Economy: Effect of US “Fiscal Cliff” Solution

Baroness Kramer Excerpts

Tuesday 8th January 2013 Lords Chamber

[Lord Newby]

I think the noble Lord slightly overstates it. The fiscal cliff—elegant or inelegant—has been avoided and the expectations and the forecast for the US are that it will see relatively modest, but substantive, growth in 2013. As the noble Lord will know, the latest employment figures in the US suggest that there has been a significant addition to the number of people employed. Therefore, the chances of the kind of meltdown in the US economy that he is worried about look extraordinarily remote.

[Baroness Kramer]

My Lords, the US faces an even worse fiscal cliff in seven weeks. As the British Government are unlikely to have much impact on Republicans infused by the Tea Party, I suggest that it would be a better strategy for this Government to put their efforts into getting formal negotiations on EU/US trade in order to take away the technical barriers that the US is using at the moment to limit UK exports in pharmaceuticals, medical services and advanced electronics. That might be a more positive way forward.

[Lord Newby]

My Lords, I completely agree with the noble Baroness. That is why the Prime Minister has set promoting a US/EU trade agreement as one of his top priorities for the G8, as well as moving forward on other trade agreements, such as that with Canada, which are already a long way down the pipeline.

Taxation: Avoidance

Baroness Kramer Excerpts

Tuesday 11th December 2012 Lords Chamber

[Lord Naseby]

My Lords—

[Baroness Kramer]

My Lords—

[Noble Lords]

Order!

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[Lord Newby]

We need a greater degree of international agreement and that is why, along with France and Germany, we have just contributed an extra €150,000 to the OECD’s work to change the basis of accounting. We can do only a certain amount ourselves. It would be a counsel of despair to say that we cannot change the rules; the rules exist and can be changed.

[Baroness Kramer]

My Lords, I am glad that the Government are ending Labour’s indulgence to business on tax issues but, like many others here, I would like to play a part with my purchasing power. Is there a way we can find out who the good guys are so that we do not have to use the likes of Amazon, Google and Starbucks and can transfer our business elsewhere?

[Lord Newby]

The Government have yet to establish a good guys’ website but it is an extremely good idea. In the mean time, I suspect that the noble Baroness will just have to read the newspapers.

United States Budget: Economic Impact

Baroness Kramer Excerpts

Monday 10th December 2012 Lords Chamber

[Lord Newby]

Earlier this year, in relation to the US and UK economies, he said that,

“our objectives are common, which is we want to make sure that we have … governments that are lean, that are effective, that are efficient, that are providing opportunity to our people, that are properly paid for so that we’re not leaving it to the next generation”.

[Baroness Kramer]

I ask the Minister not to emulate the US fiscal cliff and to go for certainty in British fiscal and economic policy. However, does he not agree that British exporters should be careful not to overreact to either the fiscal cliff or the eurozone crisis? In the Autumn Statement, there was more than £1.5 billion in additional government support for exports; should not businesses both small and large be seizing those opportunities—and seizing them now?

[Lord Newby]

I absolutely agree. The challenge now is for exporters to continue exporting in markets where they already do that. For example, our exports to the US this year have increased by 4% and are therefore still exploiting existing markets. However, in addition, the key is getting more companies exporting to the newer markets. That is why the increases in exports to China, Brazil and India over the past two years have been so significant.

Banking: National Savings & Investments

Baroness Kramer Excerpts

Wednesday 5th December 2012 Lords Chamber

[Lord Peston]

My Lords—

[Baroness Kramer]

My Lords—

[Noble Lords]

This side!

[Lord Sassoon]

My Lords, there are 26 million savers with NS&I. We take their interests very seriously. They have over £100 billion invested. It is one of the largest savings organisations in the country, and that will continue.

[Baroness Kramer]

My Lords, I would like to challenge the Minister’s comments on NS&I. Funding for Lending is a taxpayer-driven programme which has created the collateral damage of allowing banks to cut the interest rate that they offer on savings products, and NS&I has had to follow by cutting its interest rates on savings products. At this time, when savers are under such pressure, could the Minister consider lifting the best-buy restriction so that NS&I could start leading the industry back into paying decent savings returns rather than following the industry on a downward spiral?

Financial Services Bill

Baroness Kramer Excerpts

Wednesday 5th December 2012 Lords Chamber

[Baroness Cohen of Pimlico]

I, too, am supporting a government amendment, though one that is not nearly as dramatic as that secured by my noble friend Lord Mitchell, whom I congratulate very much not only on doing it but on the thoroughness of his research. He actually took out a loan with one of these companies, an act of true heroism that I hope will not result in his being deluged with peculiar financial products for the rest of his life.

In welcoming this amendment, I remind the House once again that I am a non-executive director of the London Stock Exchange. I very much welcome the Government’s amendments to the powers of direction and the spirit of engagement that HM Treasury and the Bank have offered in dialogue on these matters, and which I know the industry will look to continue. The amendments provide useful further context for the use of the power. They put it mostly outside the scope of a day-to-day power, and reassure us that it will be used only when it is reasonably necessary to do so.

That said, it would be very helpful if the Minister were able to offer any further thinking on the circumstances in which it is envisaged that this power would be used, and took this opportunity to give us his vision for co-operation between HM Treasury, the FCA and the PRA in advising on the powers. All relevant authorities, particularly the Financial Conduct Authority as the market regulator, will need to consider the wider market impact of any proposed direction by the Bank.

Finally, the announcement that the Bank will be consulting on its supervisory approach before the end of the year is very good news. That will be an excellent opportunity for it to explain the intended circumstances under which the Section 296A power would be used, and more generally, I hope, to give an account of the Bank’s approach to capital requirements for clearing houses.

[Baroness Kramer]

My Lords, I rise with a question for clarification for the Minister. Is the net effect of this amendment to make it clear that the owners of the platform that is clearing derivatives—one of the central clearing platforms—are exposed only to the extent of the loss allocation that is defined in their membership agreement; and that, beyond that, the Government will not, in case of a failing platform, force other platforms to take on open, out-of-the-money contracts? If that is so, is the Minister in effect saying that the backstop for the collapse of an exchange is effectively the taxpayer? I ask that not in criticism, but for the sake of absolute clarity.

[Lord Fraser of Carmyllie]

My Lords, I declare an interest as a director of ICE Clear Europe, and I warmly welcome this extremely valuable amendment. It seems to go wider; noble Lords may think that it is a narrow amendment, but they have no idea what a sense of confidence it has given to the City at this time. I regard that as very important.

During the 1970s, we generally regarded the Foreign and Commonwealth Office as having the function of managing orderly retreat. Now we have absolute confidence that within the Treasury there is a very clear understanding that it will look after the best interests of the City of London and the pre-eminence of the City. It is a difficult task and I do not underestimate how important that is. The amendment is to be warmly welcomed. Noble Lords may think that it is minor, but it does a great deal more than simply to change the position of the clearing house and the direction.

I have one simple question, and I will not be worried in the least if the Minister slaps me down. Amendment 20 says,

“to accept a transfer of property, rights or liabilities of another clearing house”.

Does that refer only to a clearing house that still operates as a going concern? Frankly, I would regard that as unlikely. It is much more likely that the Bank of England would want to intervene at a point when it was in administration or in the process of liquidation. If I am told that that line encompasses all those particular circumstances, I will be more than happy to be told to shut up.

Autumn Statement

Baroness Kramer Excerpts

Wednesday 5th December 2012 Lords Chamber

[Baroness Kramer]

My Lords, this may be my only opportunity to pay tribute to My noble Friend Lord Sassoon before he steps down from the Front Bench, so let me do so. As any Minister, he will have expected fire from across the Chamber, but he has also had fire from over his right shoulder on occasion, and he has dealt with it extremely graciously. For many of us, the test of a Minister is how he and his team deal with Back-Benchers. Based on that test, he has been a superb Minister and we will miss him.

The Statement that the Chancellor presented to us today meets the test of being both tough and fair. It is remarkable that, despite the economic conditions that we face, the deficit is still reducing, which will have surprised many of the pundits but I am sure will have pleased this entire House.

As a Liberal Democrat I am most pleased about the decision by the Government to lift the threshold of the starting rate of tax one more time to £9,440. It was utterly unexpected. When this Government came in, that threshold was £6,475. To its credit, the coalition committed to raising it to £10,000. We are only half way through a Parliament, but it is at this point only £560 below its target. The impact is something like £600 more in the pocket of ordinary working people and more than 2 million people taken out of income tax altogether. In this time of economic stress, that is a phenomenal achievement. The Government should be congratulated.

I was pleased that the welfare cuts were well below those that were anticipated; I can see I am being asked to move to a question very quickly, so I will ask one in this way. Growth, as we all know, is now the holy grail that we attempt to achieve for this economy. Does the Minister agree that it now utterly depends on access to credit for the businesses that make up our economy? Will he commit to making sure, when he talks to his Treasury team, that the restructuring of the banks allows a new competitive environment with new entrants and new players that can deliver the kind of credit we need to the small businesses that are the backbone of our economy?

[Lord Sassoon]

My Lords, I am very grateful to my noble friend for her generous remarks and for her support since she has been her party’s spokesperson on the economy. The two parties are joined at the hip when it comes to the key economic work and all the other work of the Government. Importantly, she reminds us of a critical part of the Autumn Statement: raising the tax threshold to the benefit of 25 million people. That is very important.

On credit and access to credit, I draw the attention of the House and my noble friend to the comments of the OBR today. Its judgment is that the funding for lending scheme will lower rates for credit but increase availability. I very much share my noble friend’s concern to see a more competitive banking landscape emerge. In that context, it is interesting to note that the funding for lending facility is being taken up and having a disproportionate effect on some of the new challenger banks. I hope that that continues and that they continue to be able to increase their lending responsibly off the back of that scheme.

Financial Services Bill

Baroness Kramer Excerpts

Wednesday 28th November 2012 Lords Chamber

[Baroness Coussins]

My Lords, I add my support to the amendment introduced by the noble Lord, Lord Mitchell. I declare an interest as president of the Money Advice Trust, which is a charity that helps people across the UK to manage their debts. It does that by offering free advice through the National Debtline and by supporting advisers in the free advice sector.

So far this year, the National Debtline has taken more than 15,000 calls already from people struggling to repay payday loans. In the whole of 2011, it took 10,000 calls for help with payday loans, so that represents a staggering growth rate. Indeed, over the past two years, there has been an increase of 268% in the number of callers asking for help on payday loans. A telephone survey conducted by National Debtline also showed that the OFT guidance is not being followed, notably the part that states that creditors should make a reasonable assessment of whether a borrower can afford to meet repayments in a sustainable manner. The same survey showed that 66% of clients said that their lender had not conducted an affordability assessment.

This is not the right time to go into detail about what the FCA rules should be, but I suggest that they should certainly include a mandatory breathing space, with a freeze on interest and charges, if people are experiencing financial difficulty and have notified their payday lender that they are seeking support from a debt advice agency. In practice, by contrast, there is evidence of letters and requests to cancel CPAs or to freeze interest and charges being ignored, and debt advice agencies bypassed. The recent Citizens Advice conference highlighted examples where payday lenders had routinely refused to engage with advice agencies, had not answered letters, had refused to freeze charges and had not stopped CPAs even when requested to do so. I have sat in as an observer on calls to the National Debtline and witnessed the distress of people in debt as a result of payday loans. The powers for the FSA being sought by this amendment would be a small but very important contribution to the prevention of yet more unaffordable debt that ruins lives.

[Baroness Kramer]

My Lords, almost without exception this House has spoken and is speaking with one voice on this issue. In the United States it is quite common, when an important piece of legislation goes through, to name it after its sponsors. Whether this is the Mitchell-Sassoon amendment or the Sassoon-Mitchell amendment, it will have a very big impact on people’s lives.

However, it is important that the FCA, in the language that is already in the Bill, has the powers to do the acts for which the amendment calls. An amendment such as this ensures that the point is highlighted—that it is understood and not lost—because the FCA will have a wide range of areas to address. In the Bristol study that was commissioned and which we will be reporting in the next few weeks, the FCA and the Government demonstrated a very high level of concern around this issue, and the need to get underneath it to really understand the dynamics.

The importance of ensuring that the clause is an enabling one was well illustrated by the noble Baroness, Lady Coussins, a moment ago. There are many very complex issues around this that will need very direct attention. The devil will be in the detail to ensure that the amendment is effective in the way that the House desires, and that it does not create the opportunity for loopholes. We are talking about an industry that will game legislation if it has the opportunity.

I will pick up the issue that was addressed by the right reverend Prelate the Bishop of Durham, because it is hugely important. Almost all of this will be for naught if we do not ensure that there are appropriate sources of credit for those who need it at a reasonable price. The issue that the House is facing today has been neglected over decades; it is a challenge that the Government are picking up. It means that the clauses have to stand together with those that lower barriers to entry and which enable the community—whether social enterprises, charities, businesses, local authorities or whatever—to come together and take the initiative to build up the sources of finance that exist in many other countries.

The noble Lord, Lord Mitchell, talked about the constraints on payday lenders in the United States. One of the most powerful constraints is that there are community banks where individuals can get credit on reasonable terms. That is a far stronger constraint on any payday lenders in the United States than legislation could be. That is what we need here: the opportunity for market constraint. However, I congratulate all sides on coming together to be effective for some of the most vulnerable people in our community.

[Lord Kennedy of Southwark]

My Lords, I, too, congratulate my noble friend Lord Mitchell, the right reverend Prelate and other noble Lords for bringing forward this amendment today. I also pay tribute to the Member for Walthamstow in the other place, who has done more than anybody else to bring forward this issue. I would like clarification from the Government on the amendment that they will bring forward at Third Reading. Will it enable interest rates to be capped? That is key here; the cost of the charges and the interest rates levied are the nub of the issue. If that matter is not dealt with, we will unfortunately be back here at Third Reading and all sides will be very cross about it. Will the Minister clarify that?

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[Lord Hodgson of Astley Abbotts]

The noble Baroness leapt to her feet very quickly. I know that the House is like a horse running for the stables, and I will not detain the House long. I support my noble friend’s amendment. As regards money-laundering and transferability, I would like to pick up a point made by the noble Lord, Lord Newby, in replying to the debate on 24 October, when he talked about the transferability of direct debits and how that works as regards the Payments Council initiative.

I am afraid that this again involves the charity sector. There is general agreement that there are far too many charities and that many ought to be closed down. There are many thousands of shell charities, which are the result of mergers. There has been a perfectly proper merger and there was no problem as the Charity Commission, the trustees and the lawyers were all happy with it. However, when you ask why this shell charity remains, it is because the banks will not accept the transfer of standing orders and direct debits to the new, enlarged charity. The charity then has to go through the process of asking every single direct debit and standing order signatory to re-sign. Administratively, that is an extremely complicated process and many of course decline to do so.

I am not asking my noble friend to reply tonight but I say this in the hope—it is probably a forlorn hope—that the Payments Council is listening to this debate and might therefore see whether it can find some way to enable this administrative inefficiency to be dealt with. That would enable some of these shell charities, which no longer need to exist and exist only to collect direct debits and standing orders, somehow to be subsumed into the new charity of which they are now a part.

[Baroness Kramer]

My Lords, I will intervene only for a moment but in case the Government are unable to meet the hopes of the noble Lord, Lord Flight, and others today perhaps I might say that I chair the sub-panel of the Parliamentary Commission on Banking Standards which is looking at competition in retail banking. Account portability is a significant part of that and the staff are now on the alert to take the report of the comments made today in Hansard and make sure that it and the amendments are put before the panel’s next meeting

[The Earl of Erroll]

My Lords, this is a very sensible amendment and it should be accepted. I also agree with the comments of the noble Lord, Lord Hodgson, that it ought to be applied to all accounts. We have had to leave some family accounts open just to receive some old shares and such things coming in because we cannot really get around to changing them. If we could change them at the bank end, it would make a lot of sense.

Financial Services Bill

Baroness Kramer Excerpts

Tuesday 20th November 2012 Lords Chamber

To sum up, some of these amendments—not all—give the clear impression of having been prepared in haste, with crucial elements being left until later. Some of the work has been well done, some of it less so. This is particularly and disturbingly true with respect to the operation of the new scheme for setting benchmarks that these amendments seek to establish around Amendment 80. We on this side have tabled constructive amendments to deal with that particular weakness, and I hope that the Government have the good sense to accept them.

[Baroness Kramer]

My Lords, this is an important piece of legislation, and I very much welcome it. I think that this House, along with the rest of the country, was shocked at the manipulation of LIBOR. It may have had the silver lining of at last persuading the banks that they had to take reform seriously, but certainly it was a stain on the reputation of the City and it put further in danger the economic recovery and the financial services industry in this country; so it was significant.

I think that in this House generally, and certainly among my colleagues, we very much welcome the Wheatley review. I was able to be at the launch of that document in the City. There were many present who were from outside the UK, and the consensus in the room was, “He has basically cracked it”; that Wheatley had found the mechanism and a series of reforms that could give us a LIBOR measurement that was clean, that would be respected and that could contribute to the purpose that LIBOR has served in rate-setting for many documents, instruments, investments and loans across the globe. I think that the attempts to put the necessary legislative pieces in place are well reflected in the document that we have in front of us today.

I have just a few questions for the Minister. Like others, I am somewhat concerned about the breadth of the general statement on benchmarks. LIBOR is not mentioned specifically anywhere in these amendments, so in breadth and scope it has about it a certain air of ambiguity. We suffer, of course, because this comes late in the process of legislation and therefore is not accompanied by the notes that would have been available and would have provided much further discussion had this been part of the original document. There are many issues. As the noble Lord, Lord Eatwell, said, some people will look at the manipulation of the gas market and wonder whether that can be encompassed by this legislation; others will wonder whether the FTSE 100, which is an index used in a number of investments, could be encompassed. One could go through a fairly long list. Would the Minister be willing to put in the Library, through a letter or a note, some record that gives us a grasp of the scope of the use of benchmarks in the context of this document? That would be extremely helpful for everybody, and there would be something in the official record that we could turn to.

Unintended consequences are a feature of legislation, and in this area I think that we have had too many unintended consequences of various people’s actions. So it is important that it does not happen in the context of this piece of legislation.

I am very glad that we have language in here that gives the FCA the power to deal with, in effect, the freeloaders—those who benefit from the setting of the LIBOR rate but who, because they wish to keep their own particular credit standing secret, do not participate in the rate-setting process. I wonder whether there is any further guidance or if the Minister can help us understand what he would see as the scope for the FCA to identify those potential freeloaders. Are we continuing to look only at major institutions? Perhaps there might be some reassurance to minor institutions that would be a little nervous of being caught within this net.

Another issue that has been raised is how we cope with European legislation or directives coming down the track. We are all aware that Monsieur Barnier is looking at these matters, but I did not quite understand—and perhaps the Minister could clarify—whether or not secondary legislation will be delayed until there is some clarity on the issues that Barnier is raising, or whether we will proceed with secondary legislation with the idea that it can then be amended if there turns out to be a significant gulf between the secondary legislation that we put forward and the rules emerging from the European Union. In this context, LIBOR is a significant international benchmark which needs international respect. It should not become a football or subject of a battle between the UK and the EU that is driven by other issues. It is important that it serves the broad purposes of the financial services industry, and I therefore see no shame in encompassing the concerns and thoughts of those outside the UK in shaping LIBOR as we go forward.

All of us in this House will be absolutely delighted that there is finally an offence for which people can be investigated, prosecuted and serve time, as well as be fined. There was shock throughout the House that the manipulation of LIBOR was not subject to prosecution under existing statutes on fraud and the consequent penalties. I congratulate the Government on making sure that that part of the Wheatley review has been well incorporated into this process.

I wish to make a couple of comments to the noble Lord, Lord Eatwell. I, too, am interested in the tender process that will lead to an administrator for the LIBOR-setting process, but he asked why it should not be a public body. I remind him that Barclays noticeably prayed in aid its conversations with the Bank of England in the attempt to justify the LIBOR manipulation. It is important that whichever body is involved in rate setting should be very clearly at a distance from the regulator and from any political body in order that we avoid a repetition of that attempted contamination. I have therefore been supportive of the idea that this will be a tender to a private entity. The noble Lord is quite right to say that we have to understand whether or not there are conflicts of interest because there is the thought that the most likely parties to tender for such a process might also be very involved in producing financial instruments on the other side, but not necessarily so. I also understand the need for flexibility in this issue. The complexity of making sure that the use of LIBOR in many existing documents is not disrupted by the changes we make is absolutely crucial. That is surely a level of granularity that cannot possibly be dealt with in primary legislation and has to be left to the flexibility of both the rule-maker and secondary legislation.

I very much welcome the legislation in front of us. Let us hope that this is the beginning of the end of a very unfortunate experience in the history of financial services in the UK.

[Lord Barnett]

My Lords, this debate began with the clear statement that we should abide by Committee-stage rules. I am sure that noble Lords will be as surprised as I am at the definition of Committee-stage rules in this debate. I thought we were debating a Second Reading, but forgive me if I misunderstood. I, like my noble friend Lord Eatwell, very much agree with the Government on wanting to introduce Wheatley. That review was excellent and well deserved our support. What I am worried about is the way that the Government have decided to implement it.

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[Lord Sassoon]

If I ever get to the amendments in the name of the noble Lord, Lord Eatwell, we will get to that point because it is raised by one of them. It is completely clear that the FCA will have the power to act as the administrator of the benchmark in question, if necessary. That is in the FCA’s general powers. It does not need to be written into these amendments, but I will address that when I talk about the noble Lord’s amendments. Within the FCA’s general powers it is absolutely clear that it has the vires to step in and act as the administrator, if that is necessary in a market context.

I should address the scope of the offences. The first question was whether LIBOR should be limited to the UK. What is proposed in these amendments reflects the current approach in Section 397 of FiSMA. It surely must be right that UK authorities can act only where misconduct has some connection with the UK. We have a very clear approach to extraterritoriality in our legislative framework. The amendments take a broad approach within the UK’s normal approach to these matters. There has to be a connection, which may be any of a statement made in or from the UK, a person at whom the statement was targeted being in the UK or a relevant agreement being entered into in the UK. Within the normal constraints about extraterritoriality, in which we would expect certain offences of the sort that the noble Lord postulates to be prosecuted by the US authorities, we have nevertheless drawn the connection with the UK widely as it is currently drawn in Section 397.

The noble Lord, Lord Barnett, is perhaps suggesting that he does not want the offences to be retrospective. I think that raises slightly wider questions, even in the case of LIBOR. We do not need to go into the human rights basics. I am glad if, on reflection, the noble Lord, Lord Barnett, accepts that.

[Baroness Kramer]

On a point of clarification about the offences, I fully understand that with LIBOR, which is a London-set rate—that is its whole point—it is a UK-originating offence. If, for example, one of the contributors providing a misleading statement was the subsidiary—or who knows what the structure is?—in the structure of a holding company incorporated in another country, I assume that what the Minister has described would enable the UK investigation and prosecution to follow that trail through to the originating parent, if that were the relevant party involved in the misleading statement or impression. Is there an argument that says that because this can be applied to many more benchmarks than just LIBOR, it would be appropriate to give the UK the opportunity, where investors in the UK were disadvantaged by a manipulation happening somewhere else—perhaps relating to oil prices, for example—to be able to follow and fine in the way that the US can follow and fine for offences that originate in the UK and are limited to US residents? I am getting extremely muddled about this entire process, but I think the Minister gets the sense of what I am trying to say.

[Lord Sassoon]

I would never accuse any noble Lord, least of all my noble friend, of ever getting muddled, other than accusing myself. The basic construct is that we do not as a general principle take the same approach to extraterritoriality as the US does. The US takes a unique approach to extraterritoriality and that has raised a number of extremely difficult cases in recent years where Members of Parliament in both Houses have raised questions about whether the UK should acquiesce to the US approach. I certainly do not think that we should be using this discussion as a way of opening up the question of whether the UK should take a different approach to extraterritoriality. The fact is that the US takes a different approach, and that is how it is.

What we are doing for this benchmark issue is to draw the offence and the connection to the UK in precisely the way in which it is done for the generality of offences under FiSMA, which by UK standards is a pretty broad definition. I shall not read them out again, but I read out the three different conditions that could apply and that is on the record. I suggest that the House would not want to put some special definition of territoriality and extraterritoriality into this offence as opposed to all the other criminal offences within the financial services arena. I hope my noble friend will accept that general principle. For the moment, I think she does.

Property: Commonhold

Baroness Kramer Excerpts

Monday 19th November 2012 Lords Chamber

[Lord Newby]

My Lords, the initial £700 million consists of a commitment by a significant number of pension funds to put in £100 million each as a starter. We are working very hard with them to scale up the programme, but it is a new programme. Pension funds have never done this kind of thing before and, not surprisingly, they want to dip their toe in the water before they immerse themselves more fully. I am very confident that they will see this initial £700 million as an effective investment, and then they will rapidly scale it up in the way that the noble Lord wishes.

[Baroness Kramer]

My Lords, I declare an interest in that I am a tenant in a flat in a mansion arrangement such as that described. Surely, moving into mansion flats is very attractive for couples or individuals when they are downsizing, which therefore frees up the whole of the housing chain. Will the Minister encourage the relevant department to look at strategies for encouraging commonhold so that this move is not discouraged by the endless confusion over freehold and leasehold? Perhaps there could be talks with Core Cities to encourage developers to follow these kinds of policies as a way to make more housing available all through the spectrum.

[Lord Newby]

The Government and I will be very happy to make that commitment. The problem with commonhold is that virtually no one knows what the word means. Since being asked this Question, over the past week I have asked a number of housebuilders and senior chartered surveyors whether they thought that it was a good idea. More than half of them said that they did not know what it was. There is a big education job to be done.

Very often the management of mansion blocks is by a management company in which each leaseholder has a share. At their best, they can work very effectively and are almost identical to commonhold, but clearly there are ways in which we can improve how those blocks are managed.

Financial Services Bill

Baroness Kramer Excerpts

Monday 12th November 2012 Lords Chamber

[Lord Sharkey]

I support Amendment 27 and I am grateful to the Minister for bringing it forward. It is a significant and important change. As we discussed in Committee, we believe that the question of ease of access to financial services is key to a proper and robust regulatory system. Ease of access to financial services absolutely needs to be a factor in any consideration of whether competition is effective or not. Nowhere is this more true than in areas of social and economic deprivation. There is already evidence of market failure in precisely these areas, to which we will return in some detail with Amendment 28A.

I am very glad to see that in this amendment the Government propose to put explicitly into the Bill consideration of ease of access to financial services in areas affected by social or economic deprivation.

[Baroness Kramer]

My Lords, perhaps I may add a word. Frequently when I get to my feet in the debate on this Bill, it is to criticise the language being used by the Government. In this case, I want to express real pleasure at what is now becoming the “access clause”. As others have said, this is quite a big step forward for the regulator. The original concept of the role of the regulator was financial stability, guarding against anything that would challenge financial stability and looking out for and dealing with market abuse, partly because the language in the Bill has been very much driven by the appalling experiences of the financial crisis of 2007.

As time has gone on, it has become more and more evident that we also have an underlying problem with market failure. I am one of the many who think that when market failure occurs, in some way the regulator must be engaged in that process. The banking institutions take notice of the regulator in a way which they will never do either of BIS or the Treasury. If you look at other countries, the United States is a very good example where the regulator is absolutely key in tackling issues around market failure with the consequence that even in the most deprived communities of the United States, a range of products is available to individuals and small companies which, frankly, we can only dream of in the UK. We will be going on to the data issue later.

I am on the Parliamentary Commission on Banking Standards, as are others here including the right reverend Prelate. I, too, will take this opportunity to offer congratulations. I think that in this House we are all thrilled at his role of designated leader of the Church of England. However, the whole issue of socially useful banking has been absolutely key. This access provision in many ways deals with, or takes on, that issue of socially useful banking. It makes sure that there is a role for the regulator to look particularly at areas of social deprivation—but it is broader than that—to ensure that there is genuine access to financial services. In today’s world, without financial services, it is very difficult to live successfully as an individual and even harder to begin to thrive as a small business.

I very much want to congratulate the Government on a forward-looking amendment, rather than one that simply responds to the crisis of 2007.

--- Later in debate ---

[Baroness Noakes]

My Lords, I hear what the Minister said about the drafting of Amendment 26 not referring to social investment or anything like that. As drafted, however, it says that the things which the FCA must take into account include,

“the differing expectations that consumers may have in relation to different kinds of investment or other transaction”.

Read as it is, that seems to require the FCA to take account of consumers’ expectations, whether or not they are reasonable. So if consumers have unrealistic expectations about what they will have in return from their pension investment, for example—and that is a fairly widespread misconception—because the Government have chosen to use this unspecific form of drafting this could quite easily be interpreted as applying to expectations that operate in a quite different sphere from that intended. While the Government might say that it is intended only for social investment, these are clear words; they do not need any other explanation from the Government to make them understandable. It may be dangerous in its current drafting to leave it without the reference to social investment that my noble friend’s Amendment 31 has. His amendment is clearly rooted in what it is that is trying to be achieved.

[Baroness Kramer]

My Lords, I just want to join in the chorus that essentially says to the Government that we appreciate the move forward that comes with their amendment. I am very supportive of the noble Lord, Lord Hodgson of Astley Abbotts, and his thought process over Amendment 31. It has tremendous overlap with Amendment 26—and I think that I can be very happy with Amendment 26 today. But the financial promotions order issue is going to have to be tackled. I would like to reply very briefly to the noble Lord, Lord Flight, who suggested that a social investment should be marketed only to sophisticated or high net worth individuals. The kinds of projects involved in social investment may be an extension to a local school, or a resettlement programme attached to a local prison. It is quite likely to be a small project—that is the whole point—of the kind that cannot afford to go and get regulated so that it can be marketed to the general public. It is the kind of project of £1 million or £2 million, which cannot pay the £150,000 that would put it into a regulated environment so that it could be marketed to the general public. The whole point is to provide those people with an alternative who, typically, might be asked to donate to a local project, so that they could invest in that local project. You are talking about people who would be close to the project, understand the community and perhaps even engage themselves in the work that the community does. So we are looking at a very different range of projects when we talk about social investment.

Although the language is very tricky and I recognise that it will not be easy, at some point the Government will have to get a grip on the financial promotions language and find a way to craft it so that it can be sold appropriately to people who know and understand what is going on but will never meet that benchmark of being a high net worth individual or a sophisticated investor. They might put £1,000 or £2,000 into a project, or perhaps even £50 or £100. At the moment, they are barred from doing anything other than donate, which seems reasonably insane when we look at the kind of projects that are involved.