Asset Resolution (Consumer Credit Act)
Andrea Leadsom Excerpts(9 years, 11 months ago)
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The Economic Secretary to the Treasury (Andrea Leadsom)
In February 2008, under the previous Government, Northern Rock was nationalised due to the financial crisis. In January 2010 the previous Government restructured the activities of Northern Rock between Northern Rock plc, a newly created company which was subsequently sold to Virgin Money in 2011, and the existing company, which was renamed Northern Rock (Asset Management) (NRAM). The balance sheet of NRAM is managed by UK Asset Resolution (UKAR).
In 2012, UKAR identified certain Consumer Credit Act (CCA) regulated loans in the NRAM portfolio where the annual statements and other notices were not compliant with CCA requirements. The CCA regulations only applied to loans of £25,000 or less. The period of non-compliance originates from changes to the CCA implemented in 2008, before the separation of NRAM and Northern Rock plc in January 2010. The Economic Secretary to the Treasury at the time this non-compliance was identified (Sajid Javid) informed Parliament, and UKAR has remediated the interest paid and other charges fully to affected customers for the period of non-compliance. This is another example of the significant cost to taxpayers of the failure of the previous regulatory regime.
After these mistakes were discovered, UKAR’s board commissioned Deloitte to conduct an independent enquiry into the specific circumstances of the issue, and any implications for UKAR’s broader internal procedures and controls. The report can be found here:
http://www.ukar.co.uk/media-centre/press-releases/2013/15-07-2013?page=6
In 2012, UKAR also discovered that incorrect documentation had been sent to certain customers with loans of more than £25,000. These errors also originate from when changes were implemented to the CCA in 2008, before the separation of NRAM and Northern Rock plc in January 2010. While these loans fell outside of the scope of the CCA, UKAR commenced declaratory proceedings in the High Court to determine whether customers who took out such loans are entitled to the same or similar rights and remedies as those customers who took out loans of £25,000 or less that were regulated under the CCA. This action was taken in order to provide clarity to UKAR and to its customers, and details of the proceedings, including an estimate of the cost of remediation, were published in the Treasury’s annual report and accounts for 2013-2014.
The High Court has declared that the defendants to the proceedings are contractually entitled to the rights and remedies applicable to a regulated agreements under the CCA (2008).
Accordingly, NRAM was in breach of its obligations by issuing documentation that did not comply with the CCA (2008), and by not re-crediting the interest payments and default sums paid during the period of non-compliance. UKAR, and UK Financial Investments, on behalf of the Treasury, will now carefully consider legal advice to establish whether an appeal should be pursued. UKAR have estimated the cost of remediating affected customers to be £261 million plus any future interest accruing on these accounts before remediation is made. The cost of any future interest amounts to approximately £3 million per month.
UKAR has performed well, repaying more than £12 billion of Government loans and actively managing the assets with the goal of ensuring value for money for the taxpayer. The OBR has forecast that UKAR will have a positive impact reducing both public sector net borrowing and public sector net debt in the current fiscal year. This would be true even if remediation costs were paid this fiscal year.
UKAR will confirm whether an appeal will be pursued in due course. There is no need for customers to take any action at this time. Further details for customers can be found on the NRAM website: www.nram.co.uk
Oral Answers to Questions
Andrea Leadsom Excerpts(9 years, 11 months ago)
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Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
10. What recent assessment he has made of the effect of the housing market on the economy.
The Economic Secretary to the Treasury (Andrea Leadsom)
The Government are committed to making the aspiration of home ownership a reality for as many households as possible. The Government’s Help to Buy scheme and last week’s stamp duty reforms will continue to support housing market activity and new housing supply is already responding with housing starts growing by 16% in the year to 2014 in quarter three.
Mark Lazarowicz
The recent measures are no doubt welcome, but would the Minister care to confirm that annual house completions have been lower in every year under her Government than in every year of the last Labour Government?
Andrea Leadsom
The point is that we believe in the aspiration to buy your own home. We have seen house prices recover but they are still in real terms lower than they were at the peak under the last Government. This Government have delivered housing starts at their highest since 2007 and our Help to Buy scheme, which has helped 77,000 people to get on to the property ladder, is a very important measure.
David Rutley (Macclesfield) (Con)
I am pleased that the Government’s stamp duty reforms are already helping more first-time buyers in Macclesfield. What assessment has my hon. Friend made of the effect the stamp duty reform plus the Help to Buy scheme will have on helping more people to get established on the housing ladder?
Andrea Leadsom
My hon. Friend is quite right. Our stamp duty changes have meant that 98% of the people who pay stamp duty will receive a cut, which will enable more people to get on to the housing ladder. Our Help to Buy scheme will also encourage more aspirational young people to buy their first home.
Chris Ruane (Vale of Clwyd) (Lab)
11. What proportion of recipients of tax credits are in employment.
Henry Smith (Crawley) (Con)
15. What steps he has taken to support people with savings and pensioners.
The Economic Secretary to the Treasury (Andrea Leadsom)
This Government are determined to support savers and pensioners—unlike the last Government who gave them miserly increases in state pensions. Since 2010, we have delivered the biggest-ever increase in the individual savings account allowance and for pensioners the triple lock means that they will receive about £560 more in 2015-16 than under the last Government’s policy. We have also given pensioners the freedom to choose how and when to access their own pension.
Henry Smith
My hon. Friend is right that the previous Administration caused the great recession, which has meant that savers in Crawley have suffered considerably. Last week’s autumn statement proved that this Government stand up for the aspiration of passing on savings to our children.
Andrea Leadsom
My hon. Friend is quite right. He will be as delighted as we are that we are now allowing people to pass on their unused ISAs to their spouse or civil partner free of tax, and their defined contribution pension schemes are also to be free of tax to their successors. This was a great move, allowing people to decide what they do with the money they have saved during their lifetimes.
Helen Jones (Warrington North) (Lab)
Most pensioners in my constituency do not have enough savings to put money in an ISA, but can the Minister confirm that owing to recent measures announced by the Government, those who receive the savings element of pension credit will, because of its interaction with pensions, receive only an 87p rise?
Andrea Leadsom
The hon. Lady should welcome the fact that this Government introduced the triple lock for pensioners to ensure that, instead of under the last Government when they received only the increase in average earnings, pensioners under this Government will receive an element for inflation, average earnings or 2%, whichever is the higher.
Mr David Ruffley (Bury St Edmunds) (Con)
16. What recent representations he has received on the introduction of new fiscal rules to limit government borrowing.
The Economic Secretary to the Treasury (Andrea Leadsom)
The Government will shortly publish the revised charter for budget responsibility, which will set out new fiscal rules in detail. As the Chancellor said last week, there is more to do, but our long-term economic plan is working. The deficit is forecast to fall this year, down from what the Office for Budget Responsibility described as the post-war record deficit of 10.2% of gross domestic product in 2009-10 to 5% this year—cutting it in half.
Mr Ruffley
I thank the Minister for that reply. I commend the autumn statement, in particular chart 1.9 therein, which makes it clear that any Government who wish to reduce debts as a share of GDP to under 40% in the next 20 years will not merely have to balance the budget, but to run a surplus of 1% of GDP on the budget. Does my hon. Friend agree with me that it is essential that new fiscal rules are created and voted on frequently to achieve this massively important debt reduction?
Andrea Leadsom
My hon. Friend is right. The Opposition talk about balancing the books, but in fact what they are talking about is borrowing more once their current budget is in surplus, and that is a complete fabrication, because what the Opposition need to recognise is that the only way to return this country to prosperity is not just to deal with the massive debt left by Labour but also to get our economy back into long-term growth and long-term surpluses. [Interruption.]
Mr Speaker
Order. It is very disorderly for Members to yell at the Minister from a sedentary position, and I remind you, Mr Lucas, that you have still got to complete your apprenticeship to become a statesman. I keep updating the House on progress, but there is still a little distance to travel.
Bill Esterson (Sefton Central) (Lab)
Many people in work are relying on benefits just to survive, and they are not paying tax, all of which contributes to the reason why the deficit has gone up more than the Minister, and her Government when they came in, promised. Today’s OECD report says countries that promote equality will grow and prosper. Will she accept that her Government have got it disastrously wrong for so many people and adopt the policies suggested by the OECD, including a higher rate of top tax?
Andrea Leadsom
I find it absolutely extraordinary that the hon. Gentleman can talk about the under- achievement of this Government. It is not by chance that our economy is the fastest growing in the G7; it is not by chance that there are 2 million more people in work in the private sector; and it is not by chance that there are now 2 million apprentices, as of today. It is extraordinary that the Opposition do not see that it is all about economic recovery, not interfering and borrowing more.
Mr Speaker
As usual we are pressed for time, but I cannot allow excessively long early questions and answers to deny Members who have been waiting patiently, so we will now hear, I hope, from Mr Philip Hollobone.
Ian Paisley (North Antrim) (DUP)
Was the Chief Secretary as alarmed as I was by this morning’s comments by the Northern Ireland Attorney-General that the Royal Bank of Scotland has been involved in “criminal fraud” with regard to its banking treatment of those who fell behind in their mortgages? If that is the case, will he make a statement to the House, telling us how he intends to deal with the matter so that we can bring back certainty to customers?
The Economic Secretary to the Treasury (Andrea Leadsom)
This Government take very seriously any accusations of wrongdoing by the banks. We will be looking at this case. As the hon. Gentleman knows, those comments have been strongly denied by RBS, and we will certainly be taking advice on the matter and looking into it carefully and taking appropriate action.
Free Cash Withdrawals
Andrea Leadsom Excerpts(9 years, 11 months ago)
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The Economic Secretary to the Treasury (Andrea Leadsom)
I congratulate my hon. Friend the Member for Bristol North West (Charlotte Leslie) on securing this debate on an incredibly important matter. She has presented her case very eloquently.
I assure the House that this Government are committed to helping ensure the most vulnerable people in society have access to the banking services they need. That is why we took action to tackle payday loans, placing a duty on the Financial Conduct Authority to impose a cost cap. The Treasury, as widely reported, has been in discussions with the banks on improving the minimum standards for basic bank accounts. Only a few weeks ago, I hosted a round-table meeting with senior executives from the UK’s major banks. As part of that discussion, I set industry the challenge of coming up with new and innovative ways in which ATMs can be used to offer a wider range of banking services to consumers. I look forward to hearing back from the banks later this month. One of the most fundamental banking services—the subject that my hon. Friend has raised—is the ability of customers to be able to withdraw their own money conveniently, and free, at ATMs.
Forty-four years ago, the Enfield town branch of Barclays bank opened the first ever automated cash machine in the world—another first for the British retail banking industry. Since then, the ATM sector in the UK has been in a state of constant progress. The number of cash machines has grown from 36,000 in 2001 to over 67,000 this year, making cash far more accessible to customers. The number of free-to-use ATMs is at an all-time high, and over 97% of all ATM cash withdrawals by UK cardholders are made free of charge. Pay-to-use machines now account for only 3% of the total volume of transactions.
It is important to recognise that, in areas with greater need for free-to-use ATMs, LINK—the network that connects the UK’s ATM machines—provides subsidies to ATM providers to allow them to offer services under its financial inclusion programme. The LINK scheme is unique in Europe: it allows banks and building societies to give their customers access to cash from any ATM across the UK, no matter which bank they hold an account with. That gives customers universal access to their cash without the need to walk into a bank. Across much of the rest of Europe, pay-to-use machines are the norm and the cost of withdrawing cash is not transparent. By contrast, as I have said, the vast majority of machines in the UK are free to use, and those that are not must be very transparent with their pricing, as per LINK rules, so ATM customers typically get a good deal in the UK.
As my hon. Friend has pointed out, however, some cash machines do charge customers for the withdrawal of cash. These machines are typically operated by independent, non-bank providers, which install ATMs in areas with a low footfall and that tend to be in rural or less well-off communities where banks feel it is not commercially viable to operate a free-to-use machine. The fees they charge need to be completely transparent prior to the customer withdrawing cash, and ensuring that the service is commercially viable is the reason for independent ATM machines charging those fees. If independent ATMs could not charge, they might withdraw entirely from these sites, which would risk leaving the rural and more vulnerable communities with reduced access to cash.
I completely understand, however, the concerns of my hon. Friend and the hon. Member for Strangford (Jim Shannon) regarding pay-to-use machines in less well-off communities. I am well aware that it is precisely in those disadvantaged communities that people most need affordable cash machines nearby without having to take public transport several miles to use one. Many hon. Members have made compelling cases for areas in their own constituencies. The right hon. Member for Birkenhead (Mr Field) has made representations to me in the past.
I am pleased to inform hon. Members that a programme of work is under way to address exactly that issue. LINK has developed the financial inclusion programme, which sets up free-to-use ATM machines in areas where they are most needed. The programme provides subsidies of £1 million per annum to ATM operators to allow them to operate commercially viable free-to-use ATMs. The cost of this subsidy is shared out among LINK members. Through the programme, 1,400 target areas, mainly in rural and less well-off places, have access to an industry-subsidised ATM. In the remaining difficult locations, such as areas with low population or those with a lack of suitable installation sites, LINK has launched specific, individual projects to address that and reports regularly to the Government on progress.
Jim Shannon
ATMs could be set up in post offices, because there are lots of them. There have been some discussions about this issue with the banks in Northern Ireland. Has the Minister given any consideration to setting up ATMs in post offices, where they would be accessible for people in rural communities?
Andrea Leadsom
I am grateful to the hon. Gentleman for raising that very good point. In fact, precisely one of the challenges I gave to the banks during my recent round table with them was to look at what more they could do to put ATMs in easy to access sites such as post offices and supermarkets.
My hon. Friend the Member for Bristol North West is quite right to question the fairness of pay-to-use machines in less well-off areas. However, where customers feel that an area lacks a free-to-use ATM, LINK has made a commitment to assess that location for the suitability of establishing one. As the number of target sites reduces, LINK also has a programme of identifying new segments of consumers for whom there may be access issues. LINK is working with Age UK and Toynbee Hall on specific projects, such as the “Older old” and “Deprived inner-city housing estates” projects, which aim further to improve access to cash for those more vulnerable members of society.
My hon. Friend’s mentioned that Lockleaze in Bristol North West has just one pay-to-use cash machine for 10,000 people. I have looked into the case, and I agree that it is absolutely unacceptable. My officials have contacted LINK, and I am pleased to say that, as she pointed out, it has committed to bringing the area into the scope of its financial inclusion programme. LINK has offered to visit the area to understand any further issues that her constituents are facing in accessing cash and locating free-to-use ATMs in the area.
In conclusion, I believe that the ATM sector is currently working well for consumers. The number of pay-to-use machines is low—only 3% of transactions are made from those ATMs—and the availability of free-to-use machines continues to rise. LINK membership rules offer consumer protection, particularly with regard to transparency of fees. The industry is taking action. For communities that have a greater need for free-to-use machines, LINK is setting them up in many places, and it is looking at how it can help segments of society that currently have difficulties.
I again thank my hon. Friend for raising this important issue and for bringing it to the attention of the House. I assure her that the Government and I will stay closely involved in this issue.
Question put and agreed to.
Financial Conduct Authority Redress Scheme
Andrea Leadsom Excerpts(9 years, 11 months ago)
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The Economic Secretary to the Treasury (Andrea Leadsom)
I join the long queue of Members congratulating my hon. Friend the Member for Aberconwy (Guto Bebb). His leadership has been a sign of Parliament at its best. We are trying to deal with a very real problem and like a terrier he has stuck to it, for a few years now, to shed light on an issue that has shown the banks at their very worst. I am delighted that so many Members have attended the debate. I congratulate them on showing great generosity of spirit in being here and putting the case for their constituents.
I would like to start by pointing out, as other hon. Members have, that progress has been made. This is the first time there has been a voluntary redress scheme on this scale. All of us were disappointed at its slow start, but we are very pleased that the review has progressed well. I can tell the House that 17,000 SMEs took part in the review. Some 91% of sales were deemed to be non-compliant, which is a totally shocking statistic. Some 14,000 cash offers have been made and more than £1.5 billion has now been paid out to the more than 10,000 SMEs that accepted the offer. That progress is significant, but Members are right to point out that there is a cohort of people who have not yet received the attention or the fairness to which they are absolutely entitled. I am not here to be an apologist for either the banks or the FCA, which is running the redress scheme. I can assure all Members that if they write to me about individual cases I will be happy to investigate further on their behalf.
Dr Phillip Lee (Bracknell) (Con)
I spoke a short time ago to Jonathan and Katie Friedman, constituents who live in Finchampstead. A building society, not a bank, sold them a hidden swap product not covered by this redress scheme. Building societies trade on the basis of being ethical? Does the Minister agree that this is hardly ethical behaviour by a building society?
Andrea Leadsom
I cannot comment on individual cases in the Chamber, but if there has been wrongdoing, the Government absolutely do not condone it, and the redress scheme is designed to provide compensation and fairness. We are determined that it will do that.
Paul Farrelly
Progress is undoubtedly being made, but that does not mean that lessons should not be learned. The hon. Member for Shrewsbury and Atcham (Daniel Kawczynski) rightly asked the Minister whether she would look at each of the cases named in the House. I urge her to do so. In addition, she should review the scheme and the way in which it was set up, leaving small businesses such as DK Motorcycles with no right of appeal. Will she commit to giving such businesses some hope of effective redress in the future?
Andrea Leadsom
I will certainly write to the FCA about all the cases raised in the Chamber today—and I will expect a reply.
Mr Bellingham
The key point is that some of the commercial loans—fixed-rate tailored business loans with hidden swaps—are not taken seriously by some banks. Indeed, some people in the FCA are saying that those loans are not regulated, so it would be very helpful if she looked at that point with the FCA.
Andrea Leadsom
Tailored business swaps were provided by largely Yorkshire and Clydesdale bank, which has voluntarily agreed to look at redress in a similar way to that in which the interest rate swap redress scheme works.
I want to move on because there is another debate to follow. Let me address some of the questions raised by my hon. Friend the Member for Aberconwy. He asked why some banks are not splitting the original loss and the consequential losses, and he pointed out that the amount of redress paid is inconsistent between banks. He mentioned the fact that a particular whistleblower says that banks have pressurised independent reviewers to serve the banks’ interests rather than those of the SME, and argued that the FCA is not showing the bank-by-bank redress numbers. He asked whether we should set up an appeals process for reviewers to look at each other’s banks’ reviews, and spoke about the lack of payment of consequential losses beyond the 8% that is normally provided. He addressed the issue of HMRC’s tax treatment of redress and of whether embedded swaps should be included. I want to run through those issues very quickly.
I can assure my hon. Friend and all Members that the FCA has been determined throughout the process to get to the bottom of this. Occasionally, Members might think that the FCA is not interested or not keen to resolve the matter, but that could not be further from the case. In particular, the FCA carefully considers any variance in redress offers to make sure that standards are applied consistently. It selects individual cases for review based on feedback from customers, campaign groups and MPs to ensure these have been dealt with fairly. Independent reviewers report regularly to the FCA, both on the judgments they are making and on how the banks are performing, and independent reviewers regularly meet each other to ensure a consistent approach to assessing claims.
My hon. Friend referred to the agreement between the FCA and the participating banks. As I understand it, this agreement sets out the principles of how the review should have been undertaken. I understand, too, that the FCA is prohibited from releasing these agreements by confidentiality restrictions. I can assure Members, however, that I will write to the FCA and ask for clarification, bearing in mind Members’ desire to have that made public if possible.
Ian Swales
The Minister has talked about the independence of reviewers. Even the FCA’s notes state that it has had to require banks to change independent reviewers when there has been a potential conflict of interest. It is clear that reviewers are not always as independent as they should be. What is the Minister doing about that?
Andrea Leadsom
The FCA has considered whether reviewers are independent, and the instance cited by the hon. Gentleman probably demonstrates that it is actively taking part in that process. As I have said, however, if Members want to raise particular cases with me, I will look into them.
My hon. Friend the Member for Aberconwy referred to the allegation by a former independent reviewer from KPMG that the banks had applied undue pressure for a change in a redress determination. That is a very serious claim, and I know that the FCA has taken it very seriously. The regulator has given a reassurance that it has maintained close oversight of the relationship between banks and their independent reviewers throughout the review, and that it does not believe that that allegation is supported by the facts.
A number of Members raised the issue of embedded swaps. It is important to define that term. I understand it to refer to fixed-rate loans with an economic, or mark-to-market, break cost. As is standard practice with fixed-rate loans, a break cost is incurred by a borrower who pays off a loan early. The tradition in the United Kingdom has been that the terms and conditions of contracts between businesses, such as loans, are not generally prescribed by the Government, and we normally expect businesses to take positive action. First, they can complain to their banks if they are unhappy with their fixed-rate loans, and many customers have already taken that route. The FCA monitors banks’ complaint-handling processes, and takes action if it sees a problem. Secondly, smaller businesses can have recourse to the Financial Ombudsman Service.
What is vital—and the Treasury has ensured that this will happen in future—is that when a business enters into a fixed-term loan, the terms of the contract and, in particular, the way in which break costs are calculated are absolutely clear. We have secured a voluntary agreement, through the British Bankers Association, that banks will provide the same level of disclosure of features within fixed-rate loans— such as break costs—as applies to interest rate hedging products. Most important, the banks will ensure that break costs are fully explained, and that worked examples are provided.
A number of Members also voiced concerns about the number of businesses that have been assessed as sophisticated and therefore fall outside the scheme. The Government have made it clear that when a business lacks the necessary skills and knowledge fully to understand the risks posed by these products, it should receive appropriate redress. So far, about a third of businesses have been deemed to be sophisticated and to fall outside the scheme. There has been criticism of that: many have suggested that all businesses should be covered. The Government believe that there needs to be a defined cut off-point at which more sophisticated businesses take responsibility for understanding the products they are purchasing. Failure to introduce that cut-off point would weaken the incentives for businesses to act sensibly when purchasing financial instruments, and could open the floodgates to any businesses that had lost out as a result of a financial transaction.
However, the FCA has amended the way in which the sophistication test criterion can be applied, and information about that is available. Time does not permit me to give every detail of where we started and where we are now, but the aim has been to ensure that all businesses that are unsophisticated can fall within the scheme. There may well have been some incorrect reassessments, but there have been very few subsequent complaints.
Andrea Leadsom
I will give way once more, but not, I am afraid to the hon. Member for Newcastle-under-Lyme (Paul Farrelly), because time is short.
Bill Wiggin
It is very generous of my hon. Friend to give way, and I am delighted by what she has said. Can she also reassure the House that the number of employees will not be a criterion for sophistication?
Andrea Leadsom
I can certainly tell my hon. Friend that the number of employees is a factor, but it is not necessarily the only factor, so the fact that a business has more than 50 employees may not necessarily make them a sophisticated investor.
Andrea Leadsom
I am sorry, but I will not give way.
Many Members have mentioned the financial ombudsman scheme’s money award limit that it is able to offer to customers. This level was deemed to be most appropriate. It does ensure that most complaints made by consumers and micro-enterprises can be addressed, but reflects the fact that cases involving very large sums of money may be more appropriately dealt with by the courts, rather than an informal process that has limited prospects of appeal.
In the event that the financial ombudsman scheme considers that fair compensation requires payment of a larger amount, it can make a recommendation that a firm pay the balance. That decision on the higher amount is not binding on the firm, but there is evidence that suggests that firms that subsequently go to the courts will find the courts take into account the recommendation of the FOS in determining what the outcome should be.
Mr Marcus Jones
Does my hon. Friend not accept, however, that many of these businesses are extremely small and are not in a position to go to law to see the ombudsman’s recommendation backed up, and that therefore the ombudsman’s remit in terms of the damages it can impose needs to be wider?
Andrea Leadsom
I agree with my hon. Friend in principle, but, as I have just set out, the intention has been that the sophistication test captures those who are not sophisticated as well as those businesses that are small and do not have the means to go to the courts. In addition, if they have been to the FOS, the intention is that that would cover the vast majority of cases. As I have said, I urge Members to write to me with any specific cases that they want me to look at.
Andrea Leadsom
No, I am sorry. The hon. Gentleman has had many opportunities.
It is important to note that the aim of redress is to put the customer back in the position they would have been in if a mis-sale had not taken place. The FCA has been clear that the appropriate redress for each customer will be determined on the basis of what is fair and reasonable. This could include, for example, the replacement of an existing product. That might be appropriate in the case of a business that was highly leveraged. In these instances, it seems reasonable that redress can consist of providing the small business with the alternative product they would have purchased, and refunding the difference in costs incurred by the business as a result.
Members have raised the question of whether there should be a separate appeals process. I would, however, reiterate that the role of the independent reviewer is to be that appeal—to ensure that the process is fair and businesses have adequate opportunity to put their case. Furthermore, eligible businesses have recourse to a further appeal to the FOS if they are not happy with the outcome of their review.
Many Members also raised the issue of Barclays and its decision not to delink the original loss and consequential losses. I think at the moment that that decision is one for Barclays to have made, but after hearing the strength of feeling in the Chamber today I will write to Barclays to ask it to explain precisely why it feels this is fair to customers and to ask it to consider whether it would be willing to conduct its review in a different way. I understand that Barclays has agreed to split the payment for those customers in financial distress, but I will follow that up with the bank.
I shall now return to the specific points Members have made. The hon. Member for Newcastle-under-Lyme raised the case of DK Motorcycles, which failed the sophistication test. He made a very good case in supporting his constituents, and I will take it up on his behalf. He did not say whether the company’s situation was now resolved and he named RBS as the culprit. For many small businesses the new competition being promoted by this Government—the arrival of new banks, particularly in the SME market—will be vital.
My hon. Friend the Member for Redditch (Karen Lumley) named HSBC as the bank in the case of her constituents the Parsons, who had an ethical business. There were significant consequential losses and she felt that the offer made by the bank was not significant. The hon. Member for Dumfries and Galloway (Mr Brown) mentioned Barclays as the bank to the leisure park business in his constituency. He cited fear of talking to the bank as one reason why some small and medium-sized enterprises will not use this redress scheme—they are afraid of the consequences of taking on their bank.
My hon. Friend the Member for Hexham (Guy Opperman) gave an informative intervention, particularly about the risk of having to go to court and the fear of taking on a bank, given the inequality in the resources between a small business and a bank. I take that very much to heart. My hon. and learned Friend the Member for Harborough (Sir Edward Garnier) named RBS as the bank for his constituents Mr and Mrs Hamblin and their property company. He asked me particularly to lean on the FCA to ensure that it is doing a thorough enough job in enforcing the redress scheme, and I am happy to do that.
The hon. Member for Rochester and Strood (Mark Reckless) asked why information on redress is not shared in detail and why consequential loss claims have almost all been turned down. Information on bank-by-bank redress is available but in aggregate form. One reason that has been put to me for that is a sense that if a bank just pays out, there is an implication that they may have been guilty as charged, whereas in fact the ability to offer an alternative product will depend on the bank’s product range and its ability to offer a suitable alternative product. I will look into this further, but that is potentially partially an answer. On consequential losses, 8% of consequential losses is deemed to be sufficient in most cases, but, again, if Members want to write to me, I will look into individual points.
My hon. Friend the Member for Nuneaton (Mr Jones) talked about how linking simple to consequential losses is very unfair. He feels that the Financial Ombudsman Service is not able to enforce enough compensation. He should be aware that FOS is consulting in the new year on that point. He also mentioned the issue of the tax treatment of redress, and I will raise that with Her Majesty’s Revenue and Customs, as a fair point has been made by many hon. Members.
The hon. Member for Ceredigion (Mr Williams) raised the issue of tailored business loans, which I have already addressed.
My hon. Friend the Member for Beckenham (Bob Stewart) raised the case of Mr D’Eye, who was put into the RBS GRG and then administrators were sent in. The FCA is looking at the accusations that have been made about the way RBS has treated small businesses and will report on that in due course.
My hon. Friend the Member for Wyre Forest (Mark Garnier), an ex-colleague of mine on the Treasury Committee, made important points about the cohort of claimants who do not feel they have received justice. He discussed how this is the first major scandal the FCA has had to deal with and said that it should see that it is vital it handles it properly. I can absolutely assure all Members that I will do my best to ensure that that is the case.
The hon. Member for Brecon and Radnorshire (Roger Williams) raised the case of Springdew and how a mis-sale cost the whole community, naming Barclays in that case. The hon. Member for Redcar (Ian Swales) named HSBC and made the point that his constituent Stephen Lilley was sold an extraordinarily complex product. Finally, my hon. Friend the Member for North Herefordshire (Bill Wiggin) raised another case involving UK Acorn Finance, which the FCA is currently looking at closely.
I wish to conclude by saying that SMEs are the lifeblood of our economy, and it is vital that this Government do everything we can to support them. Therefore, I urge Members not only to tell me about specific cases, but to have confidence in the fact that the FCA and the Treasury are determined to get to the bottom of this.
Annual Pension Allowance (Transferred Workers)
Andrea Leadsom Excerpts(9 years, 11 months ago)
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The Economic Secretary to the Treasury (Andrea Leadsom)
I congratulate the hon. Member for Chesterfield (Toby Perkins) on securing this debate. It is a complicated subject and he explained it very well. I am sympathetic to the issues that he raised. He will know that the Government greatly value the important work that is carried out by public sector workers and by those who were previously in the public sector.
The hon. Gentleman discussed the effect of the annual allowance rules for tax-relieved pension savings. He will, of course, be aware that we live in difficult economic times and that few households in this country have not been affected in some way by the economic crash of 2008-09. As part of our deficit reduction plans, the Government had to make difficult decisions in 2010 and 2013 to restrict the cost of pensions tax relief by reducing the annual allowance from £255,000 to £50,000 from 2011-12 onwards and to £40,000 from 2014-15 onwards. We put those restrictions in place to ensure that the cost of pensions tax relief remained affordable and sustainable.
The hon. Gentleman raised a number of concerns about the way in which the annual allowance rules work for defined benefit pension schemes in the context of bridging pensions, which can affect individuals who are transferred from the public sector under TUPE. Although I cannot comment on the particular circumstances that he raised, it might be helpful if I give some background to those rules.
The annual allowance rules provide a limit on the amount of tax-advantaged pension savings that can be made for individuals each year in registered pension schemes. Savings in excess of the limit are subject to the annual allowance income tax charge. For individuals in defined contribution schemes, it is straightforward to determine the level of contributions paid into a scheme to be assessed against the annual allowance limit. However, the position is more complex for defined benefit schemes because individuals accrue a right to an amount of annual pension from a set pension age, and the level of contributions made by the individual and the employer does not reflect the increase in the value of the member’s pension rights. We therefore needed a method to calculate the deemed level of contributions to test against the annual allowance. That method would have to be actuarially equivalent to the amount required to fund a similar promise in a defined contribution scheme.
Detailed consultations were held with the pensions sector before the rules were introduced in 2006, and in 2010, when the Government consulted on the reduction in the annual allowance. As a result of the consultations and with support from the pensions sector, the amount of defined benefit pension savings in a year, when measured against the annual allowance limit, is broadly equivalent to the increase in the capital value of a promised pension over that period.
To achieve the method of valuing pension savings under defined benefit schemes, special rules were developed so that for each £1 a year of pension that will be payable, the present capital value of that annual pension benefit is £16. The use of the 16:1 factor to value defined benefit pensions promises was adopted from April 2011 when the annual allowance was reduced, following recommendations by the Government Actuary. Before that, the factor was 10:1. The rules are intended to strike a balance between providing a system that is reasonably simple for individuals to understand and for pension schemes and HMRC to administer, and meeting the Government’s fiscal objectives.
The hon. Gentleman raised concerns about the treatment of bridging pensions under annual allowance rules. Tax relief is provided for pension savings under defined benefit schemes on the understanding that the funds are used to provide an income throughout retirement. To support that aim, scheme pensions must normally be payable for life, and must not decrease except in prescribed circumstances. One such circumstance is where a bridging pension is paid and the reduction occurs between age 60 and state pension age. A bridging pension is a temporary increase to a private pension. Typically, it is provided where individuals retire before reaching state pension age, and where the level of the bridging pension is broadly similar to the expected state pension. When the state pension starts to be paid, the bridging pension is reduced or comes to an end.
Where the bridging pension is offered as a discretionary award, or is a benefit to which the individual becomes entitled only if they choose to retire early, the award of the additional pension may give rise to pension savings in excess of the annual allowance limit. That is because the temporary nature of the increase to an individual’s pension is not recognised in the same way that increases to the pension’s capital value is calculated for annual allowance purposes.
The Government have considered whether special annual allowance provisions should apply for bridging pensions, and that can be found in our response to consultations on the reduction of the annual allowance limit from 2011-12. We recognise that the restriction of relief may create particular challenges for members of defined benefit schemes because of the way promised benefits in those schemes are valued, but we concluded that it would not be desirable to complicate the pensions tax regime by including special provisions for bridging pensions. Instead, we introduced special rules intended to mitigate “hard cases”. Those rules allow individuals to carry forward unused annual allowances from the three preceding tax years, and set them off against pension savings above the annual allowance limit in a single year, providing that the individual was a member of a registered pension scheme during those three years. They also allow individuals to meet annual allowance charges of more than £2,000 from their pension scheme. That is known as the “scheme pays” facility.
The hon. Gentleman raised concerns that when a bridging pension paid to an individual from one scheme comes to an end, future pension payments to that individual from that scheme are treated as unauthorised payments and liable to tax at a rate of up to 55%. As I have set out, scheme pensions can reduce only in certain prescribed circumstances. Where they are reduced in any other circumstances, unauthorised payments will arise and be subject to certain tax charges. The legislation for that is clear, has applied since April 2006, and is set out in schedule 28 to the Finance Act 2004. Those rules support the aim for defined benefit schemes to provide an income throughout retirement while protecting against manipulation of the tax-free lump sum.
This is not a simple area. Although annual allowance rules for defined benefit schemes may appear difficult to understand, they are a necessary part of meeting the Government’s fiscal and policy objectives of targeting tax relief effectively. The rules are intended, as far as possible, to provide a straightforward structure for individuals and schemes, but I recognise that there may be particular cases where the rules do not work as intended. I am grateful that the hon. Gentleman has raised these issues today; he should rest assured that they will be kept under review and that the specific cases he has discussed will be taken into account.
Question put and agreed to.
The Economy
Andrea Leadsom Excerpts(9 years, 12 months ago)
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The Economic Secretary to the Treasury (Andrea Leadsom)
During this debate we have heard some extraordinary assertions. We have heard that the economic crash of 2008 did not really happen, that we can simply spend, spend, spend our way out of a recession, and that we can somehow be insulated from the global economic outlook. However, British voters are pretty savvy. We cannot pull the wool over their eyes or fool them into thinking that we can go on borrowing and spending for ever. We have to be up front about the facts, so I should like to inject some clarity into the debate. I shall go through the motion point by point.
First, I completely agree with the many Members who said that living standards and fairness were critical to our economic recovery. Labour’s great recession has been tough. Many people have genuinely suffered as a result of the disastrous 5% drop in our nation’s GDP, which was brought about by far too much borrowing in the years before the financial crisis. It is too simplistic to say that working people are, on average, £1,600 a year worse off than they were in 2010. That figure ignores changes in employment. It ignores the big change we have made to cut income tax and duty on household goods. It also ignores the increase in household disposable income.
There is another story to tell, a positive story about how the economy is offering hope and opportunity as it recovers under our reforms. It is a story that involves more people being in work than ever before, and 2 million private sector jobs being created since 2010. It is a story that involves the number of young people on unemployment benefits halving since 2012, and a story that encourages work by ensuring that a typical taxpayer has had their income tax cut by £805 a year, boosting the money that 25 million people take home from work and taking more than 3.2 million of our lower earners out of income tax altogether.
It is this Government, through our long-term economic plan—for which I make no apology—who are creating the right environment for opportunity and aspiration for more people than ever before. Opposition Members have pointed out that many of those jobs are starter jobs for young people, part-time jobs for people getting back into work or self-employed jobs. Well, we on this side of the House applaud those entrepreneurs who are starting a business, who are taking on apprentices and who are offering flexible and part-time jobs to those who need them.
The latest figures show that regular pay rose by 1.8% in September, which is 0.6% above inflation. Workers who are in continuous employment—that is, those who are in the same job that they were in a year ago—saw their average earnings rise by 4.1%, which is more than double the rate of inflation. This is
“the start of real pay growth”,
as Mark Carney put it. Our long-term economic plan is delivering the highest growth in the G7. It was confirmed just yesterday at 3%. It is delivering more business investment than in the peak before the recession and creating a record number of private sector businesses. It has cut the deficit by over a third, and it stands to deliver the first surplus in 18 years by 2018-19.
Angie Bray (Ealing Central and Acton) (Con)
My hon. Friend is absolutely right to say that the public will not allow the wool to be pulled over their eyes. Does she agree that every survey imaginable shows that this Government have a very high rating for economic competence, whereas Labour is absolutely nowhere?
Andrea Leadsom
My hon. Friend is absolutely right. In particular, our achievements must be seen against the backdrop of our inheriting the toughest economic conditions in living memory.
I do not accept that we have broken our pledge to balance the books; nor do I accept that the recovery has somehow insulated the richest. What total nonsense! The richest are contributing more in income tax than they ever did under Labour, with over 28% of income tax revenue coming from the top 1%. In every single Budget, we have raised revenues from the most well off, and we have used those extra revenues to help the most vulnerable in our society. It is a sad fact that many have been hit hard by this recession, and I know how genuinely difficult many people have found it. We owe it to them not just to improve their living standards through an economic recovery, but to make sure we never get into this mess again. That is why it is all about finding the right balance: between ensuring that those with the broadest shoulders take the biggest burden and ensuring the UK remains internationally competitive and open for business.
This Government have looked to strike the right balance. That is why our above-inflation increase of the adult national minimum wage came into force on 1 October: more than 1 million people benefited from the largest cash increase since 2008 and the first real-terms increase since 2007. On child care for working parents, we are introducing comprehensive support. Under our tax-free child care plans, 20% support for child care costs of up to £10,000 per year for each child will be available. We have also doubled small business rate relief for a further year, helping more than 500,000 small businesses and giving 300,000 local shops, pubs and restaurants a £1,000 discount. We have made infrastructure a top priority—we are setting out a long-term pipeline of infrastructure investment of £383 billion to 2020 and beyond. Housing is a major part of this, and we are investing £7.8 billion to deliver 335,000 new affordable homes.
However, it is not our plan to reinstate the 50p tax rate. That rate was crudely thought out, distortive and economically inefficient. It failed to raise the £2.5 billion Labour claimed it would and it gave a damaging signal that the UK was not open for business. We have instead raised far more from tax changes targeting the richest, including the bank levy, which will raise £8 billion during this Parliament. We have also taken tough measures against tax avoidance: we have closed loopholes; we have clamped down on stamp duty avoidance; we have given Her Majesty’s Revenue and Customs new powers to collect disputed tax; and we have led international tax reforms through the G20.
The motion's final point related to creating new funds for health and care. Since 2010, the Government have increased the NHS budget in real terms every year. Health funding will continue to grow in real terms in 2015-16, which means an additional £2.1 billion for the NHS next year. But a strong NHS needs a strong economy, and our long-term economic plan is designed to provide both.
Chris Leslie
The £1 billion from the foreign exchange-rigging scandal is coming in as a windfall. Will the Minister do the right thing and allocate it for the NHS?
Andrea Leadsom
As the hon. Gentleman will appreciate, a strong NHS needs a strong economy. In answer to the point raised by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) about foreign exchange fines, she is absolutely right to say that we are talking about disgusting, appalling behaviour, which represented extreme arrogance on the part of the bankers who thought they could rig foreign exchange. Our Chancellor decided that those fines for misdoing would no longer go back to reducing the levy for the industry’s own regulation, but would instead be used for the public good. This is a big sum and we intend to think carefully about how we use it, but it will be used for the public good.
Whatever happens, we cannot go back to the bad old days. What a shocking mess we were left with—total economic carnage. The Opposition’s motion, calling for a current budget surplus and falling national debt as soon as possible, shows complete economic illiteracy. They want to keep on borrowing, hiding behind so-called “capital spending”, as if, somehow, one type of borrowing does not count. I do not see how voters can be fooled by that; it is the equivalent of saying, “I will spend my wages on food, clothes and petrol, but if I buy a car or a house, that’s investment and so borrowing to fund it doesn’t count.” It is this Government’s plan that will get our debts under control; eliminate borrowing over time to ensure that our debts fall as a share of GDP; and allow future Governments to respond much more quickly to any economic shocks, while continuing to support individuals and businesses across the country.
We know that the job is far from finished. As storm clouds gather once again over the world’s economies, we need to be clear about the scale of the task that we face. When a country loses control of its finances, it loses control of everything, and it is the poorest who are hit the hardest. Labour’s recession proved that only too clearly. This Government have taken the tough decisions to pull our economy back from the brink and, through our long-term economic plan, to put an economic recovery in place, so now, more than ever, it is a plan that nobody can afford to abandon.
Question put.
Equitable Life
Andrea Leadsom Excerpts(9 years, 12 months ago)
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The Economic Secretary to the Treasury (Andrea Leadsom)
As of 31 October 2014, the scheme has now issued payments totalling £990.5 million to 887,061 policyholders. The scheme has published a further progress report, which can be found at: https://www.gov.uk/equitable- life-payment-scheme
The figures are broken down as follows:
409,221 payments to individual investors have been issued totalling £555.2 million.
37,732 initial payments to with-profits annuitants (WPAs) or their estates have been issued by the scheme, totalling £82 million. Subsequent annual payments totalling £187.5 million have also been issued to annuitants.
440,108 payments totalling £165.8 million have been issued to those who bought their policy through their company pension scheme.
There are now approximately 151,000 policyholders who are due a payment but where the scheme has not yet been able to trace or validate their address.
The scheme has gone to significant lengths to trace eligible policyholders. It remains committed to tracing and paying as many eligible policyholders as possible, and will continue to consider all proportionate actions it can take to do this, including working with the Department for Work and Pensions.
The scheme encourages any policyholders who believe themselves to be eligible to call the scheme on: 0300 0200 150. The scheme can verify the identity of most policyholders on the telephone, which means any payment due can usually be received within two weeks.
Money Creation and Society
Andrea Leadsom Excerpts(10 years ago)
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The Economic Secretary to the Treasury (Andrea Leadsom)
I too congratulate hon. Members on securing this fascinating debate. It is long overdue and has allowed us to consider not just what more we can do to improve what we have but whether we should be throwing it away and starting again. I genuinely welcome the debate and hope that many more will follow. In particular, I pay tribute to my hon. Friend the Member for Wycombe (Steve Baker), who now sits on the Treasury Committee on which I had the great honour to serve for four years. I am sure that his challenge to orthodoxy will have been extremely welcomed by the Committee and by many others. I wish him good luck on that.
Steve Baker
May I just say how much I am enjoying my hon. Friend’s place on the Committee? I congratulate her on her promotion once again.
Andrea Leadsom
I am grateful to my hon. Friend.
My right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) gave a fantastic explanation that I would commend to anybody who wants to understand how money is created. He might consider delivering it under the financial education curriculum in schools. It was very enlightening, not least because it highlighted the appalling failure of regulation in the run-up to the financial crisis that is still reverberating in our economy today. All hon. Members made interesting points on what we can do better and whether we should be thinking again. I pay tribute to the right hon. Member for Oldham West and Royton (Mr Meacher) for his good explanation of the Positive Money agenda, which is certainly an idea worthy of thought and I will come on to it.
Money creation is an important and complex aspect of our economy that I agree is often misunderstood. I would therefore like quickly to set out how the system works. The money held by households and companies takes two forms: currency, which is banknotes and coins, and bank deposits. The vast majority, as my hon. Friend pointed out, is in the form of bank deposits. He is absolutely right to say that bank deposits are primarily created by commercial banks themselves each time they make a loan. Whenever a bank makes a loan, it credits the borrower’s bank account with a new deposit and that creates “new money”. However, there are limits to how much new money is created at any point in time. When a bank makes a loan, it does so in the expectation that the loan will be repaid in the future—households repay their mortgages out of their salaries; businesses repay their loans out of income from their investments. In other words, banks will not create new money unless they think that new value will also in due course be created, enabling that loan to be paid back.
Ultimately, money creation depends on the policies of the Bank of England. Changes to the bank rate affect market interest rates and, in turn, the saving and borrowing decisions of households and businesses. Prudential regulation is used if excessive risk-taking or asset price bubbles are creating excessive lending. Those checks and balances are an integral part of the system.
I agree fully that the regulatory system was totally unfit in the run-up to the financial crisis. We saw risky behaviour, excessive lending and a general lack of restraint on all sides. The key problem was that the buck did not stop anywhere. When there were problems in the banking system, regulators looked at each other for who was responsible. We all know that the outcome was the financial crisis of 2008. I, too, see the financial crisis as a prime example of why we need not just change but a better banking culture: a culture where people do not spend their time thinking about how to get around the rules; a culture where there is no tension between what is good for the firm and what is good for the customer; and a culture where infringements of the rules are properly and seriously dealt with.
I will touch on what we are doing to change the regulations and the culture, but first I will set out why we do not believe that the right solution is the wholesale replacement of the current system by something else, such as a sovereign monetary system. Under a sovereign monetary system, it would be the state, not banks, that creates new money. The central bank, via a committee, would decide how much money is created and this money would mostly be transferred to the Government. Lending would come from the pool of customers’ investment account deposits held by commercial banks.
Such a system would raise a number of very important questions. How would that committee assess how much money should be created to meet the inflation target and support the economy? If the central bank had the power to finance the Government’s policies, what would the implications be for the credibility of the fiscal framework and the Government’s ability to borrow from the market if they needed to? What would be the impact on the availability of credit for businesses and households? Would not credit become pro-cyclical? Would we not incentivise financing households over businesses, because for businesses, banks would presumably expect the state to step in? Would we not be encouraging the emergence of an unregulated set of new shadow banks? Would not the introduction of a totally new system, untested across modern advanced economies, create unnecessary risk at a time when people need stability?
Steve Baker
I do not actually support Positive Money’s proposals, although I am glad to work with it because I support its diagnosis of the problem. Of course, this argument could have been advanced in 1844 and it was not. I have not proposed throwing away the system and doing something radically new; I have proposed getting rid of all the obstacles to the free market creating alternative currencies.
Andrea Leadsom
I am grateful to my hon. Friend for pointing that out. I must confess that before the debate I was puzzled that such an intelligent and extremely sensible person should be making the case for a sovereign monetary system, which I would consider to be an extraordinarily state-interventionist proposal. I am glad to hear that is not the case. In addition, of course, bearing in mind our current set of regulators, presumably we would then be looking at a committee of middle-aged, white men deciding what the economy needs, which would also be of significant concern to me.
Mr Meacher
Before the Minister leaves the question of a sovereign monetary system, which she obviously totally opposes and to which she raised several objections that I cannot answer in an intervention, does she not believe that the system of bank money creation is highly pro-cyclical and has enormously benefited property and financial sectors to the disadvantage of the vast range of industries outside the financial sector?
Andrea Leadsom
As I said, I sincerely congratulate the right hon. Gentleman on raising this matter; it is certainly worthy of discussion, and I look forward to him responding to some of my arguments. I agree that where we were in the run-up to the financial crisis was entirely inappropriate, and I will come to some of the steps we have taken to improve—not throw away the baby with the bathwater—what we have now, rather than throwing it away and starting again.
I know that some of my hon. Friends and Opposition Members have a particular concern about quantitative easing—I have made it clear that I do too—specifically about how we might unwind it. However, they must agree that at least it can be unwound, unlike the proposal for “helicopter money”, which would seem to be a giant step beyond QE—a step where money would be created by the state with no obvious way to rein it back if necessary.
If the tap in my bathroom breaks, rather than wrenching the sink off the wall, I would prefer to fix the tap. As Martin Wolf said last week,
“nobody can say with confidence”
how a monetary system should be structured and what laws and regulations it should have. Given that and the economic tumult across the world, we should be devoting our energies to fixing the system we have—mending the problems but keeping what works. For that reason, the Government have taken significant steps to improve the banking sector, making sure it fulfils its core purpose of keeping the wheels of the economy well oiled.
We are creating a better, safer financial system, with the Financial Policy Committee, created in this Parliament, focused on macro-prudential analysis and action. As the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out, the FPC has been given counter-cyclical tools to require more capital to be held and to increase the leverage ratio and the counter-cyclical capital buffers when the economy is over-exuberant in order to push back against it—as the previous Governor of the Bank of England said, to remove the punch bowl while the party is still in full flow. That is incredibly important. We are also reducing dependence on debt. Since the financial crisis, the UK banking system has been forced significantly to strengthen its capital and liquidity position, and it is continuing to do so.
I must stress, however, that regulation alone will never be enough, which is why the Government are promoting choice, competition and diversity. I am delighted that 25 new banks are talking to the Prudential Regulatory Authority about getting a bank licence. We are also making strong efforts to promote the mutual sector; to enhance the capacity of credit unions to serve the real economy better; to enable booster funding for small businesses; to help families; and to improve customer service. We have put in place schemes to help the transmission of money from banks to customers, including the funding for lending scheme, which has lowered the price and increased the availability of credit for small and medium-sized businesses. As I think the hon. Member for Newcastle upon Tyne North said, we have also created the British business bank, which is helping finance markets work better for small firms, and are investing much resource and effort to build that up and help businesses in our economy.
We also have a programme of measures to increase competition in the SME lending market, including flagship proposals to open up access to SME credit information, which will help challengers to get in on the act, and to have banks pass on declined applications for finance to challenger banks. In addition, we now have an appeals process whereby small businesses turned down for funding can get a second chance, which has secured an additional £42 million of lending since its launch. These are all measures to help small businesses access finance. Then, to mitigate the problem of house price bubbles, we are putting in place supply-side reforms to promote home building and home owning, as well as measures enabling the PRA to limit the amount of lending that households can take on.
I agree with Members on both sides of the House, however, that we should not be content with the system as it stands. We must seek to improve it and make it function better. In Mark Carney, we have an excellent central banker who has the experience and knowledge to put the right reforms in place and see them through. As he says:
“Reform should stop only when industry and society are content, and finance justifiably proud.”
In the medium to long term, we need to create a culture where research and analysis do not shy away from going against the orthodoxy. As hon. Members across the House have said, we need to consider alternatives, and we should be having that discussion; it is healthy to do so, because that is how to make progress. For that reason, the call from Andy Haldane, the Deputy Governor of the Bank of England, for a broader look at new and existing monetary ideas is exactly right.
Mr Meacher
I am pleased the Minister thinks that alternative ways of improving the monetary system should be explored. Will she support the idea of a setting up a commission to examine the alternatives, as recommended by the hon. Member for Richmond Park (Zac Goldsmith), as well as by me—so there is some cross-part support on this? Is that not an idea whose time has come?
Andrea Leadsom
I think that an organisation such as the Treasury Committee, of which my hon. Friend the Member for Wycombe is a member, would be entirely the right place to have such a discussion, and of course we also had the Vickers commission, which looked at what went wrong and what measures could be put in place, and the Parliamentary Commission on Banking Standards, which specifically addressed the issue of incentives and motivations in banking. I would not normally advocate the establishment of great new commissions; we already have the bodies to look further at different orthodoxies, and as Andy Haldane has said, the Bank itself will be looking at, and encouraging, the exploration of alternative views.
Of course, we also need to continue embracing innovation, both in the “software” of how payments are made and in the “hardware” of new currencies, such as crypto-currencies and digital currencies—both could open up competition and give customers greater choice and access to funding—but we must do so with caution. In November, we published a call for information inviting views and evidence on the benefits and risks of digital currencies so that digital currency businesses can continue to set up in the UK and people can expect to use them safely.
I am the last person who could be described as statist, but I accept that we must always be ruthless in our determination to regulate new ideas that come to the fore, because as sure as night follows day, as new ideas come in, through shadow banking, new lending ideas and so on, some people will seek to manipulate new schemes and currencies for fraudulent purposes. I am absolutely alive to that fact. It is important, therefore, that the Government carry out the necessary research.
The Government believe that the current system, modified and improved with far greater competition, can service the economy best. However, reform is vital. Again as Andy Haldane puts it:
“Historically, flexing policy frameworks has often been taken as a sign of regime failure. Quite the opposite ought to be the case”.
We need banks to lend—to young families wanting to buy houses and repay out of future labour income rather than relying on the bank of mum and dad, and to businesses wanting to seize opportunities, gain new markets and create jobs and growth. We have an existing system that offers a forward-looking and dynamic framework in which tomorrow’s opportunities are not wholly reliant on yesterday’s savings and which builds on banks’ expertise in assessing risk and making the lending decisions we badly need. During my 25 years at the heart of the industry, I saw the sector at its best, but sometimes sadly also at its worst. We are trying to remedy the worst, but let us also keep the best.
Treasury
Andrea Leadsom Excerpts(10 years ago)
Ministerial CorrectionsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Andrea Leadsom
I did not. I am sorry—I must have missed the hon. Lady’s request on that point. To the extent to which larger credit unions are offering current accounts, which I defined as carefully as I could in my opening remarks, they will be captured by the legislation.
[Official Report, Fifth Delegated Legislation Committee, 5 November 2014; c. 11.]
Letter of correction from Andrea Leadsom:
An error has been identified in the response given to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) in the Fifth Delegated Legislation Committee debate on 5 November 2014.
The correct response should have been:
Andrea Leadsom
I did not. I am sorry—I must have missed the hon. Lady’s request on that point. To the extent to which larger credit unions are offering current accounts, which I defined as carefully as I could in my opening remarks, they will not be captured by the legislation
Financial Policy Committee(Leverage Ratio Framework)
Andrea Leadsom Excerpts(10 years ago)
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The Economic Secretary to the Treasury (Andrea Leadsom)
The Government have today published a consultation on granting the independent Financial Policy Committee (FPC) new powers over a leverage ratio framework for UK banks, building societies and investment firms.
On 26 November 2013, the Chancellor wrote to the Governor asking that the FPC undertake a review of the leverage ratio and its role in the regulatory framework. On 11 July 2014, the FPC published a consultation paper setting out its initial proposal for a leverage ratio framework and sought the views of the industry. On 31 October 2014, following almost a year of work and extensive consultation with stakeholders, the FPC published its response, the Review of the Leverage Ratio. The review recommended that the FPC be given new powers of direction over the leverage ratio framework for the UK banking sector. Specifically, the review recommended that the FPC should have a power of direction to set:
The minimum leverage ratio requirement to be set at 3%;
The supplementary leverage ratio buffer rate to be set as a proportion of the systemic
risk-weighted capital buffers using a scaling factor of 35%; and
The countercyclical leverage ratio buffer rate to be set as a proportion of the countercyclical capital buffer rates using a scaling factor of 35%.
In response to this recommendation by the FPC, the Government are consulting on legislating to give the FPC powers of direction over leverage ratio requirements. Currently, the FPC can only make recommendations in relation to these tools.
The consultation that has been published today contains draft secondary legislation that will provide the FPC with the new powers of direction. The Treasury seeks responses to the consultation by 28 November 2014, in advance of laying the secondary legislation before Parliament in early 2015.
The consultation document The Financial Policy Committee leverage ratio framework has been published on the Gov.uk website and found using the following link:
https://www.gov.ukgoverment/consultations/financial-policy-committees-leverage-ratio-framework.