Financial Guidance and Claims Bill [HL]

Baroness Kramer Excerpts

Tuesday 24th October 2017 Lords Chamber

[Viscount Brookeborough (CB)]

My Lords, as a member of that committee, I support this amendment. This is different from some of the other amendments that have come under Clause 2(7), because this is really already there as far as schools go, but it just falls short of doing what it should. For instance it talks about the “provision of financial education” and then says,

“working with others in the financial services”.

Your Lordships might sympathise with what Martin Lewis says:

“We do not ask GlaxoSmithKline to pay for chemistry. This is on the national curriculum. Why are we asking banks to pay for it?”.


Why are we asking financial institutions? I am perfectly happy that, as the Minister will say, “Yes, we do ask them and they do something”, but it is really small and does not begin to touch.

Here are just a few statistics to show why we are talking about education. I will not try to bore your Lordships with them all, but they put this into perspective: 40% of the working population have less than £100 in savings; one in six struggle to identify a single bank balance; around a third of the population, 17 million, cannot even manage a budget; and 26% of postgraduates —that is all—are confident in managing their money. The excellent FCA report which came out at the weekend also shows why it is important. I will come to education in schools in a minute, which is fairly horrifying, but the report says:

“Adults with postgraduate degrees are just as likely to feel uncertain about their abilities as those educated to GCSE level”.


So, with all due respect, there is simply nothing going on. Many do not understand the excessive interest rates on unauthorised overdrafts, for example, or revolving credit card balances and the interest rates that are put on those. They do not understand payday loans very much—although it is interesting to note, since we were ready to condemn them, that payday loans are actually cheaper than some of the other loans available, which is quite surprising. That is not because payday loans are cheap but because interest rates on credit cards and unauthorised overdrafts are not only ridiculous but incredibly unfair, as they do not even notify you. At least when you take out a payday loan, you know that you have borrowed £1,000. With most banks, you would not have a clue until you got the bill. So the question is not straightforward. These statistics are all true; they come from evidence that we took and the survey that I just mentioned, showing how very poor the understanding of basic financial matters is in this country. We are way behind others, including, I believe, China.

This whole problem ultimately causes so much unhappiness and stress and will mean a higher cost than otherwise to the welfare state, purely because of the number of people who could have managed but do not because no one told them how. It is all due to a single cause: the lack of financial education in schools. The Bill talks about,

“the provision of financial education to children and young people”.

Where are children and young people, and where are you going to educate them? Even I went to a school, and that is the only place where you have them all in one place. You do not honestly think that on a Saturday, instead of going to the cinema, they will go to a class on financial education. So there is only one place for it: the schoolroom. You have only to add “in school” to the wording and you almost have the amendment as it stands.

Financial education could be introduced into primary schools. However, although we are aware that there is some excellent work in primary schools—the Minister may come back and say, “There are good stories about primary schools because they teach people things”, and they do—in answer to question 179 in our evidence transcript, Adrian Lyons of Ofsted, who was incredibly useful and very nice about it, said of ex-primary schoolchildren,

“but then the children go to secondary school and hit a brick wall”.

That completely sums it up. What a condemnation that is from Ofsted itself.

What of the addition of financial education to the secondary school curriculum in 2014? The first point is that to most sane people a curriculum is what people have to learn. Believe it or not, though, there are actually two curriculums, one non-statutory and the other, the national one, statutory. You have got it in one: this is on the non-statutory curriculum, because it lies within the PSHE programme. It gets worse, as only 35% of state schools come under that so-called curriculum—all the free schools and academies are outside it. We need not say that financial education is being taught in schools as a curriculum subject; clearly it is not, as we would understand it, and it definitely does not go anywhere.

Financial education lies within PSHE subjects but they are not statutory. Guess what happens. Time devoted to PSHE has been reduced by 32% since 2011 because it is non-statutory and there is not enough time for it. Why? One reason for that was suggested by the PSHE representative, who said that schools,

“have so little time for it”,

characterising the situation as follows:

“We only have 20 minutes, and if we don’t do something on sexual exploitation or online safety we’re going to be in trouble over safeguarding”.


To all intents and purposes, that is the end of your secondary school financial education. Adrian Lyons said that Ofsted produces a state-of-the-nation education report. Our chairman, the noble Baroness, Lady Tyler, asked,

“how much was there on financial education in the last one?”.

Mr Lyons’s answer was:

“I do not know the answer to that, but I would be surprised if there was any, to be honest”.


I think we know that it was zero.

Here we have something that is all about life skills. After all, school, at the end of the day, is concerned with life skills. You are not going to survive on geography alone; you are not going to survive on physics or other things alone. We are talking about very basic financial management; we are not talking about pensions. We are saying: if you save one sweet every day until the end of the week, you will get five sweets; and if you want to borrow five sweets from me, you can pay me 10 next week. As a foundation, it is as simple as that, but the inspectorate does not even look at it. This amendment could change all that.

Of course, Ofsted says that you cannot judge something—I seem to think that this is how it puts it—without having exam marks, and there are no exam marks here. Ofsted is about marking schools. It is also about encouraging schools to do the right thing and to teach life skills, so why not initially find a way of saying, “Do you teach financial education? How much do you teach? Okay, we’ll give you 10 points for that”? At least that would be an incentive to do what they should.

When we talked about education in schools, every reason under the sun was given for why they would not or could not do it. We did not have the teachers in front of us. I am terribly sympathetic about teachers’ time, so I am not getting at them. There is no time. Teachers are not confident to teach this subject but, as I have said, we are talking about the basics. Any teacher on a salary is going to know something about saving or spending or not having enough money or whatever. I just do not believe that that is the reason.

The FCA book shows a really poor record on everything, yet schools are the only place where we have young people’s attention. What are we meant to be doing? If we say that schools should not be the place—we have already had several amendments turned down because they were too well defined or because they have added too many lines—where should it be? It is not going to be in church, so I suggest that it should be in schools and that we do something to make sure that it is done; otherwise, it will not be done. When we talk to people about where it might be done, why it is not done and the problems with that, it is somebody else’s problem. No doubt we will be told that it is the education board’s problem, or whatever there is. I am telling noble Lords that that is passing the buck. The sooner we get “schools” written in the Bill, the better.

[Baroness Kramer (LD)]

My Lords, I will add just a brief comment in this area, as the noble Viscount, Lord Brookeborough, has really made the case. A few years ago, when I was dealing much more with banking institutions, one of them very proudly showed me its pack for schools. All that I came away with was that its logo and colours were all over everything. Had this been presented to an adult, they would have regarded it as a sales pitch rather than an educational tool. That was rather worrying. We are moving into an era where there is huge disruption of all the traditional players. On a personal basis, many of the people making decisions to save or borrow will be looking at many of the new disrupters—the challengers, the peer-to-peers, the digital bodies and whatever else. If we are looking towards the handful of major high-street players to be the providers of financial education, particularly to the young, they will not be introducing that world, which they very much regard as threatening. Yet that is the world of the future that our youngsters will have to deal with. The Government have to be very cautious about how they use providers as a delivery instrument for this education.

[Lord McKenzie of Luton]

My Lords, I am grateful to the noble Viscount, Lord Brookeborough, for his contribution to this debate. It is a pity that there were not more people in the Chamber to hear the powerful case that he made.

Actually, I do not think that the Minister has responded yet—my apologies.

Financial Guidance and Claims Bill [HL]

Baroness Kramer Excerpts

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

We are making progress but the world of claims management is live, creative and fleet of foot. No sooner is one loophole closed than another is found and exploited. I just hope my amendments might help us propel the regulators one step ahead of all those constantly undermining the civility and stability of our society by setting people against one another purely for their own financial gain. I beg to move.

[Baroness Kramer (LD)]

My Lords, this is not an area that I knew about before the noble Lord, Lord Hunt of Wirral, got to his feet, but he has thoroughly persuaded me and I hope that he has thoroughly persuaded the Government.

[The Earl of Kinnoull (CB)]

My Lords, as usual, the noble Lord, Lord Hunt, is right on the money and I do not disagree with a word that he said. I would add one tiny little thing: the net effect of the MROs and the CHCs is that they add to the cost of motor insurance in this country so that poorer people who struggle to pay their motor insurance will find it further away from them. For that solid reason, I strongly support the noble Lord’s two amendments.

--- Later in debate ---

[Baroness Altmann (Con)]

My Lords, I, too, rise briefly to support my noble friend’s amendment and congratulate him on laying it in the way he has. I certainly sympathise with him about wishing to put in measures which might originally seem out of scope and the need to be rather convoluted about it. I also echo the words of the noble Baroness, Lady Drake: these are issues that have been recommended by the Financial Services Consumer Panel, highlighted by the Lords Select Committee on Financial Exclusion and would go some way to help change corporate culture to support those who are going through serious, perhaps unexpected, illness and need time to adjust to their circumstances or to cope with their treatment.

The cancer charities are rightly raising this issue and it would be very helpful if the FCA were able to encourage firms to introduce some kind of special measures or special help in recognition of the circumstances that people will from time to time find themselves in—not only to help those people when they apply for that help but to encourage somebody who has had a cancer diagnosis, for example, to ask for help, which very often right now they do not even think of doing. Therefore, I hope my noble friend will take this matter to heart and take this opportunity to address an issue that could have serious and important social benefit.

[Baroness Kramer]

My Lords, I was a member of the Parliamentary Commission on Banking Standards, which looked at the duty of care issue. In the end, the commission made the decision not to pursue the matter and to empower the FCA to take up regulation and play a role. I thought at the time that was not a good decision but the argument was very much based on the idea that the remit of the Parliamentary Commission on Banking Standards was to do with banking, and that the new banking standards body would tackle many of these culture issues, of which duty of care is obviously an inherent part. Looking at the work of that banking standards body, I do not think most of us think it has followed that direction. I do not see any significant change in pressure from the various bodies, whether applied to banks or financial institutions, to make them become much more conscious of the needs of their customers, especially vulnerable ones.

I have never understood why the industry has resisted this duty. Frankly, it is akin to constraints on mis-selling as behaving in the wrong way towards any individual, providing them with an inappropriate service and not giving them adequate support to understand whether that is the service they need surely falls into that mis-selling category. Expanding the powers of the FCA to allow it to provide a more general approach through the mechanism of duty of care would make the FCA’s job on issues such as mis-selling significantly easier. Therefore, I hope very much that the Government will take this on board. Frankly, the long-grass decision is very frustrating. Whenever I hear that an important piece of legislation is being postponed because we have the Brexit Bill, I begin to wonder whether we recognise appropriately the needs of the country.

[Lord McKenzie of Luton]

My Lords, this is an important amendment and we should congratulate the noble Lord on its introduction. It goes to the heart of what the regulation of claims management companies should be about, although I think we recognise that it is a surrogate for a broader duty of care issue. It is understood that there will anyway be a consultation around the regulatory principles that the FCA should adopt. Others have commented on the timing of that. Perhaps the Minister will let us have his view on whether the current timescale attached to that is appropriate.

The issue takes us back in part to our debates on earlier sections of the Bill, and to the current position of the FCA and the CMRU. As the Brady report sets out, the primary objectives of the CMRU are protecting and promoting the interests of consumers, protecting and promoting the public interest and improving standards of competence and conduct of authorised persons. This is quite different from the operational objectives of the FCA, which are to secure appropriate protection for consumers, protect and enhance the integrity of the UK financial system and promote effective competition in the interests of consumers.

Some of the “ideal organisational objectives” for claims management regulation proposed by the Brady review co-mingled some of this but included empowering consumers to choose a value-for-money service as well as maintaining adequate and effective access to justice.

While I support the noble Lord’s proposals, I quibble on the inclusion of “where appropriate”. Where is this not appropriate? Certainly, the proposed new subsection (1)(a) places a strong and proper focus on consumers, which we support. It addresses dealing with conflicts of interest, and although it is implicit in the noble Lord’s amendment, it seems desirable that transparency should feature in the requirements. However, the noble Lord has given us at least a starter for 10 on this important topic, and we look forward to the Minister’s reply.

--- Later in debate ---

I realise that the amendment, as it stands, does not achieve its intended aim, due to a tabling error, but I would be grateful to the Minister and the House if the issues behind the spirit of the amendment could be explored further. I beg to move.

[Baroness Kramer]

My Lords, I support the amendment. We all understand that the amendment has drafting problems, but the intent behind it is an important one: to avoid delay in taking action against pernicious behaviour by some of these companies.

[Lord McKenzie of Luton]

My Lords, I will be brief in a similar vein. We support the thrust and spirit of the amendment, which is to make progress on the cap before we get to the stage where PPI claims have all gone through the system. It would be a tragedy if people continued to lose significant amounts of money from claims management companies when there is a clear remedy available.

This also partly picks up the issue, which we touched on earlier, regarding SRA regulation being less rigorous than MoJ regulation of CMC activity. The noble Lord felt that that was not a problem, but as I understand it a thematic review of solicitors who undertake claims management activities has been commenced, with the intention of strengthening their approach to regulation on this activity. The noble Lord may be able to confirm that or help us, but it seems to be a clear worry of some whether being able to escape CMC regulation because a solicitor is on board—albeit that brings in a different form of regulation—is a fair way to proceed.

However, the substantive point is to have the opportunity to get that cap in place well before the PPI claims have run their course.

--- Later in debate ---

[Lord Young of Cookham]

My Lords, the amendment tabled by the noble Baroness, Lady Greengross, seeks to require the FCA to make rules restricting fees relating to claims for financial services within two months of the Bill receiving Royal Assent. I agree wholeheartedly with what the noble Baroness and others who have taken part have said on the need to ensure consumers are not charged excessive fees by companies offering claims management services. I also appreciate the Committee’s wish to ensure this protection is given to customers of CMCs as soon as possible. However, it will not be possible for the FCA to make all the necessary rules within two months of Royal Assent. That is indeed an ambitious target.

The Bill puts a duty on the FCA to make rules restricting charges for regulated claims management activity relating to financial products or services. The duty is broad so as to give the FCA the flexibility to design an appropriate cap relating to a wide range of claims for financial products and services. Conceivably, different types of claim might require different levels of cap. To ensure the cap is appropriate, the FCA will need to obtain evidence from across the sector, analyse that information to develop suitable proposals, prepare a cost-benefit analysis and consult on draft fee cap rules. This will, necessarily, take some time. I am sure noble Lords will agree that we need a robust cap, developed on the basis of sound evidence and consultation.

The Government are giving the FCA the tools it needs to start that work as soon as possible. Schedule 5 to the Bill gives the FCA the information-gathering powers it will need to do the work, and Clause 19 provides that those powers will come into force on Royal Assent. However, the scale of the work that needs to be done means it cannot do it all within a two-month window.

Noble Lords have quite rightly raised the current campaign on PPI and how it impacts on the proposals in the Bill that may not come into force for some time. They have asked what might be done in the meantime, which is a very good question. The Government remain committed to establishing a tougher regulatory regime for CMCs. We are considering further the nature of any fee controls that could be introduced before the FCA’s new powers are switched on, using the helpful and comprehensive range of responses to the Ministry of Justice’s consultation. Indeed, this could include a ban on up-front fees. To that end, the Claims Management Regulator is working with the FCA. We are taking the opportunity in the Bill to incorporate a duty on the FCA as the new regulator to develop and implement a fee cap for financial services claims. As that debate gets under way I am sure those concerned will take on board the concerns expressed in the debate to make sure CMCs do not use the benefit of any hiatus to unduly disbenefit—

[Baroness Kramer]

Will it be possible for the Government to bring forward some appropriate language that achieves that when we get to Report so it becomes a locked-in proposition rather than one that has various legislative stumbles before it can be achieved?

[Lord Young of Cookham]

I will do what I can to shed some more light on those issues. As I said, discussions are going on to see whether we can bring those proposals forward. We will certainly update the House when we come to Report.

In response to the noble Lord, Lord McKenzie, this is a similar point to one he raised earlier, and the answer is very similar. The CMRU regulates CMCs, while the Solicitors Regulation Authority regulates solicitors firms conducting claims activities—I think that I am reading exactly the same note as I received earlier. The full scope of claims management services for the purposes of FCA regulation will be defined through secondary legislation, including the extent of any exemptions. The Government want to ensure that there is a tougher regulatory regime and greater accountability for CMCs, while ensuring that solicitors are not burdened with unnecessary regulation—the more I read, the more familiar the sentences become. Both the scope and the nature of exemptions will be drafted to reflect these priorities.

Against a background of what I have said about the Government seeing whether, if we cannot—as we cannot—implement the full Act within two months, something can be done in the meantime, and against an undertaking to update noble Lords by the time we get to Report, I hope that the noble Baroness might be able to withdraw her amendment.

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[Baroness Drake]

My Lords, I too rise to express my sympathy with the views articulated by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Altmann. I also empathise with the point made by the noble Earl, Lord Kinnoull. I listen to what he says because he often makes some very wise nuggets on a point that warrant reflection.

We do not want to regulate CMCs out of existence, because people need access to redress where they have been poorly treated or have experienced a serious problem. Public policy has been pushing assisting people with access to justice out to the private sector, so we have to come up with a toughened regulatory system that does not deny that. In a well-regulated, well-run system where public policy itself is making it more difficult for people to pay for access to justice, well-regulated claims management companies have a role to play.

However, the way the CMC industry currently operates is clearly totally dysfunctional. It gives rise to three key problems. One that the noble Lord, Lord Hunt of Wirral, articulated in the previous debate is that it stirs up such an artificial level of claims without merit that it risks undermining that very protection regime for the genuine claimant. It raises the costs and charges faced by other customers for what they have to pay for products and services, often hurting those on lower incomes.

We know that the ease of entrance to the market means that claims management companies often do not treat claimants well. They give poor value to the claimant on fees and service; there is little inhibiting them doing so. I see that, a couple of years ago, 22% of claims management companies in one year lost their accreditation or received a formal warning—basically one-quarter of the industry having its card marked or forced out.

Also, we have a situation where new technology allows claims management companies to operate on a huge scale. They are harassing the public with very aggressive techniques, using new technology that allows such mass approaches. People are being bombarded with calls and texts; if you answer them by mistake, God are you hooked in. That triggers another series of harassing texts and calls. Very often the person does not even have the product or has not had the experience the call management company is targeting. These call management activities are one huge fishing trip that new technology allows which has got completely out of control. That trawling simply has to stop. There needs to be some appropriate intervention.

In supporting that, I go back to the reflective point that the noble Earl made. In a situation where assisting people with access to justice is increasingly being put into the private sector, we want a well-regulated claims management company that will help the genuine claimant get access to justice.

[Baroness Kramer]

My Lords, I intervene because it is important to stress that it is essential to ban cold calling, not give it a space. For example, those who are concerned about PPI claims can see advertising on the television. That is not cold calling or a sort of personal assault on your letterbox or your phone, whether by call, messaging or email. It is the personalised cold call that arrives. Often it is content that is intimidating and unless every phone call is recorded and checked there is absolutely no way to make sure it is not intimidating. It is the number of these things. If, for example, you say, “You can send five texts to every individual”, you will simply have a much greater group of people all sending five texts. It becomes almost impossible to manage unless you go for the ban strategy.

There are many ways to communicate. For example, I look at the way the FCA is now communicating with the general public over PPI. It has some excellent ads on television making it clear that there is a free way to call. It provides a phone number and a website. The whole process is easy. We would all be offended if the FCA now started cold calling individuals across the country, even to provide a free service. It is an invasion of private space. We have to protect private space, and cold calling is a mechanism which violates it. I hope that, in the interests of making sure people remain informed about the options available to them, we do not require them to give up control of that private space.

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[Baroness Buscombe]

I thank all noble Lords who have taken part in this important debate. I thank in particular the noble Lord, Lord Sharkey, the noble Baroness, Lady Kramer, my noble friend Lady Altmann, and the noble Earl, Lord Kinnoull, for tabling the amendments and prompting this debate about cold calling. I think we are all familiar with the nuisance calls and texts that noble Lords seek to address.

However, I fear I shall disappoint noble Lords, but will do my utmost to persuade the Committee that legislating for a ban on cold calling at this stage is not the right thing to do. The arguments against the amendments are twofold. I shall begin with what we are doing by way of this Bill. The Government have put on record their commitment to clamping down on rogue CMCs that bombard consumers with unsolicited nuisance calls and texts, or provide poor service for consumers, by transferring regulatory responsibility to the FCA. Strengthening the regulation of claims management services—good regulation, I might add—should reduce the number of unsolicited calls made by CMCs as they will have to comply with any additional rules that the FCA makes in relation to how CMCs obtain customers or pass their details on to others.

The FCA will consider unsolicited approaches to consumers in the wider context of rules around advertising and marketing. It is too early for the FCA to have decided on specific rules for CMCs. I make that point clear to all noble Lords who entered into the debate on this amendment: this is not something the FCA has had a chance to do before but now, through the Bill, it has the opportunity to decide on specific rules for CMCs. It will consult on its proposals.

There are already measures in place to tackle unsolicited calls. The Information Commissioner’s Office enforces restrictions on unsolicited direct marketing. Unsolicited directing marketing calls to a person who has subscribed to the Telephone Preference Service or told the company they do not wish to be called is prohibited under the Privacy and Electronic Communications (EC Directive) Regulations 2003. In addition, organisations responsible for breaching these regulations can be fined up to £500,000 by the Information Commissioner. In 2016-17, the Information Commissioner’s Office issued more civil monetary penalties for breaches of these regulations than ever before, issuing 23 companies over £1.9 million of fines for nuisance marketing.

There was reference to scams. Of course, scams fall into the sphere of fraud and are therefore criminal. Many cold calls are conducted by unauthorised businesses. CMRU increased its capacity to identify, investigate and take enforcement action against unauthorised businesses, including all call centres marketing unauthorised claims management services. Since these regulations began, CMRU has taken enforcement action against 1,280 unauthorised CMCs. Moreover, in May this year, a company behind 99.5 million nuisance calls was fined a record £400,000 by the ICO. Action is being taken now and the FCA will introduce tougher regulation in this area.

The noble Lord, Lord Sharkey, asked why, if we are able to ban calls for mortgages and pensions, we cannot ban them for CMCs. It is important to differentiate between the two types. The Government absolutely decided that cold colds in relation to, for example, pensions are a special case because the levels of consumer detriment are uniquely high. For some UK customers, especially inexperienced investors, pensions savings may be their largest financial asset. Often, CMC nuisance calls are just that—a nuisance. The potential for customer detriment is therefore also much less.

It is not that this is not an issue for the Government to consider. I say that with some feeling. Strengthening the regulation of claims management services should help reduce the number of unsolicited calls made by CMCs. As I said, there are already measures in place enforced by the ICO.

[Baroness Kramer]

The Minister talked about the current enforcement and recommended it with such vigour. Could she then explain why the number of calls is so great? I think the noble Baroness, Lady Altmann, cited a figure of 50 million and it is growing every year. To my mind, the two things do not tally.

[Baroness Buscombe]

I am trying to make the point that the transfer of claims management company regulation to the FCA will result, we believe, in tougher regulation and should reduce the number of unsolicited calls made by CMCs. What I am really saying is: can we please give the FCA a chance? While there are already measures in place to tackle unsolicited calls, enforced by the Information Commissioner’s Office, unfortunately there is a minority of disreputable companies which flout the law. The ICO will take enforcement action where appropriate; as I have said, in 2016-17 it did so against 23 companies. We need to improve on this and we hope this will happen through tougher regulation.

I hope I have explained the difference between cold calling for CMCs and cold calling for pensions, which we are taking action on. I think my noble friend Lord Deben was suggesting, as indeed were other noble Lords, that we should have a wholesale ban on cold calling, but one has to be really careful what one wishes for. This point about access to justice is very important. Clearly, there are different routes to making unsolicited approaches. If we had a wholesale ban on cold calling, what would political parties do?

Financial Guidance and Claims Bill [HL]

Baroness Kramer Excerpts

Committee: 2nd sitting (Hansard - continued): House of Lords
Wednesday 6th September 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I am strongly in favour of this amendment, which picks up on an issue addressed earlier by the noble Baroness, Lady Altmann. It is that the world we live in is far more complex than the one that provided the framework when these original bodies, which are now being brought into one, were set in place. We need that revision for this single body to encompass the whole of the arena of life as it is today.

The noble Baroness, Lady Greengross, was very clear that for many people, the overwhelming majority of their wealth and assets is in their home, that using that as part of their support for their old age may well be a strategy they want to pursue, and that they cannot consider a pension without looking at that issue with the same kind of clarity and without looking at the situation as whole.

I have personal experience of this. I have an elderly family friend who is considering equity release or some similar way to use the wealth embedded in her home. I started to look at the various websites and at the products that are available. Noble Lords will be delighted to know that this is apparently the golden age of equity release, which is increasing at the rate of 28% per year. The websites are exceedingly seductive. The comparison sites compare one product to another, but none of them exposes the real issues of concern or the questions one should be asking about whether the product is appropriate. It is also easy to find a way to access that equity without being in a regulated environment. Recognising that, equity release is for some people entirely appropriate but for many it is entirely inappropriate, and advice is critical.

If people are not signposted and sent through a guidance mechanism to get that financial advice, it seems to me they are in very murky waters. It takes a very sophisticated financial expert to work their way through this. It makes pensions look simple, and I hope very much that the Government will take on board and make use of this excellent amendment.

[Lord McKenzie of Luton (Lab)]

My Lords, this is an interesting amendment. I believe that it is possible for the noble Baroness to achieve what she wants under the terms of the Bill as it stands, but that is not entirely clear and not quite for the reasons set down in the amendment. The amendment says:

“As part of its pensions guidance function, the single financial guidance body must provide”,


et cetera. Clause 2(4) says that the “pensions guidance function” under Clause 2(1)(a) is,

“to provide, to members of the public, information and guidance on matters relating to occupational and personal pensions”.

I do not think that equity release falls within that definition. There is a separate issue as to whether it would fall within Clause 3, which says:

“As part of its pensions guidance function, the single financial guidance body must provide information and guidance”,


et cetera, but that is to do with,

“flexible benefits that may be provided to the member or survivor”.

It seems to me, on a straightforward reading of the Bill, that it would not be possible to use the pensions guidance function strand of the new body, but there seems absolutely no reason why the money guidance function could not be used for that purpose. That would be a potential quarrel I would have. The Minister may say that interpretation is too restrictive and not right, but I do not think it would preclude the noble Baroness achieving what she wants. It seems to me the money guidance function should enable guidance to be provided on assets including on equity release.

The noble Baroness, Lady Kramer, raised the question of whether the FCA regulates all these schemes. I am advised that it probably does not, but obviously there is an issue there and perhaps the Minister would respond to that. We can support the thrust of this, because I think it achieves what the noble Baroness wants, but not quite, as I understand it, in the terms of the amendment, because of the other functions in the Bill.

Tax Havens

Baroness Kramer Excerpts

Thursday 6th April 2017 Lords Chamber

[Lord Young of Cookham]

The initiatives we are taking on tax evasion are independent of our membership of the EU, although we are pursuing some EU directives. As I said, this country is in the lead. I do not know whether my noble friend has seen page 9 of today’s Times, which says that:

“Oligarchs must disclose identity as home owners”,


with a register. That is a world first: the people behind anonymous companies that own billions of pounds-worth of property must reveal their identities under new anti-corruption rules. This shows that the country takes the matter very seriously.

[Baroness Kramer (LD)]

My Lords, in arguing that they will not use the powers they have to require the overseas territories to make registers of beneficial ownership public, the Government say that they expect the overseas territories to do so when that becomes the international standard. Will the Minister tell me the timeframe within which he expects public registers to become the international standard—and will it be within my lifetime?

[Lord Young of Cookham]

The noble Baroness looks younger every day, and so I will not go there.

Class 4 National Insurance Contributions

Baroness Kramer Excerpts

Wednesday 15th March 2017 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I am fairly sure that the House will not be taking the Statement in quite the positive way in which the Minister clearly hopes. Conservative Party Budgets and U-turns seem to come hand in hand these days, but this is one of the outstanding ones. Scrapping the centrepiece of the Budget in less than a week is going some, even by Conservative Chancellors’ standards. When Chancellors make really egregious mistakes they are always compared with Hugh Dalton, who was fired almost immediately on the spot for the leak to the lobby correspondents as he walked in to deliver his Budget. When I think about other errors that Chancellors have made, this one comes pretty close to that. As the Chancellor has obviously been in close contact with the Prime Minister, I imagine that his hair has stood on end these last few days—brushed well though it normally is.

The changes announced today amount to a £325 million revenue loss in 2018-19 and a further loss of £645 million in 2019-20. They raise a number of questions, not only about the obvious gaping hole left in our country’s finances but also about the critical relationship between the Prime Minister and the Treasury. After all, we all know there is a connecting route between Nos. 10 and 11; they are adjacent properties. It therefore seems that the Prime Minister is bound to have been consulted on the Budget.

What we need to know is this. In his letter to Conservative Back-Benchers, Philip Hammond said:

“The cost of the changes I am announcing today will be funded by measures to be announced in the Autumn Budget”.


That is not good enough. At a time of already considerable uncertainty over our future relationship with the EU and the terms that we will obtain, and the impacts that that will have on trade and the whole issue of business confidence in this period, this is just about the last thing we need—a mess-up on a Budget.

If past Budgets or Autumn Statements are anything to go by, waiting for months only to hear that welfare spending or local council funding has been cut even further is not acceptable, yet we know both of those have been in the Government’s firing line in recent months. Furthermore, can the Minister assure this House and the public that the £2 billion announced for social care will be safeguarded? Informed opinion thought the emergency needs of social care were £2 billion a year, so we were already critical enough about the Chancellor’s decision to award it £2 billion over three years—that is, about one-third of what is necessary. The House will want an assurance today that that money at least is to be safeguarded.

The Prime Minister has said it was the Government’s decision to U-turn on national insurance contributions, but whose decision was it to put it in the Budget in the first place? In the consultation, were people not aware of the manifesto commitment? Surely the Government are not seriously saying that the Chancellor spoke to no one except officials before the Budget was produced. What about these other significant figures, his Treasury Ministers, who line up with their boxes in photographs and take pride in the Budget? No one among them appears to have recognised the manifesto commitment, leaving the public suspecting that it was the Prime Minister who put the Chancellor right. There will probably be consultations over a number of issues in the future and if they are at the informed and perceptive level of the construction of this Budget then we are all in for a rather bumpy ride.

This after all was one of the Chancellor’s major announcements in his first Budget. Surely he must have consulted people. We and indeed the country are at a loss as to why no one recognised what is now regarded as an important block—namely, that at the last general election the Conservative Party made a series of promises, not all of which have been fulfilled, though the ones that have been fulfilled are the ones that we on this side of the House find most onerous. It turns out that as far as this Budget was concerned this promise was the critical one, yet the Chancellor went blissfully on to deliver the Budget.

As the IFS has made clear with regard to self-employed people on low incomes, the NICs uprating was only ever small in comparison with the more significant changes that the Government are making to universal credit, yet this is the one that has shaken the Chancellor. I hope the Minister recognises that the self-employed will remain worried about what they will be taking home at the end of the month following this fracas. On the abolition of NICs 2, which the Chancellor has today confirmed will go ahead, how will the rights previously obtained by class 2 contributions be ensured?

There is now a gaping hole in the Budget and the Chancellor needs to reassure the nation that he will cope with the financial problem represented by this blunder. Finally, if no action on NICs 4 is to be taken in this Parliament, what on earth is the purpose of Matthew Taylor’s work? If there is such a block on action on this one crucial area—the Government have after all emphasised how crucial it is in terms of changing patterns of work—until after the next general election, we are all left to wonder just what will be the purpose of that work.

[Baroness Kramer (LD)]

My Lords, what a climbdown. And what a spat between No. 10 and No. 11. The Chancellor has always had a tin ear, but did the Prime Minister not recognise that the NICs change was, in effect, a tax increase on the plumber, white van man, the entrepreneur and women working from home because of children—people who are typically “just about managing” and whose income fluctuates, is low and is often unreliable?

Yesterday, in the Budget debate, the noble Lord, Lord Willetts, spoke of the now discarded NICs change as a way to combat companies that, to benefit from tax arbitrage, push people out of employment into less certain self-employment. I suggest, as I did then, that if the NICs changes had been focused on those companies seeking that tax arbitrage, rather than on the self-employed—manifesto pledge or no manifesto pledge—the response would have been very different. Were the Tory Government following their usual pattern of protecting big companies and big business and hitting the little people?

It is crucial, as I think everyone in this House would agree, that the increase of £2 billion for social care remains, inadequate though it is, being spread over three years. How will the Government fill the gap in the public finances when the Chancellor is so constrained by expected blows from hard Brexit? Can the Minister give us today a guarantee that it will not be filled by more severe spending cuts parts of the public sector already under extraordinary pressure? Do the Government agree that the whole Victorian structure of business and employment taxes needs re-examining? The former BIS Secretary, Sir Vince Cable, is chairing such a review for the Liberal Democrats. Will this Government, among their many reviews, take on frankly a review of similar scope, because it is vital?

When spreadsheet Phil decides to shoot from the hip, we surely have a Government puffed up in hubris. I am afraid that this exactly reflects the arrogance that led the Government to hard Brexit. If they have a tin ear over their own self-employed, how bad is the tin ear that they will take into EU negotiations?

[Lord Young of Cookham]

My Lords, I say to the noble Lord, Lord Davies, that we are reluctant to take advice from the Labour Party on promoting harmony between No. 10 and next door. He will recall that Budget measures introduced by the Labour Government subsequently had to be revised. For the Liberal Democrats, the noble Baroness was cautious enough not to mention manifesto commitments—there are certain issues from her party that would be brought to mind.

We have made it absolutely clear that we will make good the fiscal impact of this decision in the Autumn Statement. We are not minded to borrow more, which has sometimes been suggested. However, in response to the serious issue raised by both the noble Lord and the noble Baroness, I can give a firm assurance that all the spending commitments made in the Budget will be honoured—on skills, on adult social care and on accident and emergency. We stand by those commitments.

The noble Lord asked about universal credit. There will be no change to the entitlement to universal credit by the self-employed. On the broader issues about the Taylor review, there is an issue here—and the Labour Party has recognised it as an issue; it has a commission looking at the issue. I do not think that it would be right to do what the noble Lord suggested, which is to ditch the Taylor review. It is important that we go ahead with it, but we have ruled out certain responses in how we take it forward. But there is an issue here—a threat to the tax base that we need to address.

The Autumn Budget will make good the deficit, in the normal way, so the hole will be filled, and the Chancellor remains committed to sound finance, reducing the deficit and investing in infrastructure and key public services. Those commitments remain as before.

Bank of England and Financial Services Bill [HL]

Baroness Kramer Excerpts

Tuesday 3rd May 2016 Lords Chamber

[Lord Flight (Con)]

My Lords, as I understand it, the proposed arrangements effectively give the Treasury Select Committee a sort of negative veto after the event. Why could this not be more straightforward, with senior appointments such as the head of the FCA requiring the approval of the Treasury Select Committee up front?

[Baroness Kramer (LD)]

My Lords, perhaps I may pick up on the point made by the noble Lord, Lord Flight. The FCA is one regulator. We understand that there is great pressure to move on this issue now because the FCA had lost so much confidence and so many people have questioned whether it is genuinely an independent regulator. However, the PRA, turning into the PRC, is an equal, if not more critical, regulator of our banking system, and of course appointments to the Bank of England—particularly that of governor—are also crucial. Therefore, can the Government tell us why they have not broadened out this change in approach, which is surely just a modernisation and a recognition of the significant interest that Parliament and the country have in these appointments?

[Lord Davies of Oldham]

My Lords, after those contributions I can keep my own fairly short. However, like the noble Baroness, Lady Kramer, I would have thought that this change would have applied in the whole approach of this Government and would have been taken into account when the Bill was drafted. Not only have the Government had strong representations from the Official Opposition and the Liberal party—we debated this matter very vigorously in this House—but it is clear that the Treasury Select Committee had very strong views on this. Ministers are all too well aware of the fact that the Treasury Select Committee contains members of all parties, several of whom enjoy very high reputations indeed—not just the chairman, although he too deserves his high reputation. How is it, then, that the Government should have thought that they could ignore the proper position of the Select Committee in relation to this appointment?

Of course we welcome the sinner who repenteth, and the Minister, I have no doubt, will indicate in a moment how carefully he has considered all issues. But it does somewhat surprise me that it needed such a weight of parliamentary opinion, to say nothing of opinion from outside too, before the Government recognised that they could not possibly put forward this appointment without there being a substantial degree of parliamentary scrutiny.

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[Lord Flight]

My Lords, I welcome the amendment but the issue of PEPs is by no means solved and there is still a lot of nonsense happening. The last ruling by the noble Lord, Lord Deighton, was, interestingly, that PEPs were politicians in countries outside the UK and not within it; that came as a great shock to all of us. The EU rules make it clear that that is not the case and that PEPs are to be treated as domestic. In theory, that includes all Members of this House and the House of Commons and many others. That is completely ridiculous. The bottom line is whether people have the power to engage in corruption. I suggest that Members of this House, or in the Commons, do not have the power to engage in corruption unless they are a Minister.

Banks are criticised, but operating a bank account for a PEP is a complete loss leader, because banks are obliged to always check the source of funds and question any payment into the account. This is completely ridiculous unless you are dealing with people who are potentially corrupt. Where is all this coming from? It is the FCA that is giving out very strict guidelines to banks on how the PEP rules should be implemented. As I understand it, those guidelines are, at the moment, contrary to the Government’s own arrangements and I fear they may remain too demanding in future.

[Baroness Kramer]

My Lords, the kind of language the Government may use in dealing with this in legislation may be limited, but I am very glad that they are taking action. Will they take on board, when talking with allies in other countries, the importance of how the concept of the PEP is handled? I am in the appalling situation of finding that my husband’s relatives in the United States have been challenged on opening accounts because they are related to me. How that relationship was disclosed, I find extraordinary. There must have been an awful lot of trawling through genealogical tables, or else someone is reading my emails. There is a serious issue about how this spreads to the families of Members of this House, of Members of the other place and of others who may rightly be regarded as politically exposed. Their relatives at many distances removed surely cannot be caught in that trap.

[Lord Tunnicliffe (Lab)]

My Lords, I, too, have some sympathy with the concern about PEPs. My bank managed to be very surprised that my son had repaid a debt. There is no question that banks have overreacted in this area. In general, banks seem to overreact to regulation. They do not seem properly to understand proportionality at individual level. It reminds one that one does not have a right to a bank account, and suddenly one realises that one would be a non-person without one. So it is right that we look for some protection for politically exposed persons—who could be in a very widespread group.

However, one must not lose sight of the fact that the Panama papers revealed just how widespread money laundering is and how much of it happens among politically exposed persons. As far as I know, no politically exposed person has been revealed in the UK, but in the wider world money laundering is a fact and it feeds terrorism and corruption.

We welcome this amendment as an effort to produce proper proportionality on this subject, but the balance must be maintained—and, just as we must be concerned about PEPs, we must be concerned about potential crime and the maintenance of public confidence in officials.

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[Baroness Drake (Lab)]

My Lords, I take this opportunity to thank the Minister for meeting my noble friend Lord McKenzie and me to discuss this amendment in detail. I am most grateful for that. As has been said, the amendment places a new duty on the FCA to make rules to prohibit or cap early exit charges that act as a deterrent to people accessing their savings under the new freedoms. This amendment is particularly interesting for two reasons. Unusually, it introduces legislation with retrospective effect on existing contracts and a new deterrent regime in addition to the existing fairness regime in financial conduct regulation—in effect, charges must not be at a level that deters people from accessing their savings.

The Government believe the legislation needs retrospective effect because of the need to protect existing and future consumers, and—more interestingly, when one reads the detail of their proposals—that fairness should not be determined solely by reference to whether or not it was fair to include a term in a pension contract a decade or decades ago, but that it has to be looked at against how unfair contracts legislation has evolved since those contracts were entered into, and through the new lens of the recent pension freedom reforms, all of which arguments I agree with. But given that the Government have taken the decision through this amendment to enable retrospective changes to existing pension contracts and recovery of amounts paid or payment of compensation for charges made in contravention of the new FCA rules coming into force in March 2017, and that the pension freedoms, which provide the new lens for looking at fairness, were introduced in April 2015, I cannot understand why the consumer protection in the new FCA duty does not apply with effect from April 2015. Why is it necessary to wait until March 2017 when the FCA rules are implemented—a full two years after the pension freedoms were introduced—before consumers are protected by the provisions on fair access to savings?

The Minister advised in his letter of 16 March that the Government are introducing this amendment,

“in light of detailed evidence gathering, and an imperative to act quickly in order to limit the extent of consumer detriment caused by early exit charges”.

The Government’s main defence for this two-year gap from April 2015 to March 2017 in protecting consumers is that savers who access savings between these two dates from a scheme whose early exit charges are considered excessive under FCA rules to be implemented in March 2017 cannot have been deterred by those charges and presumably are therefore not in need of retrospective protection. That argument simply does not sit comfortably with the Government’s view that some people are being denied fair access to their savings. It suggests that the new deterrent regime trumps fairness—in effect, if a person accessed their savings they have not been deterred, ergo the early access terms are fair.

There are many reasons why people may access their pension savings during that two-year gap, even though the charges may be excessive. There may be ill health or other compelling personal circumstances that override the deterrent effect. People may not be aware of, or understand, the excessive early exit charges, so do not make their decision on an informed basis. The FCA data reveal that 78% of affected consumers rated their pension provider’s explanation of the exit charge and its level as poor.

In his letter of 16 March, the Minister comments:

“In order to ensure that the provision benefits current consumers who are eligible to use the pension freedoms now … this clause provides that any prohibition or cap imposed by FCA rules applies equally in relation to existing pension contracts, as well as those entered into in future”.

In the light of that statement, it is most unfortunate that the amendment excludes from the protection consumers accessing their savings between April 2015 and March 2017, even though in other circumstances it allows for a retrospective effect.

[Baroness Kramer]

My Lords, I echo the objections just raised by the noble Baroness, Lady Drake. It is quite inexplicable that “retrospective” does not mean that the new regime will be recalculated from the date that people were able to access their pension pots. It seems equally unfair for people to have paid an inappropriate exit fee a year ago as it is for them to pay an inappropriate exit fee a year from now. Has the Minister considered how this will tend to inhibit decision-making by families until the new regulations are revealed? Instead of making the best decision for the family, there will be great pressure to delay that decision until the rules are clearer and, presumably, the exit fees are removed.

The amount of money involved in this process cannot be substantial but to the individual family that has been impacted, it is certainly significant. I really do not understand the Government’s thinking on this issue.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for his early warning of this amendment, for facilitating the meeting with officials and for addressing at that meeting some of the incisive and expert questions posed by my noble friend Lady Drake. As we have heard, the new clause places a requirement on the FCA to make rules to prohibit or cap certain early exit charges in regulated schemes which act as a deterrent to people accessing their pensions under the new pension freedoms. So far as it goes, this should be supported.

As the Minister’s letter of 16 March sets out,

“after the reforms took effect last April, it has become increasingly clear that early exit charges were preventing some people from accessing their pension flexibly under the freedoms”.

This was substantiated by the government consultation and evidence-gathering by the FCA and the Pensions Regulator. This process identified a number of weaknesses in the application of the freedoms policy: not just the early exit charges but a lack of clarity in the process for transferring pension savings and uncertainty around the need for financial advice when making transfers involving safeguarded benefits.

Although early exit charges are not an issue for the majority of those eligible to access freedoms, the Government have concluded that significant numbers of eligible individuals face charges which in absolute or relative terms present a “real barrier” to early access. This begs the obvious question of why this matter was not addressed as a fundamental component of the design of pensions flexibility in the first place. Why has it seemingly come as such a surprise to the Government that these early exit charges exist and could act as a deterrent? This is symptomatic of the rushed nature of the introduction of this policy more generally, which lacked the consultation and consensus-building that have typically characterised good pensions policy development.

It might be argued that before the introduction of the FCA cap—to be in place before the end of March 2017, as we have heard—there has been no detriment because by definition exit fees could not have been a deterrent to the 400,000 times that pension pots have been accessed to date. But it seems that exit fees could be a deterrent, making it less likely, weighed against other factors, that someone would access their pension pot, without these fees being an absolute bar. That is why, as my noble friend has argued, we consider that any capping should be applied not only to existing as well as new contracts but to pensions accessed from the start of the pension freedoms regime in 2015, a point supported by the noble Baroness, Lady Kramer.

Economy: Productivity

Baroness Kramer Excerpts

Tuesday 12th April 2016 Lords Chamber

[Lord Bridges of Headley]

My noble friend makes an extremely good point. Sir Charles Bean recently completed a review of the UK’s economic statistics, and one of his findings was, as my noble friend said, that if the digital economy had been properly taken into account, economic growth would have been one-third to two-thirds of a percentage point higher over the past decade, with similar implications for productivity. However, I stress that that would not explain the UK’s recent poor performance in comparison with other countries, nor why productivity has worsened since the financial crisis, so we are not complacent.

[Baroness Kramer (LD)]

My Lords, the UK’s poor performance on productivity will surely never improve until we get in place the infrastructure—housing, broadband, power and transport—that we need. Will the Government give up or curb their obsession with the budget surplus, borrow at the current zero-coupon rate available to them, stop faffing around with expensive and reluctant private sector and sovereign fund investors, and actually get spades in the ground on the major projects—Hinkley Point being one example—that are at present all suffering delays?

[Lord Bridges of Headley]

My Lords, we are getting going and cracking on with things. I dispute what the noble Baroness says about having a choice between ditching the projected surplus that my right honourable friend the Chancellor has set out and achieving what we are setting out. They are not mutually exclusive. For example, noble Lords might be interested to know that we have committed to the biggest investment in transport infrastructure in generations, increasing spending by 50% to £61 billion in this Parliament.

Bank of England and Financial Services Bill [HL]

Baroness Kramer Excerpts

Tuesday 19th January 2016 Lords Chamber

[Lord Bridges of Headley]

My Lords, I believe it is customary at this stage to thank all those who have helped ease the passage of this Bill through the House. It is fair to say that at times, the passage has not been entirely easy. The list of those I have to thank is therefore long but noble Lords will be glad to hear that I will refrain from an Oscaresque thank you, complete with thanking my mother and bursting into tears, and will simply thank a few people. I thank the Bill team of course, for their excellent guidance and advice, and my excellent Whip and noble friend Lord Ashton, who helped keep me on the straight and narrow throughout. I thank the Governor of the Bank of England, as well as Andrew Bailey and the officials there, and Sir Amyas Morse and officials at the NAO for all the work they did on various parts of the Bill and the negotiations over that.

Those Peers on all sides of the House who were members of the PCBS also deserve my thanks, especially the noble Lord, Lord McFall, and the most reverend Primate the Archbishop of Canterbury, and those on the Cross Benches who made excellent contributions on a range of possible technical issues during the Bill and spared the time to explain to me their thoughts and concerns, especially on the NAO and Bank issue. In particular I thank the noble Lord, Lord Bichard, as well as the noble Lords, Lord Burns, Lord O’Donnell and Lord Turnbull. At one stage in proceedings, one of your Lordships asked for a collective noun to describe three former Permanent Secretaries. The answer is, of course, “a Humphrey”.

I thank my noble friend Lord Naseby for his contribution regarding mutuals, and the noble Baroness, Lady Worthington, for her thoughts on the Green Investment Bank and auditing issues.

Finally, of course, I thank especially both of the Front Benches—the noble Lords, Lord Tunnicliffe, Lord Davies and Lord Sharkey, and the noble Baroness, Lady Kramer—for all the time they spent meeting me and discussing detailed aspects of the Bill. Sometimes we agreed and sometimes we did not. But the discussion was always amiable, civilised and, above all, thanks to their efforts, we did what this House is meant to do, which is to scrutinise and test the legislation.

I said at the start of the Bill that I see this process as a form of legislative acupuncture. At times it was undoubtedly a bit painful, but, thanks to the contributions of your Lordships, the Bill leaves this place in better shape than when it began, and for that I am thankful.

[Baroness Kramer (LD)]

I very much join in the thanks, particularly to the noble Lord, Lord Bridges, for the way in which he conducted the work of the ministerial Front Bench. He was always open to meeting and kept us incredibly well informed—frankly, above and beyond the usual. I extend those thanks to the noble Lord, Lord Ashton of Hyde, and to the whole of his Bill team for the generous way in which they handled this piece of legislation. The Government listened, particularly on one key issue which these Benches were concerned about—oversight of the Bank of England —and the Bill will now be stronger for that.

I have to say, very briefly, that there were areas where the Government did not listen, and we will all live to regret two of them. One is the decision to end the reversal of the burden of proof, which would have had a big impact on the culture of banking, and for the better, and the other is the concern we raised over the independence of the FCA. Both those concerns have been very much underscored by the recent disclosure that the FCA has cancelled its review of the culture of banks and by the timing of the way it did so, just a few weeks after the Bank of England parachuted an executive director into the FCA to supervise this area. So we have concerns, which I am sure will be picked up in another place and by the Treasury Select Committee. But I very much thank those who worked on the Bill and who did so with great graciousness.

[Lord Davies of Oldham]

My Lords, I, too, thank the Minister and his colleague, the noble Lord, Lord Ashton, for the way in which they have conducted the progress of this Bill. We particularly appreciate that the Minister was concerned to arrange meetings at which we could discuss fully, outside the processes of the Chamber, crucial aspects of our anxieties. We were greatly exercised over the issues of the court and its powers and the oversight committee, so we also particularly appreciated the fact that a meeting was arranged for us by the Minister with the chairman or chief officer of the court. That was extremely helpful and it aided us in our consideration of the Bill. So I thank him and his team for their work on the Bill.

I also indicate to the Minister that, as a Lords starter, the Bill has further scrutiny to undertake. He will be well aware that my colleagues in the other place will subject the Bill to intensive scrutiny and will seek to find areas where perhaps the Government can be persuaded to think again, not least on the reverse burden of proof and their position with regard to the court. But this has been a constructive exercise. I suppose that it is the Minister’s maiden Bill and I congratulate him on his achievement as the Bill is about to pass.

Bank of England and Financial Services Bill [HL]

Baroness Kramer Excerpts

Tuesday 15th December 2015 Lords Chamber

[Lord Turnbull (CB)]

My Lords, I am somewhat puzzled by the amendment, because it seems to be a power which the Treasury Select Committee already has and already exercises. I will give noble Lords three examples. It called for a report from the Bank into Northern Rock, another one into RBS, and then—with some delay, appearing only three days ago—finally into HBOS. Therefore the Treasury Select Committee, led by the people who lead it now, does not need this power. It is perfectly capable of forcing the Bank to undertake a review and to reveal the contents to that committee.

[Baroness Kramer (LD)]

My Lords, I have no wish to detain the House. The Government have listened to the concerns that we raised at previous stages of the Bill and in the discussions that the Minister generously agreed to. The amendment that the Government have brought forward does not go as far as we would like but we feel that it addresses the most essential issue, which is the independence of the non-executive directors of the court, and that it provides a mechanism so that they can resist capture by officials of the court. For that reason, we are satisfied.

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[Lord Young of Cookham (Con)]

My Lords, I also welcome the progress that my noble friend has made since we discussed this matter on 9 November, when concern was expressed that we had not got the interface between these two independent institutions in the right place. I was delighted to hear that peace has broken out between these two institutions. My noble friend said that the memorandum of understanding would be published in due course. My noble friend Lord Higgins pressed him a little further. Will it be available during the passage of the Bill, which started in this House and will go to another place, because I am sure that it would be of interest? Finally, does one really need proposed new paragraph (d) in Amendment 9 in the memorandum of understanding? If under proposed new paragraph (c) a procedure has been established,

“for resolving in a timely fashion any dispute”,

why does one need paragraph (d), which asks for a procedure where the dispute has not been resolved?

[Baroness Kramer]

My Lords, I will not detain the House very long. The National Audit Office and the Bank of England are crucial institutions. It is absolutely necessary that both are not only independent but perceived to be independent. In earlier stages of this Bill, we asked that those two organisations should be brought together to come to a common understanding and agreement of how we could go forward. That has been achieved and, with that, we are pleased that “peace has broken out”—to quote what has just been said. It was essential that that should be done and I congratulate the Minister on the role that he played in this.

[Lord McFall of Alcluith (Lab)]

My Lords, I add my thanks to the Minister and others on this issue. I have had a letter from the Comptroller and Auditor-General, who clearly says that the Government listened to many of the concerns at Second Reading and that the threat to his role as Parliament’s auditor has been reduced. That aspect is very important.

The power of veto was one of the first things on which people came to their senses. It was explained to me that the Bank would publish its view when it refused the NAO, to which I said, “Well, it means that it would go before the Treasury Committee, and the NAO would probably go before the Public Accounts Committee”. If the Treasury Committee and the Public Accounts Committee felt that that was not very good, they would probably have a Joint Committee. I think they thought that it was the best idea to drop the power of veto, which was a good outcome.

I accept that the Bank of England’s independence is essential, particularly in the former role I had as chair of the Treasury Committee. That was very important, particularly during the financial crisis. But the democratic accountability element is important. I see this memorandum of understanding not as something set in stone but as something that can adapt to time as we go along. The noble Lord, Lord Higgins, made a point about whether it would be public. I am sure that it has to be public if there is to be credibility. If there is no intention to have it be public, that would be a backwards step on that issue. If it is not going to be public, the Treasury Committee and the Public Accounts Committee need to have sight of this as it goes along. Let us hope that we do not have that second aspect and that the memorandum of understanding is a public document. As the noble Lord, Lord Young, said, it should be here before we finish the passage of the Bill.

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[Lord Ashton of Hyde (Con)]

My Lords, this amendment provides for the Treasury to issue remit letters to the FCA, a measure first announced in relation to both the PRA and FCA in the Government’s productivity plan in July. The Bill already makes provision for the Treasury to issue remit letters to the PRC and the amendment will enable Peers to consider provisions for the FCA and PRC remit letters together. As the House will know, the Bank of England and Financial Services Bill generally relates to the governance of the Bank, rather than the FCA. However, we have been considering the best legislative vehicle for the FCA remit letter provision and have decided that it would sit best alongside the PRC remit letter provision. As to the remit letter’s content, the productivity plan outlined that remit letters will provide information on the Government’s economic policy and will make recommendations about aspects of that policy to which the FCA should have regard. The recommendations in the letters will not be binding and will not compromise, modify, or override the FCA statutory objectives in any way; neither will they relate to individual firms or cases.

As to the timing and frequency of the publication of the letters, we are aiming to publish the first FCA remit letters following Royal Assent for the Bank of England and Financial Services Bill, after which they will be published at least once per Parliament. The letters will be used to provide a steer on the Government’s economic strategy over that period, but letters could be sent more frequently if particular issues arise.

Finally, the Treasury must publish its recommendations and lay a copy before Parliament. I beg to move.

[Baroness Kramer]

My Lords, our one concern with this amendment was that it could in some way compromise the statutory objectives of the FCA as laid down by Parliament. The Government wrote to us with an assurance that that was not their intention. Today, the Minister read into the record the text of the letter. He said that the recommendations would not compromise, modify or override the FCA’s statutory objectives in any way. Given that a Minister’s statement in Hansard is a weighty commitment, we are satisfied with the amendment.

[Lord Davies of Oldham]

My Lords, I was going to make almost exactly the same contribution and my question was exactly along those lines, so I am happy to endorse what the noble Baroness, Lady Kramer, said and look forward to the Minister’s response.

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Moved by

[Baroness Kramer]

14: Before Clause 18, insert the following new Clause—
“The FCA’s competition objective
In section 1E of the Financial Services and Markets Act 2000 (the competition objective), after subsection (2)(e) insert—“(f) how far competition is delivering diversity of provision, including diversity of ownership, geography, community and size.

[Baroness Kramer]

My Lords, once upon a time not so long ago, small local banks and building societies—some of them mutual, some of them not—served our local communities. They knew their local communities, the individuals and the businesses, and were themselves tied to the economic health of that community, thriving only when the community itself thrived. It was not utopia—I think that most of us in this House would not like a loan decision to be made by Captain Mainwaring—but those banks and building societies played an incredibly important role in making sure that we had a sector of banking that supported both the real economy and local development and regeneration. We have lost that layer of banking. The United States and Germany have retained it. During the last, very severe recession, it was notable that that layer of banking provided ongoing funding to individuals but, even more importantly, to small businesses, and a mechanism for the Government to support those small businesses. It also contributed to financial stability. Here in the UK our Government had to go through the most extraordinary contortions to funnel funds to small business.

We need to restore that level of banking. Banking is changing dramatically. Online banking and FinTech are largely disintermediating the big banking sector, which the main high street banks thought belonged to them. Online is very successful. I am delighted to hear that in the third quarter of last year Funding Circle became the third largest lender to small businesses in the UK. That is phenomenal for a company which did not exist five years ago. Although that successful change is coming, there is new competition. For many small businesses, online is not necessarily the answer. They need that partnership which was on offer from a community bank, community building society or community mutual, which could help them through the early stages of development and with many of their difficulties. Very few of the online providers take on that role. I can think only of ThinCats, and it is very small. Therefore, I can see no way in which we can restore that missing layer of banking without an effort by both the Government and the regulator. That is the purpose of this amendment.

The Government often talk about diversity, and I very much support Amendment 15, tabled by the noble Lord, Lord Naseby, which is in this group. But when the Government talk about diversity, they focus on making sure that the regulator treats diverse entities appropriately, which is entirely right. It should not attempt to fill the gaps and deal with the current market failure. I have named one significant area: that of local and community banks.

I am not going to press this amendment today, but I want to make sure once again that this matter enters the conversation, because it is a neglected area. In every conversation I have with government, the Treasury or the regulator, diversity is merely a fashion of regulating particular kinds of business. That does not recognise the significance of that gap and market failure. For that reason, I beg to move.

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[Lord Ashton of Hyde]

My Lords, I am grateful to both the noble Baroness, Lady Kramer, and my noble friend Lord Naseby for raising this important issue. I will take each of their amendments in turn.

The amendment in the name of the noble Baroness, Lady Kramer, would add diversity of provision, including diversity of ownership, geography, community and size, to the list of factors to which the Financial Conduct Authority may have regard as part of its competition objective. The Government agree that access to suitable and affordable banking services is important for communities across the UK. The Government want to see greater competition in our banking sector, with more banks challenging the large incumbents. If communities or entrepreneurs want to set up a bank, either to serve their local community or to compete nationally, and can do so responsibly, Government and regulators should not be an obstacle to this.

This is exactly why the FCA is already required to promote effective competition in the interests of consumers of regulated financial services. We would expect its consideration of competition already to involve not just the number of competitors but the diversity of approach, including geographical location and community. In advancing its competition objective, the FCA may take account of various factors including barriers to entry for new providers of financial services, the needs of different consumers and the differences of businesses.

[Baroness Kramer]

Can I just add one point for the Minister? The FCA has recently completed a review of its competition objective, and he may be surprised to find that the word “diverse” does not occur anywhere in that review.

[Lord Ashton of Hyde]

After this, it will be alert to the need to look at diversity. I will come to how we deal with mutuals in a minute. On the last point about the needs of consumers and the differences of businesses, the statute is also clear that the regulators should recognise the different features of a diverse range of business models when pursuing objectives. This is achieved by the principle of good regulation whereby the regulators must have regard to,

“the desirability where appropriate of each regulator exercising its functions in a way that recognises differences in the nature of, and objectives of, businesses carried on by different persons subject to requirements imposed … under this Act”.

As part of fulfilling the existing competition objective, the Government have worked with the regulators to lower barriers to entry. That is why the Government created the Payment Systems Regulator to ensure all banks can access the payments systems on fair and equal terms.

These reforms and others have already had a significant impact, which I hope answers, in part, the noble Lord, Lord Davies. Between May 2010 and May 2015, eight completely new UK banks, all of different sizes and locations, were authorised by the regulators, including two new banks during this Parliament, with several more in the pipeline. This compares to just one new authorisation of a UK bank in the preceding five-year period. The PRA and FCA will also launch their new bank start-up unit on 20 January next year.

Furthermore, to encourage banks to provide services across a broad range of geographical locations and improve access to finance for small businesses across the UK, a number of measures have been implemented, which I will briefly go through. There is now the SME appeals process and the Business Banking Insight survey. The Government have also established the British Business Bank. These improvements complement another initiative: the postcode lending policy, which has allowed for these alternative finance providers and challenger banks to target regional lending “black spots” through publishing lending data by geographical region. This makes the British banking industry the most transparent in the world.

Given all the activity already taking place in this field, it is the Government’s view that the amendment in the name of the noble Baroness, Lady Kramer, will not add to the existing work being conducted by the FCA. It is clear the regulators already take these factors into consideration when fulfilling their competition objective, so this amendment is unnecessary. I therefore respectfully ask the noble Baroness to withdraw it in due course.

Turning now to my noble friend Lord Naseby’s amendment, I indicated in Committee that the Government looked favourably on the intention behind his original amendment. I now welcome my noble friend’s current amendment, which we are delighted to accept. I am extremely grateful to him for raising this issue, and acknowledge the work he has undertaken in advancing the cause of mutuality. I hope that introducing the amendment, which puts consideration of mutuality and other types of business organisation into both regulators’ guiding principles, reassures noble Lords, including the noble Lord, Lord Davies, that the Government strongly support a diverse financial services sector and the part that mutuals play in achieving it.

Lastly, the noble Lord, Lord Davies, asked whether an amendment was needed to the FCA remit letter to reflect the amendment that we will accept. We do not agree, and I therefore cannot give that commitment, because the provision for the remit letter already allows the Government to make recommendations about aspects of their economic policy relevant to the application of the regulatory principles, which will apply to the principles as amended.

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[Lord Tunnicliffe]

Thank you very much—the implementation of the reverse burden of proof. If I go back to my script, I will get it right.

It is important not to underestimate, as the Government seem to be doing, just how significant a departure this would be from the previous regime, not only symbolically but practically too. There could be no denying the intent and commitment to bring about the most rigorous and thorough regulatory regime if the reverse burden of proof were introduced. We believe that knowing that there is nowhere to hide from failure, and that the burden is on you as a senior manager to prove that you took all reasonable and necessary steps, is a more powerful tool to bring about such change. That is why Labour has tabled this amendment to ensure that it comes into force next March, along with the rest of the SMCR.

We have been prepared to listen to the Government’s defence, and accept that they have put forward a very convincing point about why the reverse burden of proof might not be wholly acceptable in its current form. I speak specifically on the issue of proportionality. Given that the Bank of England and Financial Services Bill extends the scope of the SMCR to the entire financial services sector, we fully acknowledge that exemptions from the burden of proof for those not covered by the original proposals would be entirely sensible and necessary, but we do not regard a differentiation in regime as an insurmountable hurdle to overcome.

Therefore, by way of consensus, if the Government would be willing to indicate their intention to bring forward amendments at Third Reading preserving the reverse burden of proof but making exceptions for smaller firms, we would be open to further discussions. However, if the Government fail to do that, it is our responsibility to stand up for the change that people desperately want to see in the banking sector. It is the difference between reform and the status quo—the difference between the path back to public trust and continued disbelief. It is the difference that we need and deserve.

[Baroness Kramer]

My Lords, I am going to speak only briefly on this issue. My noble friend Lord Sharkey, who is sitting beside me, is perhaps the greater master, with particular expertise of the detail, and I do not think that the House needs to hear the same speech twice. Still, I want to make a few remarks because this is such a crucial issue.

To pick up the point made by the noble Lord, Lord Tunnicliffe, I say that the importance of the reversal of the burden of proof is, above all, its cultural impact—the impact that it has on every chief executive and every head of department to understand that if things go wrong, if there is misconduct and bad conduct within their own department, they are essentially on the line. Historically they have not been, and they know that. This reversal of the burden of proof changes that impact. We can tell that from the many conversations that I keep hearing from the Government that, if there is a reversal of the burden of proof, it might be harder to recruit new people to these posts because of the burden that now sits there.

In a world where we are sure that regulation alone cannot ensure that the banking industry behaves properly, and where enforcement is exceedingly difficult, it is very hard to follow a paper trail when lawyers have been very careful to ensure that one does not exist. There might be no electronic trail either; in fact we have just seen an example of such behaviour by Barclays, which explicitly set up a scheme, for which it has since apologised, which was designed to have no electronic trail whatever. Where the trail is so extremely difficult to follow, what matters is that chief executives and heads of department and other key players lead that cultural change; that they appoint people who will challenge them; that they put people in positions where they will blow the whistle when things go wrong; and that they drive through their whole organisation an understanding of the importance of ethical behaviour and proper conduct. That is the best defence that we can have.

Frankly, government arguments for cancelling the reversal of the burden of proof—the sort of argument for a key reason—have constantly shifted over the past few weeks when we have been discussing this issue. To gather from the last set of conversations around this issue, the argument is now primarily that the senior managers regime, which identifies who is responsible for different activities and different tasks, is both much tougher than the existing regime and much tougher without the reverse burden of proof rather than with it.

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[Baroness Kramer]

I will just make a point of clarification, because a number of noble Lords have made this comment. The reversal of the burden of proof applies not to a criminal offence but to a civil offence.

[Lord Brown of Eaton-under-Heywood]

With respect, as I understand it, this is a punishable offence; therefore it is a criminal offence. I certainly understand that it is proposed that this offence should be on the statute book to bring blame on those who commit it and lower them in the estimation of the public so that a conviction or finding of guilt under this provision would be to their considerable disadvantage. I have little doubt that Article 6 would apply to how one proves this breach of the law. There is nothing very new in this either. The golden thread that for centuries has been said to run through our law is that it is for those who accuse to establish a case against those who are accused.

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I was a member of the Parliamentary Commission on Banking Standards. I signed up to its proposal, but I believe that the proposal now in the Bill is superior. Many philosophers have said, “Second thoughts are often best”—although I learned from Wikipedia that the noble Lord, Lord Skidelsky, claims that Keynes never actually said his famous dictum, “When the facts change, I change my mind. What do you do, sir?” But many other people have, including Cicero. This is a time to follow that dictum. In this case, second thoughts are best. I hope that the House will reach the same conclusion as I have put forward and not support the amendment.

[Baroness Kramer]

Perhaps I may ask a question of the noble Lord, Lord Turnbull. The FCA stated just over a week ago:

“The FCA may take disciplinary action against an individual where there is evidence of personal culpability on the part of that individual”.

Where does that differ from the regime before any of this is introduced?

[Lord Turnbull]

That is not exclusive. Elsewhere, there is still a duty of responsibility. There is still personal culpability where it can be proved, but there are many people to whom it does not apply—senior people—and, there, you will need to have recourse to the duty of responsibility to secure a “conviction”—that is, proof of regulatory breach.

Banking: Financial Crime

Baroness Kramer Excerpts

Wednesday 2nd December 2015 Lords Chamber

[Lord Bridges of Headley]

My Lords, I echo the point made by the noble Lord, Lord McFall: the financial companies face severe financial penalties. Furthermore, a new criminal sanction was created by the previous Government for those who manage firms in a reckless manner.

[Baroness Kramer (LD)]

My Lords, the sophisticated and complex money laundering scheme for nearly £2 billion of Middle Eastern money is unlikely to have been a one-off. What assurances can the Minister give the House that this transaction and others like it were not using funds from terrorism or that the funds generated were used for terrorism?

[Lord Bridges of Headley]

My Lords, I am sorry but I cannot go into greater detail on that point. However, I draw the noble Baroness’s attention to the fact that, under the FCA’s rules, money laundering reporting officers will have to be senior managers. The FCA will also require firms to allocate overall responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime to an approved senior manager, who could be the MLRO but does not have to be. This will ensure that there is accountability for financial crime matters at the top executive level.