken in previous years. Therefore, it is my firm belief that greater competition as a whole in the financial services industry will lead to greater innovation, and ultimately to better outcomes for customers.
We have put in place a huge range of programmes of reforms to support greater competition in banking. That includes putting competition at the heart of the regulatory system, with statutory competition objectives for both the Financial Conduct Authority and the Prudential Regulation Authority. Very importantly, we have created the new Payment Systems Regulator, which will come into its full powers on 1 April 2015.
The PSR has three statutory objectives: first, to promote effective competition in the markets for payment systems and for services provided by those systems; secondly, to promote the development of innovation in payment systems, in particular the infrastructure used to operate payment systems, in the interest of customers; and thirdly, to ensure that payment systems are operated and developed in a way that considers and promotes the interests of customers.
Coming back to the specific issue that the right hon. Lady raised on the cost of remittances, I am aware that my ministerial colleagues at the Department for International Development have been considering the cost of money remittances, and they have already taken action to reduce fees. That includes action to improve the transparency of fees by supporting the pioneering price comparison website sendmoneyhome.org to increase transparency around remittance transfer costs and to stimulate competition. The average cost of sending £100 has fallen by 5.6% across 11 countries and by 28% to India. The web platform has now become fully commercialised and has been replicated in France, Germany, Italy, the Netherlands, Australia and New Zealand.
DFID has been taking action to improve inter-market co-operation. Between 2009 and 2015, DFID will support the FinMark Trust in its drive to reduce the average cost of remittance transfers from South Africa to other Southern Africa Development Community countries by 30% by 2014.
Given the concerns rightly raised by the right hon. Lady today, I plan to write to my ministerial colleagues at DFID to ask that we work together to think about what more can be done and particularly to seek an update on the points she made about the Brisbane G20 discussions. However, as I have said, this is an extremely complicated issue. She is fully aware that in recent years we have seen growing concern among banks globally about money laundering and terrorism financing, and, of course, the very real possibility of potentially crippling enforcement action against banks that fail properly to protect against these risks. The money service business sector has been particularly affected, as she knows.
The right hon. Lady mentioned the actions taken by the hon. Member for Bethnal Green and Bow (Rushanara Ali), and my hon. Friend the Member for Ealing Central and Acton (Angie Bray) and many other colleagues have also brought this issue to the attention of the House on a number of occasions.
I know that the right hon. Lady is also aware of the action group on cross-border remittances, which was set up at the start of 2014 to seek to address this worrying trend towards debanking the money service business sector. The action group is composed of Government representatives, banks, money transfer operators and industry associations. It has initiated a number of important activities to revise guidance on compliance with the money laundering regulations; to improve the understanding of money laundering and terrorism financing risks; importantly, to sustain the flow of remittances from the UK through formal channels; and particularly, to improve trust in the remittance sector.
Our banks and regulators have a very real responsibility to ensure that they are not supporting activities that could pose a threat to British citizens and undermine the progress that developing countries are making. The right approach to tackling these threats should effectively deter, detect and deal with those who seek to use the financial system, including money remitters and banks, to launder money or fund terrorism. At the same time, it should protect and support legitimate businesses and, in particular, critical lifelines for countries such as Somalia.
In conclusion, as the Prime Minister set out earlier today, this is a very complicated area, but I would like to reassure the right hon. Lady that the Government are committed to doing what we can to keep remittances flowing and the costs down.